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Realtors urge: know what you’re getting into with rental property

In spite of what’s going on in the housing market, two state Realtors say real estate as rental property is a good investment. However, they do urge caution.

Stuart Huffman of Gulfport is a Realtor and a real estate appraiser. He also owns several rental houses and a six-plex apartment facility.

“Is it a good investment? It depends on several factors,” he says. “You have to make money when you buy rental property because after you own it, you must pay taxes and insurance and the note on it; meaning buy property at a low cost.”

The rental market on the Mississippi Gulf Coast is fluid these days; unlike it was before Hurricane Katrina, with renters often moving out after a few months.

“We have tenants not staying long now, and that means lost rent,” Huffman says. “Out-of-pocket expenses for the property owner may be $1,200 to $1,500 to fix it up, and renters may not stay but three months.”

He is seeing some large apartment complexes going into foreclosure. “If an investor is paying a note, right now is a hard time to make money with rental property on the Coast,” he says. “But, if you’re a small investor and will manage the property yourself, it is still a viable investment. You may not pocket a lot each month. The secret is to buy low, rent it for more than the mortgage and pay it down so you have equity in the property.”

There are some tax incentives available for investors through HUD’s Property Assistance Program if rents are kept at pre-Katrina levels, and that is bringing some investors back into the market.

“Typically, people are anxious when they buy rental property, nervous while they own it and happy when they sell it,” Huffman adds. “It’s a hedge, but it’s still a good investment, and good to diversify. In most markets in the state, buying rental property is just as good an investment as the stock market.”

Long time Laurel Realtor and rental property owner Chris Wilson says in general there are advantages to owning rental property as an investment.

“You own a piece of property that you manage, so you control the outcome of a whole lot of it versus stocks and bonds where you don’t control it,” he says. “It’s an investment where someone else is paying the bills. All you’ve got to do is manage it properly.”

He goes on to say there are some tax advantages because the rental property becomes passive income that is not taxed the same as regular income. Taxes are also helped by the depreciation on improvements to the property.

Asked if now is a good time to invest in rental property, Wilson replies that it depends on where the property is located. “Generally, it’s always a good time to invest in property that pays for itself,” he says, “but there are some pitfalls. The property is not liquid, and an investor must get in it for the long haul. The property owner must make wise decisions and must manage the property.”

Wilson, who is president of the Mississippi Association of Realtors, sees an increasing trend of owning rental property for investment throughout the state.

“Every day when the stock market goes down, somebody says they need to diversify, and with the low interest rates being paid by banks on CDs, that adds to the interest in rental property,” he says. “I see it increasing on the commercial side, too.”

Noting that he said property owners get to manage their investment, Wilson says the verb changes to “have” to manage their investment. “People find it’s a bit more complex than they thought it would be,” he says. “It’s not just collecting the rent checks. It’s a good investment if you’re geared up for it and manage it. You should know what you’re getting into with rental property.”

Contact MBJ contributing writer Lynn Lofton at llofton656@aol.com.

About Lynn Lofton

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