Is Buying a Townhouse a Good Investment?

The number of people renting homes today is the highest that has been seen over the past half a century. It’s estimated that more than 30% of Americans are leasing, which highlights the potential of investing in real estate in terms of rental income. 

For many investors, townhouses are attractive investment vehicles because they have low maintenance costs, come with several communal amenities, and are relatively inexpensive. What’s more, because they come as package deals with land included, investors can expect their value to appreciate over time. 

There’s no better time for real estate investors to invest in strata-titled properties such as villas or townhouses. So if you’ve been wondering, “Is buying a townhouse a good investment?” then stick around as we take a deep dive into townhouses, real estate market value, as well as the pros and cons. 

And if you think a townhouse seems like the right investment for you, check out Zumbly to look for townhouses available in your area. 

But first, let’s be clear on what a townhouse is and isn’t.

What is a Townhouse?

A townhouse, aka rowhouse, refers to one unit among several properties that are typically attached to a much larger unit. What makes townhouses distinctively different from detached houses is that the house is conjoined with other properties. 

What’s more, unlike apartments that are leased out, townhouses have one or more owners. They are properties with their backyards plus a shared common space between the larger units. They are broadly classified into two main categories, i.e., a regular or corner lot. Unlike regular lots, which are attached to two properties on both sides, corner lots are only connected to a single unit on one side. 

Townhomes typically come with amenity and maintenance fees used for caring and maintaining those communal areas. Additionally, they might be part of an HOA or Homeowners Associations that’s responsible for organizing landscaping and maintenance. 

Some of the other things that may fall under the HOA purview include removing snow, taking care of the pool as well as scheduling time to use common areas such as event rooms or clubhouses.

2020 Real Estate Market Values

As a budding real estate investor, one of the first questions that come to mind is whether or not 2020 is a great time to buy a home. To provide the most accurate answer to this question, we need to look at the current trends or predictions of the real estate market. 

The year started on a high note thanks to soaring market prices, reduced mortgage rates, and an explicit seller’s market. Towards the end of 2019, mortgage rates were set to increase to 5.8%, but this shouldn’t be a deal-breaker because it’s at an all-time low. 

It’s glass half full or empty situations; on the one hand, sky-high mortgage rates deter home buyers from buying while on the other they’re effectively eliminating competition in the property market. That said, real estate market prices are expected to stay the same or drop thanks to a decline in the number of buyers. 

Related: Housing Market Predictions for the Next 5 Years

Is Buying a Townhouse a Good Investment? The Pros

living room with dining table in townhouse
  • Reduced costs and better financing: one of the most significant financial benefits of investing in a townhouse for rental purposes is the overall cost of owning and maintaining one. Compared to a single-family home, the costs of owning and maintaining a rowhouse are considerably lower, making it an excellent option for those working with a tight budget. While the cost of maintenance might seem like a disadvantage at first glance, they’re not. That’s because it absolves you of the responsibility of taking care of expensive and labor-intensive maintenance around the property. This means that tenants can access amenities, all of which are maintained by the HOA. That said, the responsibility of maintaining the exterior and interior of the unit lies with the owner. What’s more, depending on which suburb the townhouse is, you might be eligible for a 90% LVR if you’re buying to own or 85% LVR for if you’re buying as an investment.
  • Minimal maintenance: In most cases, townhouse owners are subject to a monthly maintenance fee that goes to the HOA towards caring and maintaining for the entire complex. As we mentioned earlier, while the association is responsible for a significant percentage of maintenance, some of these responsibilities fall back on the owner. Some of the duties of the HOA include taking care of dog parks, scheduling time for recreational halls as well as caring for other communal areas. They may also be responsible for maintaining the lawn, roof, and pool; however, more often than not, these responsibilities fall under the owner’s purview.
  • Location, location, location: one of the most common deal-breakers for investors or homeowners is the location of the property. Most townhouses are typically located in areas surrounded by a variety of amenities such as gyms, pools, golf courses, etc. as well as public infrastructure, including schools, transportation means, and so forth. Highlighting access to these facilities is a great marketing tactic for attracting potential tenants. What’s more, the proximity of townhouses to these and more amenities allows for tenants to lead the coveted “lock and leave” lifestyle. Additionally, if the location of the townhouse is in an area with growth potential, then it will appreciate or retain its value if history is any indicator. Moreover, because most townhouses are located in safe and secure environments, they help build a tight-knit community with plenty of opportunities for social interactions, all of which contribute to the rental or resale value of the property should the time come.

Is Buying a Townhouse a Good Investment? The Cons

  • High upfront costs: one of the main downsides of buying a townhouse as an investor is the considerably high startup costs. Most homeowners or investors don’t have a ton of cash lying around, which means that they’ll have to get some sort of mortgage financing to buy a townhouse. That being said, it’s worth noting that townhouses come with their own set of limitations, which makes it difficult to get financing. This is because lending institutions find it difficult to appraise and classify townhouses accurately. More often than not, mortgage loan providers underwrite townhomes the same way they would condos, which significantly increases mortgage rates. That’s because condos usually have more restrictive and expensive mortgage financing options. When buying a townhouse in an area that’s chock-full of them, it’s essential to find a mortgage lender experienced, and one way of doing this is to find other townhome owners and ask them to give you a referral.
  • Slow rate of appreciation: Contrary to popular belief, real estate investors don’t make all of their money from leasing out properties. The property’s resale value also plays a significant role in that equation, so be sure to remember that when shopping for a townhouse. That’s because as substantial an investment as purchasing a townhome is, it can be challenging to raise its value. Compared to detached single-family homes, townhomes rarely or slowly appreciate if at all, and that could end up harming your ROI when you decide to sell. Because of this, it’s essential to thoroughly research and review historical records on real estate appreciation, especially those of the community where the townhouse is located as well as other planned developments that have the potential of increasing its resale value. And don’t forget, being a strata-titled property, there’s always the possibility that owners of the other properties in that complex could sell their units below market prices, which could end up reducing the resale value.
  • Exorbitant HOA fees: Most townhouses typically have a homeowners’ association or HOA, which provides a variety of luxurious amenities. These include everything from libraries, clubhouses, playgrounds, tennis courts, hot tubs, saunas, community gyms, swimming pools, etc. and in some cases, HOAs are also responsible for maintaining the exterior of your townhouse and the lawn. The costs of which can run into hundreds of dollars each month. That said, it’s not uncommon for HOAs to ask homeowners as well as investors to chip in to help cover some of the major expenses such as upgrading security, repaving, etc. by charging them a quarterly fee in addition to their monthly contributions. What’s more, it’s not unheard of for HOAs to charge special fees to cover out-of-pocket expenses such as emergency repairs, legal fees, etc. 

Related: When Will It Be a Buyers’ Market?

Conclusion

With homes in prime neighborhoods going at a premium rate, townhouses provide a unique opportunity for investors to get a piece of the action in an ever-growing real estate market.

They are an attractive option for both investors and homeowners looking for a middle ground between condos and single-family homes. Townhomes give homeowners the feeling of owning a single-family home in a modernized prime center.

Like every other investment vehicle, townhouses have their own set of advantages and disadvantages, so it’s essential to do your research before buying one.

So, is buying a townhouse a good investment? Well, if you’re able to find the right townhouse in an area with incredible growth potential, then it can be a worthwhile investment.  Check out Zumbly today to find the perfect townhouse for you.

8 of the Best Places to Buy Rental Property in 2020

Buying rental property is a great way to get your foot in the door to becoming a property investor.

Rentals are great because they aren’t a huge amount of work and, in the right markets, the bring in loads of cash on a regular basis. That’s the key, though, the “right” markets. It can be difficult to figure out which cities to buy in because rental prices are always fluctuating.

Today, we’re going to discuss why buying a rental property is a good investment, what factors you need to consider when looking at a new city, and the 8 best rental markets in the country.

Choosing the right rental market can be the difference between a property making you a fortune or costing you just as much. Find and purchase homes that generate income with Zumbly — and maybe start with one of the cities below. Let this guide serve as your inspiration of the best places to buy rental property.

Why Buy Rental Property?

Rental property is a special type of property investment because it pays off both immediately and in the long-term. Although there’s a bit of extra work involved with the continual upkeep of the property while you’ve got tenants, the regular payments allow you to cover the mortgage payment and then some (in booming rental markets).

There are also a lot of tax deductions to consider as a landlord. You can write off the interest on your mortgage, insurance, the interest on your credit card (when used to make house-related purchases), property taxes, and maintenance costs. If you were flipping the house, for instance, these would all be extra costs.

It’s not all sunshine and roses with rental properties, though. If you’re not in the right market, they can end up being a huge money pit. That’s why it’s all-important to find the right places to buy a rental property.

What Factors Should You Consider?

The best places to buy rentals will have lots of affordable housing, positive wage growth, low unemployment rates, steady population growth, and an increase in average property value and rental yield. These cities have the best combination of these factors in the country.

Related: How to Look for a Fourplex for Sale

1. Orlando, FL

Alt Text: Orlando, Florida best places to buy rental property

Orlando is centered around a booming tourism industry. With beaches, malls, and theme parks, it’s become home to many retirees and a growing workforce for young people. The job growth, population growth, and rent growth all look ideal and it’s been called one of the best places in America to buy a second home.

2. Charlotte, NC

Alt Text: Charlotte, NC best places to buy rental property

Charlotte, according to CNBC, is in the top 5 cities in the country to start a business. As a business-heavy city, it’s seeing unprecedented job growth and population growth, as a result.

Home prices have risen somewhat in the last two years, making it slightly less appealing for some rental investors. However, the employment boom will keep pushing the population growth along, which is always good for rental numbers.

3. Tampa, FL

Alt Text: Tampa Florida best cities to buy rental property

If we head back to central Florida, we’ll see another hastily growing city in the greater-Tampa area. Tampa is home to a huge university and several major sports teams that make it both a tourist destination and a viable place to live.

What makes Tampa particularly attractive are the home appreciation rates and rising rental rates. It’s still cheap to buy, but it won’t be in a few years’ time and rent is going up as well.

4. Oklahoma City, OK

Alt Text: Oklahoma City best cities to buy rental property

OKC has grown a lot in the last decade. What makes this population growth exciting for property investors is that it’s mostly millennials.

It’s truly become one of the economic hubs of the south, as a prominent player in petroleum production, natural gas, scientific, technical, and administrative services. Millennials with good jobs mean great things for rental prices.

5. Houston, TX

Alt Text: Houston Texas, best places to buy rental property

It’s hard to believe that Houston could possibly still be one of the best places to buy rental properties; it is. There are currently 7 million people living there, but it’s still almost doubling the nation’s population growth rate.

There are 53 Fortune 1000 companies in Houston, fueling its economic growth. Despite the size, growth, and wealth, the average home price remains under the national average. These things are what makes Houston such a desirable spot for a rental property buyer.

6. Atlanta, GA

Alt Text: Atlanta Georgia best places to buy rental property

Atlanta being the fifth-largest metro city in the United States alone should be a fact keeping it off the best rental market list. The housing market is more expensive than the national average and the industry has been firmly ingrained for a long, long time.

However, the numbers don’t lie. Atlanta has one of the lowest unemployment rates in the country and unprecedented population growth. Houses might be a bit more expensive, but the median rental rate is $1,800 per month, so you know people are ready and willing to pay high rental rates.

7. Cincinnati, OH

Alt Text: Cincinnati Ohio best cities to buy rental property

The Cincinnati-Dayton area is an interesting case because both cities are growing steadily. Situated across the river (and state line) from one another, both Cincinnati and Dayton’s housing prices are a whopping 25% below the national average.

Despite the low unemployment rates and decent job growth, the actual population growth remains pretty stagnant. However, the low housing costs and rising rental rates still make Cincinnati-Dayton a promising market to invest in.

8. Colorado Springs, CO

Alt Text: Colorado Springs CO best cities to buy rental property

Colorado Springs wouldn’t have dreamed of being on this list a decade ago. However, with rapidly dropping crime rates and a lot of younger people being priced out of Denver, it’s become one of the up and coming cities in middle America.

Although housing prices have already come up significantly in the last year, we’re expecting Colorado Springs to go the way of Fort Collins or Denver. People love the natural beauty in Colorado, so buy now and watch your rental investment grow in value over the next 10 years.

The Best Places to Buy Rental Property

The best places to buy rental property are often right under your nose. Take a look at the numbers and you’ll see all you need to know. Job growth leads to population growth, and population growth leads to higher rental demand. 

Find the places that are poised to boom rather than markets that have already boomed. It’s always better to buy cheap and have to wait for the rental market to grow than to buy high in a market that can’t grow much more.

To find out if your prospective rental investment is going to pay off, join Zumbly today.Related: How to Make an Offer on a House

The Top 7 Most Expensive Houses in the World in 2020

The average home in the U.S. is worth $257,445. But what about the expensive houses where the rich and famous live? 

There are many expensive homes all over the world. The lucky homeowners of these expensive homes had several million dollars to splurge on their home — and for good reason!

Whether you’re looking for a fancy property yourself, or are a first-time homeowner, Zumbly has the perfect algorithm to find your perfect fit. Here are the 10 most luxurious and expensive houses in the world.

1. Buckingham Palace

Alt Text: Buckingham Palace expensive home

It’s no surprise that a palace fit for a queen (literally) tops our list. At $2.9 billion, Buckingham Palace is the most expensive home in the world.

But Buckingham Palace is more of a historic landmark than a home.

In case you didn’t know, the palace is owned by the British Royal Family and has been the residence of the monarch since 1873. The palace has a breathtaking French neoclassical architectural design, which was favored by King George IV.

The Buckingham Palace we see today was designed by architect John Nash in 1826. There are three wings of the palace that surround a central courtyard.

Queen Elizabeth II currently lives here, though her spouse and children live elsewhere.

There’s a reason this palace comes with such a huge price tag. The palace is a whopping 828,000 square feet! It boasts 775 rooms, 78 bathrooms, 19 staterooms, and 92 offices. Even the garden is 40 acres in size.

You can find the palace in Westminster, London, and is the perfect photo op for London tourists.

2. Antilla

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If you’re wondering where India’s richest man lives, he resides at the second-most expensive house in the world.

Antilla is worth $1 billion and Mukesh Ambani calls this home. Ambani is the Chairman and Managing Director of Fortune Global 500 Company Reliance Industries Limited.

The building is located in Mumbai’s Cumballa Hill, in the middle of the city. It’s 400,00 square feet and a staggering 27 stories high. The building was designed by architecture firm Perkins & Will and hospitality design firm Hirsch Bender Associates.

The home has a very modern design and no two rooms look the same.

Antilla is more like a resort — the house has a 50-seat movie theater, three helipads, a health spa, a ballroom, a salon, an ice cream room, and a yoga studio. They even devote six stories to car storage and host a car service center within the home.

Mukesh Ambani lives in the house with his wife, Nita, and their three children. They also host a 600-person staff to ensure everything runs smoothly.

Related: When Will it Be a Buyers’ Market?

3. Villa Leopolda

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What’s better than owning a million-dollar home? Owning a million-dollar home that sits on France’s picturesque Cote d’Azur. This is the home that Lily Safra owns, who inherited the home from her widow, Lebanese-Brazilian banker Edmund Safra.

The mansion occupies 50 acres worth of land, has 11 bedrooms, 14 bathrooms, helipad, commercial greenhouse, an outdoor kitchen, and an incredible swimming pool. A home this luxurious also boasts a hefty price tag: $750 million.

The home has a bit of fame and history before it was owned by the Safras.

Villa Leopolda was originally owned by King Leopold II of Belgium. It has been redesigned since then; in 1920, American architect, Ogden Codman Jr., used inspiration from the period’s Belle Epoque trend to give the home its classic flair.

The home also has another major historic element — it was the setting for Alfred Hitchcock’s film To Catch a Thief.

4. Villa Les Cedres

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In fourth place, we have another French home purchased by King Leopold II.

This home is located in Saint-Jean-Cap-Ferrat and is worth $450 million. The home was built on 35 acres of gardens. The home has 14 bedrooms, a stable big enough to fit 50 horses, and a massive swimming pool.

There’s plenty of art and culture in this home. You’ll find décor staples such as gilded woodwork and crystal chandeliers as well as cultural pieces such as 19th-century oil paintings and a library that hosts 3,000 books.

5. Les Palais Bulles

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Les Palais Bulles translates to “bubble palace” in English, and you’ll understand why when you see this mansion.

The house is adorned with multiple round rooms that overlook the Mediterranean — looking more like multiple bubbles than an actual house.

Hungarian architect Antti Lovag designed this home during the later part of the 20th century. The home has many exquisite features, including numerous gardens, three swimming pools, and a 500-seat Amphitheatre.

Italian fashion designer Pierre Cardin currently owns the house — however, he only uses it as a vacation home. Les Palais Bulles is mainly used for parties and events.

6. The Odeon Tower Penthouse

Alt Text: The Odeon Tower Penthouse expensive homes

If you have $330 million to spare, you can buy a 35,000 square-foot apartment in Monaco’s most expensive building.

Odeon Tower Penthouse looks more like a lavish resort than a penthouse — the most defining feature is a 360-degree infinity pool with water slides. The penthouse is currently the most expensive apartment in the world.

Alexandre Giraldi designed the tower with Group Mazococo. The penthouse has a completely modern and futuristic look and there’s a private elevator leading to the penthouse.

Related: City vs Suburb: Where Should You Live?

7. Four Fairfield Pond

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Four Fairfield Pond is the most expensive home in New York City. It’s located at oceanside, facing the Atlantic Ocean. Its distinct French-manor style gives this mansion a sophisticated look, but its features are nothing short of glamorous.

The home is 63 acres in size and hosts 29 bedrooms, 39 bathrooms, a basketball court, a 91-foot dining room, squash courts, bowling alley, three swimming pools, a garage large enough to hold 100 cars, and tennis courts.

This home even has its own power plant.

And how much does this all cost? $248 million.

This is the home of Ira Renner, who owns the holding investment company Renno Group.

Dream of Living in These Expensive Houses

We all hope for the day that we can live in one of these expensive houses, right? If you start investing in property, you can earn passive income that will help grow your finances. Find your investment property today with Zumbly.

Long Term versus Short Term Rentals

A rental property can be a fantastic investment, but it can also be money going down the drain. This all depends on how it’s managed. Managing a property requires a lot of time and patience, both in terms of tenants and the investment itself. 

People looking to invest in a property typically think along the lines of long term rentals, but short term rentals are just as lucrative of an opportunity. These are two very different ways of investing in real estate. As short term rentals rise in popularity, they’re starting to give long term options (which have long had the monopoly) a run for their money. 

Investors want to know what the best option for them might be. With our expertise at Zumbly using home scoring to help investors find the right property, we’re here to help. Let’s start by going over some common terms.

Related: The Easy Guide to Leasing and Renting

What is a long term rental?

A long term rental is a property that can be lent out for approximately six months or longer.  The tenant signs a long term rental agreement with the landlord and must stay for the given period of time.

What is a short term rental?

This is just the opposite of a long term rental since it can be rented for less than six months. These are also referred to as vacation rentals because a stay in a short term rental could be as short as a week or even a few days.

Subletting/sublease

According to the legal definition, subletting is leasing or renting a property in part or whole to a subtenant, who then has the right to use the property. The subtenant has the right to use the property for rental purposes as long as they have the consent of the landlord. This is a form of short term rentals that usually works well for tenants who travel often or for long periods, but still want to retain their apartment back home. It allows them to make a supplemental income while having a physical presence in the house to deter burglars.

However, it’s important to note that there are many rules and regulations against subletting. For instance, subletting social housing is a criminal offense. It’s also illegal to sublet if one hasn’t obtained the consent of the landlord, even if the rental agreement allows subletting.

The sublease is very similar to subletting. In subleasing, the tenant who signed the original lease can lease the property to another tenant (the sublessee). The process is a bit more complicated, as the sublessee has to sign the original contract and pay the subleasing fees.

Check out some long term and short term rentals at Zumbly

Airbnb

airbnb apartment for rent

This is perhaps the most popular form of short term rentals at the moment. It’s usually easier to arrange than subletting and subleasing because the logistics are much simpler. Airbnb is not classified as subletting by law in some states in the US.  The concept of Airbnb borrows heavily from subletting, but with variations to minimize confusion and increase the legality.. 

For example, in some states, the homeowner must be available in the rental for the duration of the client’s stay. In some places, space can only be occupied for 120 days in the year, and one cannot have multiple property listings. For others, the property manager must rent out the property for more than 30 days. These kinds of Airbnb restrictions make it more of a home share than a sublet.

Related: Top Airbnb Host Tips

Benefits of Short Term Rentals

Flexibility

Short term rentals are more flexible compared to long term ones. The contract is usually for a few days to several weeks at most. All you need to opt out of the contract is to provide a notice to the landlord that complies with the terms and conditions of the agreement entered by both parties.

Most people consider this flexibility an advantage only for the tenant, but it works both ways in case the landlord is dealing with an unruly customer. They can cancel their booking even if it may result in a penalty. Greater flexibility can also mean pricing that can be adjusted depending on how popular a season is in a given area. For example, short term rentals can be priced higher in summer when there’s more demand due to an influx of tourists versus the winter season. 

Better maintenance

Short term rentals are cleaned frequently, so there’s ongoing maintenance as tenants move in and out. Issues that would typically take longer to identify are easier to spot since clients bring up the problems they encounter during their stay in the rental.

Personal use

The investor can decide to use the rental for their own personal use for a vacation with the family instead of spending money on a hotel room. If you live in your short term rental property, you can simply take it off the market and take a break if you desire. One can do this during off-peak season to avoid interfering with the regular rental season.

Better income potential

A short term rental in a popular vacation spot is guaranteed to bring in more income compared to a long term rental. This is because one can change the rates according to the season and facilities offered. If the tenant is on a short-term lease, the landlord can increase the rent depending on the market conditions. This concept is different from long term leases, where the landlord is stuck with the same rate in the contract even if the market rates are favorable for a rent increase.

Check out some homes on Zumbly to use as short term rental properties.

Disadvantages of short term leases

key going into a house

Uncertainty

Just like the property manager can terminate the lease with an unruly tenant, the tenant can also terminate their contract earlier.  This leaves the landlord with uncertainty when it comes to the flow of income. Also, short term rentals have peak and off-peak seasons when business is booming and when it’s slow. This can also affect the flow of income for the investor.

However, this is not a big problem if you’re using your short-term rental as a strategy to generate passive income. Long-term tenants can also terminate a lease early, and it’s much more difficult to find long-term guests. On the other hand, the short-term model requires less commitment and you are more likely to find replacement guests more quickly.

Higher maintenance costs

Short term rentals see a lot of traffic because different people are using it use your facilities regularly. Without proper maintenance, the property can gradually deteriorate. To maintain the property at peak conditions, the property manager must set aside more resources for maintenance and repair.

Related: What Happens When You Break a Lease

Benefits of long term rentals

architectural house with pool

Consistent income

Long term rentals utilize the traditional concept of renting, which is why they enjoy a steady stream of income. The tenant is on board for the long haul, and they have committed to the lease by payment and signing a lease contract. This means the investor doesn’t have to keep looking for new clients for the duration that the tenant is legally using the property. These rentals don’t suffer from seasonal variances that affect the flow of income.

Withstands market fluctuations

The real estate landscape is a dynamic process that is always fluctuating, so property prices can quickly dip. Long term rentals are less affected by the daily fluctuations since there is already a fixed rate by the property manager and the tenant. Any changes can be made at the end of the lease protecting the investor, similarly to the level of protection that the tenant gets.  

Appreciation in value

Long term rentals will appreciate in value with time even with the rent fluctuations. This means that the property is an asset that one can sell later on for huge profits. The investor can even use the rental as leverage to acquire more property.

But remember, short-term rental prices are easier to adjust. They can appreciate too, in the sense that property managers of short-term rental properties can raise prices as demand increases.

Check out some long term and short term rentals at Zumbly

Disadvantages of long term rentals

Long-vacant durations

Long term rentals can stay vacant for long periods before clients occupy them, meaning they are not bringing in any money. It’s challenging to find a suitable tenant who fits the profile that one needs for the rental. This can be a huge setback, and property managers may find themselves eventually losing money.

Less control

Once the place is rented, the investor has limited control over the property. Tenants can make some changes to fit their needs, and the property manager needs to be okay with the changes to make the tenant happy. 

Little flexibility

The property is rented for long periods, so both parties are stuck in their contracts. There is little room for flexibility unless a major problem arises. This also means the property manager can’t make significant changes to the property as long as the tenant is still on the premises without compromising the terms of their agreement.

Check out some vetted and scored homes at Zumbly for your next property.

Which one is right for you?

man staring at papers deciding on a plan

This question can only be answered depending on the investor’s needs. For investors looking for higher income and flexibility to change rates according to seasons, then the short term rental is a good investment fit. Long term rentals are beneficial to investors who don’t have a lot of time on their hands but want passive income and investment that appreciates regardless of their direct involvement with it. 

Conclusion

Owning property is an excellent strategy for generating passive income, whether you are acquiring a short term or long term rental. However, before investing, it’s crucial to have a clear goal of what you want to achieve with the property. With that in mind, whether or not you should use a long-term or short-term lease strategy depends on your goals. Consider them carefully and match them up against the factors we listed above to make your final decision.

Related: Renting Versus Buying: The Ultimate Guide

How to Calculate Vacancy Rate for Your Rental Property

Putting up a rental of any sort is a potentially profitable endeavor that nonetheless runs some risks. If you don’t have enough tenants, you won’t be generating as much income. That’s why it’s important to keep track of your property’s vacancy rates.

Using this information for your operations helps you increase your efficiency and get a good idea about your potential flow of income for the upcoming year. With a general idea of how much you’ll profit, you also get a sense of how much cash you can set aside for renovations, maintenance, and expendable funds. At Zumbly, we use a process of home scoring to rate the potential of residential properties. With our expertise in real estate calculation and analysis, here’s our guide to calculating vacancy rate.

Related: City Versus Suburb: Where Should You Live?

What is the vacancy rate?

In the real estate world, the term vacancy rate refers to the number of units in a rental property that are vacant at any given time. The vacancy rate gives the property manager a realistic understanding of how the property is doing compared to competing properties in the same geographic vicinity. Since the numbers don’t lie, this helps property managers who own multiple properties create campaigns for their poorest performing ones. This helps property managers with only a couple properties rethink their marketing and design strategies.

Sometimes vacancy rates have nothing to do with the property itself, but high vacancy rates may indicate an issue with the economy. A vacancy rate of lower than 4% is positive, while anything above 7% is negative. Low vacancy rates signify that people want to live in that area, and they are satisfied with the rents or services provided by the property. The vacancy rate is calculated by taking three types of units into account:

  • Vacant units that are ready to be rented
  • Units that have just become vacant 
  • Units under repair

Why does the vacancy rate matter?

empty room with closed curtains

Cash flow

The vacancy rate has a direct bearing on the stream of income flowing into the property manager or investor’s pockets. If a property has a high vacancy rate, it means the investor is not generating revenue from all of the units in their building. This can result in financial losses because regardless of the high vacancy rate, the property manager still has expenses associated with the building. After all, a high vacancy rate is directly responsible for negative cash flow.

Cap rate

The vacancy rate affects the capitalization rate of the property. The cap rate, as it’s commonly referred to, is the real return on investment that the investor is getting from the property based on the expected income. Areas with low vacancy rates offer higher cap rates to property managers. A reasonable cap rate in real estate is between four and ten percent or higher than that.

Occupancy rate

The occupancy rate is the number of occupied units in a multi-family or rental property compared to the total available units. Since this is the opposite of the vacancy rate, then that means a property with high occupancy rates is doing quite well.  

Related: How to Find Investment Properties

Steps for calculating vacancy rate

calculator on top of paper


Step one 

Identify the total number of units in the rental property. This number encompasses the number available units, those under repair, and those already occupied. 

Step two

Multiply the number of vacant units in the property by 100 and divide the subsequent result by the total number of units in the building.

Example

If the rental property has 200 units in total and out of this number, 80 units are vacant; the property manager needs to multiply the 80 units by 100 and then divide the result by the total number of units, which is 200.

80 x 100 = 8000

8000/200 = 40%, so the vacancy rate for this particular rental is 40%.

Formula for vacancy rate:

(Vacant units x 100) / Total units = % vacant

Average vacancy rates 

orange and grey apartment buildings


Average rates for short term rentals

Short term rentals tend to have slightly higher vacancy rates because people stay in them for a shorter period of time. Short term rentals can range from home share options like Airbnb to hotels and motels. These facilities tend to have an average vacancy rate above 25 percent, depending on the season. Since the cost of rent per day tends to be slightly higher for short-term rentals and most short-term rental property managers are using a passive income strategy, a slightly higher vacancy rate is nothing to be concerned about.

An increase in vacancy rates for short term rentals can occur when an area has a newly released long-term rental, which attracts a segment of your short-term customer base that might be looking for a permanent place to stay.

Average rates for single-family properties

The vacancy rates for single-family properties are low, with an average of 5%. This is because most people in that bracket are living in their own homes. They are also looking to start a family and need something stable. They have built their lives around the convenience of where they are living, and they can enjoy a particular lifestyle because of it.

Average rates for multifamily properties

The vacancy rates for multifamily properties are also low because they also need stability and are typically saving for their own single family property. They probably have kids in schools nearby and jobs that are close to their home. Also, these types of units appeal to people who prefer to have close neighbors and prefer to live in the center or near the city.

Related: How to Start a Airbnb Business

What factors affect vacancy rates?

urban city with lots of people

When it comes to vacancy rates, they vary from one place to another and are determined by factors like location, crime, schools, and other social and physical amenities.

Location

The more remote the area is, the higher the vacancy rates for rental properties. After all, renters are looking for convenience and proximity to amenities to determine where they want to live. 

Crime

An area with a high crime rate is not attractive to people looking to rent. It affects their quality of life since they and their loved ones can’t be safe even within their homes. 

Low income 

Low income affects people’s ability to rent spaces, and so they are either forced to move out or landlords have to kick them out because of lack of payment. It is challenging to sustain low vacancy rates, especially in low-income neighborhoods.

Poor infrastructure and lack of amenities

If there is inadequate infrastructure, like utilities, schools, or hospitals, then renters are not attracted to the area. It would not be able to meet their needs in case they fall ill or need to take their kids to school.

Competition

If the rental building is situated in a very competitive market and offers amenities that renters can’t afford to have in their building, then that can lower the vacancy rate. Renters are attracted to buildings with amenities like pools, daycare facilities, and some aspects of technology in terms of safety and utility.

Are you an investor? Find a well-located home for short-term rentals at Zumbly.

How to decrease vacancy rate

people gathering inside the apartment and sitting on a chair

 If the reason for high vacancy rates lies within the management of the building, then there are ways to reduce the rates.

Here are a couple of ways to do so:

  • Offer competitive rents in the same price bracket as competitors
  • Maintain the property by having repairs made in a timely fashion and keeping the premises clean
  • Maintain the exterior of the building
  • Provide basic amenities and advance ones to level up to the competition
  • Provide tenants with at least one paid utility like heat or water
  • Build rapport with the tenants by being approachable and available

Conclusion

Instead of looking at high vacancy rates as an end to a real estate investment, it should be an opportunity to improve services and relations with tenants in the future. With this positive change in mindset, it can help any investor or property manager to flourish in the real estate industry. But it all starts with the right properties. Get started with Zumbly for home scores and rental calculators to match you with the perfect short or long-term properties for you.
Related: What Happens When You Break a Lease

What to Include in a Short Term Rental Agreement

Thanks to the rise of platforms that encourage people to rent out their second homes to tourists, there’s been a sharp increase in people leasing their homes to tenants for a short period. When it comes to renting out a property, there needs to be a process to ensure that there is complete transparency, and the interest of both parties is safeguarded. In such cases, one has to draft a short-term rental agreement. But what should this include?

Related: The Easy Guide to Leasing and Renting

What is a short term rental agreement?

A short-term rental agreement is an agreement between a landlord/homeowner and a tenant. Also known as vacation rental agreement, this agreement allows property owners to lease their property to a tenant for a short period. The typical range is between 1 day to 30 days, but it can extend to as long as six months in most cases.

A short-term rental agreement lists all the responsibilities and duties of both the tenant and the property owner. These may include several details, such as amenities provided and rules based on local laws. A short-term rental agreement is typically done for higher-end vacation properties. The agreement must follow all applicable state laws, and if the housing structure was built before 1978, it must be furnished along with the Lead-Based Paint Disclosure Form.

Learn more about short-term rental agreement with Zumbly

Why do I need a short term rental agreement?

A house is a financial asset, and an important one, too. As a homeowner, you have to ensure that your asset is safeguarded in the hands of strangers. As mentioned earlier, a short-term rental agreement lists out all the responsibilities of the homeowner; this protects them from any false claims made by the tenant. It also lists out the duties that a tenant has to perform while staying in a particular property. For instance, the agreement will specify that the tenant cannot perform any illegal activities on the property along with any other restrictions that a landlord may choose to impose.

This ensures that the homeowner is free of any liabilities if something does go wrong. At the same time, it also spells out certain tenant rights such as the right to privacy, their stay duration, and the amenities that they have access to.

Learn more about short-term rental agreement with Zumbly

Things To Include In A Short-Term Rental Agreement

People holding a pen and discussing a contract


While the base of the short-term rental agreement is similar to that of other rental agreements, some details must be mentioned while drafting a short-term rental agreement.

The basic details that have to be mentioned are: 

  • Start and End Dates;
  • Rent ($);
  • Property Address (full description)
  • Amenities (Wifi, kitchen appliances, Cable TV, etc.);
  • Maximum Number (#) of Guests; and
  • House Rules

However, an excellent vacation rental agreement does not shy away from diving into the deep end. It’s best to keep the contract as detailed as possible to ensure that both parties are well-aware of all the terms and conditions. This also leaves little to no room for any miscommunication or misunderstandings.

related: Renting Versus Buying: The Ultimate Guide

Rental Property Details

The rental agreement has to mention all the details regarding the property. These details include the address, rooms, layout, guest capacity, different facilities that the guests have access to during their stay, etc. 

Amenities

In today’s vacation rental scenario, guests expect hotel-like services with vacation homes. In the rental agreement, one should specify the amenities provided at the property, as well as the ones that are not available. These typically include cleaning schedules, food/coffee, pick-up, and drop, etc.

Security Deposit Guidelines

Security deposits are collected by the property owner before the duration of the stay to pay for any damage caused during the rental period by the tenant. This amount is returned to the tenant after the stay if there is no damage to the property. One must refer to the state law to determine the maximum permissible security deposit amount.

Learn more about short-term rental agreement with Zumbly

Payment Guidelines

The most important aspect of a rental agreement is the rent itself. A contract should lay out the details of all payment-related information. This includes the lease, the payment method, the date of payment, etc. The general rule of thumb is to be as specific as possible.

For example, the agreement should specify the exact payment method, whether it’s cash or any other form. Similarly, it should also include any ‘late fees’ if the tenant fails to pay the rent on time. This avoids any hassle or misunderstandings during the payment period.

Tenant Contact Information

The rental agreement has to mention all the relevant contact information of the tenant. This includes name, contact number, address, email address, etc. A short-term rental agreement also states the exact amount of people allowed to stay on the property. It is best to include all their details in the rental agreement as well.

Tenant Obligations

Just as a tenant enjoys various rights during their stay, they are also obligated to perform several duties. For example, basic cleanliness, following the basic house rules, etc. The agreement should also mention various regulations regarding smoking, pet access, illegal activities, etc. It is a good idea to include all local laws, rules, and regulations in the agreement to ensure maximum transparency.

Related: Housing Hack: Live for Free with Airbnb Investment Property

Tenant Rights and Cancellation Terms

Since the short-term market is fast-moving, there is always the possibility of a cancellation. Therefore, the agreement should include all the rules and regulations about the event of a cancellation. This protects the interest of both parties and ensures that the tenant has the right to cancel and make the proper payment.

Find properties that are great for short-term rentals at Zumbly.

How binding is a short term rental agreement?

man in suit reach out to shake hands

A short-term rental agreement is just as binding as any other agreement as long as it honors the local, state, and federal laws. 

Learn more about short-term rental agreement with Zumbly

Conclusion

While it may seem unnecessary or a waste of time to draft a short-term rental agreement, it is well worth the time and effort for legal purposes. It protects both parties, ensures that everyone involved is being treated fairly and that there is a written understanding of all the services provided during the stay. By doing so, the tenant has a pleasant experience, and the homeowner is assured that their property is well taken care of. Now that you know more about short-term rental agreements, find the best properties to rent out with Zumbly’s home score and calculator.
Related: Apartment Investing 101

Strategies for Using Private Money Lenders for Property Investments

There are few safer bets in investing than real estate. When you know the fundamental tactics and strategies, a solid foundation in real estate can set the foundations for virtually any form of portfolio and investment strategy. 

While there’s a lot you can do with the money, saving it wisely can help you build a healthy investment strategy. Private money lending may be one of your best options. At Zumbly, we help you through the house-buying process with our home score algorithms and other real estate resources. Here, we’ll take a look at what private money lending is, how these deals take place, and who are the ones who can go for it.

Related: How to Make an Offer on a House

What is a Private Money Lender? How Do You Find Them?

business meeting with people collaborating

A private money lender is someone who loans money using a note and a bond of trust. Private money lenders are individuals or companies that are not related to any financial institutions (like banks) who lend money to help fund a real estate transaction. 

Private money lenders lend out cash in a scenario where the recipient either doesn’t qualify for a traditional loan or doesn’t have the time to wait for the loan approval to be processed. Private money lenders can often be found in your social or professional circles, and they can be divided into the following categories:

The Primary Circle (Friends and Family): Your family members and close friends form the first circle of private money lending. Since it’s easier to explain your situation to them, they’re more likely to lend you the money. 

Negotiating the terms beforehand is always advisable, even if you know your family well. This will help you avoid conflict. Friends and family may not be the most robust source of capital and you might feel guilty about borrowing them, so this tends to be more of a supplemental choice.

The Secondary Circle (Friends and Colleagues of Friends): When you know someone through a close friend or family member, it’s known as a secondary connection. This group of people can also serve as private money lenders. 

The bigger your primary circle, the bigger your secondary circle – hence, increasing the number of people who might be willing to lend you the money. However, since these aren’t your immediate connections, you’ll have to invest more time in convincing them to give you the money, such as through investment presentations, lunches, and so on. 

The Third-Party Circle (Investors You Don’t Know Yet): This circle consists of people you don’t know personally, which is why it can take longer for them to become your capital partners, despite this being the capital pool that’s the biggest among the three. 

You can do this in two simple ways. You can either go to a website that provides you with contacts of investors or get in touch with a list broker. The latter can help you come up with a few names that could be your potential investors based on specific criteria such as net worth, willingness to invest, etc.

Related: Mezzanine Loans: Everything You Need to Know

Strategies for Private Money Lending

people discussing, holding pen and paper

When opting for private money lending, there are specific tips to remember that will increase your chances of receiving the loan. Those tips are as follows:

Stay local

 Look for private money lenders that aren’t too far away. Explore the local marketplace and talk to the local experts. Your goal is to find a lender who gives primary importance to the investment side of the business and then the lending part of it. 

You might think that keeping all the options open is a wise move, but more often than not, it leads to you having to wait for a longer time to require the capital you need. This is why it’s vital to stay within your niche. If you want to borrow $50,000 from the lender, there’s no use looking at lenders who don’t lend anything less than a million dollars or so.

Get help with property investment and money lending with Zumbly

Have a short speech prepared

This speech should enlist what you need the money for, and how you plan on paying it back. Clear statements often help in closing deals. 

Attend events and look up people who have achieved success in the area of getting money from private money lenders. The more people you talk to, the more confidence you’ll have in your strategy. 

If you’re trying to secure lenders from the first circle, try to ensure that these are people with whom you have a consistent relationship. You want to avoid personal and financial conflict mixing.

Get help with property investment by checking out Zumbly’s home score algorithms.

The Structure of Private Money Deals

Private money deals often have the same structure as a bank loan, where the lender lends the money and the borrower agrees to pay it back with interest and within a given schedule. The duration of these loans is usually five years or less and consists of balloon payments. 

Private money loans can, at times, be used in addition to a primary bank loan to cover the costs related to a down payment. In that case, your private money lender should understand his/her role as a second mortgage holder. 

Regardless of the path you choose, paperwork needs to be involved in protecting the assets of both parties. All of this is done in the presence of an attorney to ensure that both parties agree with what’s on the contract.

Related: What is Short sale

When Can You Use Private Money?

coin in jar with money stacked up in a row

Although an individual can finance real estate investments in several ways, private money lending is often the best option to consider. A few of those situations are:

Get help with property investment and money lending with Zumbly

Immediate Financing

Real estate is all about grabbing the property that you have your eyes on as soon as possible. In case you can’t gather the money on time, you end up losing the property you liked in the first place. Private money lending helps in this case with its speed and efficiency. After getting the funds from a private money lender, you can quickly close the deal before you run out of time.

Get help with property investment and money lending with Zumbly

Poor Credit

Banks and other financial institutions may be apprehensive about working with someone with a bad credit score. However, with a private money lender, you don’t have to fret about the traditional guidelines and requirements related to your credit history. Even if your credit score is below average, a private money lender may still loan you money if you demonstrate reliability.

Find your next property with the help of Zumbly.

Requirement of Cash

Sellers are often inclined towards cash offers, and if you go for private money lending, you can choose to offer cash, which is particularly useful if you’re aiming to acquire bargain deals or distressed property. This hard cash enables you to win bids and also increase your down payment, which saves you from having to pay a higher price.

Related: What is Due Diligence in Real Estate

Final Note

Private money lenders can help non-traditional home buyers and prospective buyers who need to fund their purchase quickly. So what do you need to do? First, start thinking about whether or not the best lender for you is in your primary or secondary circle, or if you need to consider a lender from the third-party circle. Check out homes using Zumbly’s home score rating. With the right lender and confidence in the home you want to buy, you’re good to go.

Housing Market Predictions for the Next 5 Years

As the years go by, people seek out new investment avenues. One of the strongest contenders for the best investment opportunity in the next five years is the housing market. Believe it or not, but a resilient job market and low mortgage rates are expected to sustain and strengthen the real estate market in 2020 and the following years.

The unemployment rate has reached its lowest mark in the last 50 years and interest rates are lower than they have been in the past, incentivizing prospective buyers. One of the problems faced by the real estate industry is the scarcity of housing, especially at the lower end of the pricing spectrum. Despite market struggles caused by rising mortgage rates and stock market volatility, sales have improved since 2019.

Investing in the real estate market can be tricky and expensive. But at Zumbly, we’re here to provide you with the resources you need to navigate this challenging endeavor. Here are some trends to know in market prices, rates, and investment strategies.

Related: How to Make an Offer On a House

Trends in Market Prices and Rates

arrow success trend
  • According to GSE, the home price growth is expected to experience a slowdown over the next few years from an annual growth rate of 3.2% in 2019 to 2.9% in 2020 and 2.1% in 2021. 
  • Sales of new homes are expected to rise to 750,000 in 2020, which will be a record high in the past 13 years. However, existing-home sales will continue to suffer from the lack of supply and will rise only to 5.6 million sales, which is just a 4% increase over one year. 
  • According to Lawrence Yun, the Chief Economist of NAR, an increase in home-building activities and the resulting growth in housing supply are expected to keep the home price gains under control. This is a promising development for home buyers, especially those buying a home for the first time. It is expected that the market in southern US cities will perform better than the other markets.

Related: Need to Know When Buying Your First House

Trends in Investment Strategies

puzzle money in pieces
  • Sales of homes amounted to approximately 6 million in 2019 and are expected to rise in 2020 and 2021, to 6.1 million and 6.2 million, respectively. 

Stay in tune with the housing market by using Zumbly home scores.

How can I prepare for these trends?

house key in the doorknob

To properly understand how to use the real estate market trends to your advantage, their impact must be fully understood. For instance, if the market is fluctuating, then investors should take a loan on a floating basis instead of a fixed basis. Also, understanding the economic conditions and their impact on individuals can be crucial in preventing a financial misstep – such as if a recession is expected, then taking a loan is not a good bet.

It is essential to carry out extensive research into the market and how it works. For instance, be aware of government programs that could benefit home buyers substantially, such a first-time homebuyer programs that offer a significantly lower mortgage rate or down payment. Similarly, there are real estate crowdsourcing opportunities in the market that potential investors could look into, without the hassle of tying up one’s liquidity in a physical real estate. 

Most importantly, do your research about the properties you hope to buy. With Zumbly, you can narrow down your search to find cash flow positive homes only or even homes with a specific return rate. You can narrow your search by GRM or year built, so you can focus on ewer or older homes depending on what the market is like. You can also search by Airbnb occupancy rate to make sure your short-term rental property purchases are in lucrative areas.

After studying the above opportunities, it is not difficult to read between the lines and make an investment decision. 

Conclusion

The predicted trends for the upcoming years show that the real estate market is unlikely to crash in the near foreseeable future. The year 2020 is shaping up to be a great time for real estate buyers to enter the market arena, as there are currently little or no signs of any imbalances that could force their hand to either hurry or pull back. 

The overall forecast for the US housing market predicts that the total stock of homes available for sale will remain more or less stable.  Additionally, even though it may be a seller’s market in more places than not, it is expected that there will be less competition for buyers to face. Homes in most cities might take a more extended period to sell as well, and price deductions will now become more common in the US real estate industry. 

Related: Is Buying a House Without a Realtor a Good Idea?

When Will it Be a Buyers’ Market?

The real-estate market tends to dictate the health of the overall economy. With 2020 just begun, everyone is waiting to see what the new year will bring forth in terms of real estate trends. One of the main factors that investors consider is the ‘status quo’ between buyers and sellers.

This status quo is known as either a ‘buyer’s market’ or as a ‘seller’s market.’ So what will 2020 and beyond bring? Using our superior forecasting skills at Zumbly, we’ll give you the answer to this question.

Related: How to Make an Offer on a House

What is a buyer’s market?

Simply put, it is a buyer’s market when there’s more supply than demand. When it is a buyer’s market, the typical scenario is that homes have been listed for a long time, without a sale taking place. This encourages sellers to sell their properties at lower prices. Therefore, if it is a buyer’s market, buyers get a great deal when they purchase a new property.

Know more about buying a house from Zumbly

What is the market like now?

As of fall 2019, all the indicators signaled a shift from a seller’s market to a buyer’s market. The typical sentiment among buyers is patience and perseverance. Despite lower mortgage rates, most buyers are willing to take their time making a decision. This has led to more and more houses being put on the market with fewer buyers ready to make a decision. 

According to CNBC, “Just more than 10% of offers written by Redfin in August faced a bidding war, according to the brokerage’s monthly survey. That is down from 42% a year ago.” If this were a peak seller’s market, the percentage of bidding wars would be much higher. Statistics like these signal a shift from the seller’s market to a buyer’s market.

Know more about buying a house from Zumbly

Will 2020 be a buyer’s market? 

gray painted house in front lawn

This brings us to the current year of 2020, which indicates the beginning of a buyer’s market. Many statistics lead to this shift; it portrays the current scenario in the housing market and the parameters that determine the status quo.

Related: What You Need to Know When Buying Your First Home

The Number Of Houses On Sale

For these past years, the number of houses on sale has been consistently dropping. “For the past several years, home sellers held all the cards at the negotiating table, fielding multiple offers while buyers faced stiff competition and a fast-moving market,” said economist Aaron Terrazas. One of the most significant indicators of a buyer’s market is this number being stabilized instead of increasing in 2019. There has been a slowdown in the home inventory in 2019, which clearly signals a strong shift towards the buyer’s market in 2020.

Find out which house you should buy according to your investment strategy by using Zumbly.

Home-Value Appreciation

Seller’s have always had the upper hand in the real estate market for a while now, the reason behind this lies in the steady appreciation of home-value. The value has been on the rise since 2017 and 2018. However, growth is slowing down. Home-value growth is slowing in more than half of the nation’s 35 largest metros, and price cuts are becoming more common. 

Does This Mean It is A Buyer’s Market in 2020?

blue house light turn on

While all the signs signal a shift, the market is very much a seller’s market, at least in most cases. Even with slow appreciation, the sellers still hold dominance in the market, specifically in the affordable housing sector. It’s important to remember that no two housing markets are the same. Many experts believe that the Midwest will enter the buyer’s market before the rest of the country. 3/4 economists surveyed estimate that the national housing market won’t shift to a buyers market until 2020 or later.

While all of these trends do signify the beginning of a buyer’s market, it will most likely be towards the end of 2020, rather than the beginning. Sellers still have an upper hand because of rising home costs and despite lower mortgage amounts. 2020 will be a transitional phase between a seller’s market and a buyer’s market, with the possibility of it swinging either way (although not completely). Many factors play into the status quo, and these factors are constantly changing because they’re often controlled by external elements such as tariffs and trade wars. 

Related: Buying a house, What You Need to Know

Predictions for 2020 and beyond

Among experts, the largest share (43 percent) said the national housing market would shift decidedly to a buyers market in 2020, followed by 18 percent that said it would shift in 2021. Experts believe that the housing market will see a dip in growth in the coming years. From 4.2 percent in 2019 to below 3 percent from 2020 to 2022. 

According to The Washington Post, “New-home sales are expected to rise to 750,000, an 11 percent increase that puts them at a 13-year high. Existing-home sales will continue to be held down by lack of supply, rising modestly to 5.6 million, a 4 percent increase. The national median sale price of an existing home is expected to grow to $270,400, an increase of 4.3 percent from 2019.”

According to Realtor.com, Tight inventory and rising mortgage rates will lead to dropping sales, and the stock will remain constrained, especially at the entry-level price segment. 

Both these reports signal both increased sale prices and a slight upper hand for buyers due to inventory constraints.

What does this mean for my investing strategies?

light beige house on front lawn

As an investor, it is essential to analyze the health of the real estate market. Many Millenials have entered the housing market or will enter the housing market in 2020, which means that there will be considerable demand in this sector. 

Therefore, it is vital to understand the detailed dynamics of the local housing market. There has always been a seller-dominated market, and while the trend won’t change drastically, it will be shifting to favor the buyers. “While ongoing supply constraints are reinforcing the floor on home prices right now, the experts’ forecasts still imply the joists will start to crack sometime next year, and result in sub-three percent annual home-value appreciation in 2020 and beyond,” said Pulsenomics® Founder Terry Loebs

Therefore, as an investment, the housing market will be a strong bet in 2020. 

Know more about buying a house from Zumbly

Conclusion

2020 will be a transitional year for the real estate market. With experts predicting a buyers market in either 2020 or 2021, the signs point to a mixed market. The implications for you depend on your state and local real estate market.  

Whether it is a buyer’s market or a seller’s market in 2020, the opportunistic real estate investor has plenty of opportunities to make the most out of this transitional year.
Related: How Long Does it Take to Buy a House?

How to Buy a Home in 2020

2020 is an excellent time to consider picking a new address. This year, interest rates are extremely low, and that there are a variety of options to choose from. Keep in mind that even though it’s an excellent year to buy, it’s also essential to have some preparation for this journey. 

At Zumbly, we streamline the home buying process for real estate investors, first-time homebuyers, and Airbnb property owners. Here’s a checklist to help anyone that is interested in purchasing a home in 2020.

Related: Is Buying A Home Without A Realtor A Good Idea?

Review Income and Spending

Before buying a home, it’s vital to understand your financial situation based on income, financial assets, and spending habits. This can help establish a home budget to obtain an excellent mortgage rate.

Review your investment, credit card, and banking statement thoroughly to ensure that buying a home will not be taking a big chunk out of your spending for unnecessary expenses. Evaluate your income to see if it has increased over time or not. 

Maybe it’s a good idea to ask the boss for a raise or consider a higher paying job. After that, review your current housing spendings, such as a mortgage, insurance, rent, and monthly homeowners association fees. This will help you decide if you can afford to buy a more expensive home or if you should scale back and find one that’s more affordable.

Down Payments

A homeowner has a 20% down payment ready for a new house. However, other mortgage options can give a lower down payment. However, they usually require private mortgage insurance to do that. Some companies protect lenders if their mortgage has defaulted. The lower your down payment and credit score, the more you will have to pay for the private mortgage insurance, therefore taking a significant chunk out of the monthly house budget.

 Either way, the HOA requires a minimum of 20% down payment. Plus, a significant down payment can help you save money over the span of the mortgage. For example, a 20% down payment on a $300,000 home with a 30-year mortgage could save an individual over $54,000 over a lifetime of loans. This is a wise investment compared to a 5% down payment.

Improve Your Credit Score

When it comes to buying a house, the three factors that determine the home loan are income, credit score, and down payment. It can take several months to address the credit report issue, but there are some ways around it. 

The first step is to request a copy of the full credit report from the three agents. Check each statement thoroughly for errors, mistakes, and ways to remedy it. Then pay down the balance as much as possible while meeting the down payment saving goals.

It’s vital to improve the utilization ratio, which is the percentage a person owes divided by the total credit line. This will increase the credit score more than paying off a single credit card. The goal is to aim for a 30% or lower utilization ratio for all credit cards.

Gather the Paperwork

The essential part of buying a home in 2020 is to keep everything organized. This is the perfect time to organize all the necessary paperwork to begin the journey of being a homeowner. The essential paperwork that is required is the:

  • Federal and state taxes for the last two years, along with the W-2 or 1099 forms. 
  • Comprehensive statements for the bank accounts of the last month. 
  • Statement for investment accounts. 
  • Don’t forget loans, along with minimum monthly payment. 
  • Income statement or letter from the employer. 
  • Additional records that show proof of rent payment, bankruptcy, foreclosure, recent divorce papers, gift letters, and much more.
  • For any business owners out there, it’s imperative to prepare a profit and loss statement to verify the income.

Choose a Broker

It’s vital to have a trustworthy and knowledgeable broker. With this in mind, a face-to-face interview to ask the agent about his or her experience, availability, and communication style can make a huge difference. 

Don’t forget to ask about the fees and recent success stories, along with references. Understand that an agent can provide guidance through the ins and outs of the real estate and market trends. They act as advisers to offer valuable knowledge and perspective.

 A skilled realtor has a significant network of professionals such as lenders, attorneys, and contractors who can help renovate the house to get some pretty good deals.

Related: How To Start An Airbnb Business With 5 Easy Steps Using Zumbly

Understand The Real Estate Trend

According to real estate experts, the prices in real estate will continue to rise by 2.8% in 2020. When it comes to mortgages, the interest rate will be decreasing in 2019 and drop below 4% in 2020. Economic expert predicts that in 2020, the interest rate will be around 3.2% for a 15-year mortgage and 3.7% for a 30-year mortgage.

What High Prices Mean for Buyers?

Anyone who plans to purchase a home should get ready for an expensive market. With this in mind, it’s imperative to budget wisely. Avoid rushing into a home purchase that does not financially make sense. 

If putting down 10% on a 15-year conventional loan is impossible, then it’s probably not a good idea to purchase a home in this market. Down payment of less than 10% will destroy the budget with a higher than average monthly mortgage payment.

 Ready to make a purchase? Then here are some options to consider: 

  • Make sure to save for a five-figure down payment.
  •  Find the least expensive home in the best neighborhood that is affordable and upgrade as the income improves. 
  • Expand the search in a less popular neighborhood.

Are those high prices worth it? Find out using our estimated value scores on Zumbly.

What Do Lower Rates Mean for Buyers?

Since mortgage interest rates will be low, it’s best to go for the conventional 15 years fixed-rate mortgage. That way, anyone can feel secure in knowing what their payment will be over the life of the loan.

Final Note

Buying a house in 2020 is an exciting journey. However, the prices are high despite a low mortgage interest rate. Luckily, with the right strategy, it can be possible to purchase a dream home. It’s essential to find a trustworthy broker, gather all the financial paperwork, and budget wisely. 

The tips and strategies above should help bring anybody’s dream home to reality. Get started looking for your next home at Zumbly, and check out property scores and estimated values to make the process even easier.

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