A new survey

Jim Gillespie, CEO of Coldwell Banker Real Estate, said that baby boomers drive the U.S. economy; while they are a diverse group and cannot be generalized, their attitudes towards real estate can be telling. Right now, the economy is delaying boomers’ decisions to sell their existing homes, whether to downsize or relocate.

Coldwell Banker Real Estate’s data indicates that the boomers who can afford to are looking for a retirement home or a second home for investment, and many see now as the time to take advantage of lower home prices.

Additional survey findings:

• Younger baby boomers (ages 47 – 55) are more interested in purchasing a second home than older baby boomers (ages 56 – 64), by a margin of 34% to 22%.
• 31% of younger baby boomers are looking to sell an existing home and buy a larger home, compared to just 6% of the older group.
• Downsizing is more appealing to older (80%) than younger (52%) boomers. For the majority of older boomers, the reason for downsizing is not to save money, but to simplify their lives.

Interest rates are historically low, so younger baby boomers are actively seeking income streams for retirement. Perhaps they will be joining the ranks of the nation’s landlords, trading fixed annuities and bank CDs for property management guides and a set of handyman tools.

The Census Bureau says 69.2 million, or 30%, of adults were doubled-up in 2010, compared to 61.7 million adults, or 27.7% in 2007. Total American households who have doubled up due to unemployment or underemployment stands at 18.3%.

Much of the increase comes from people aged 25 – 34, living with their parents. That number increased from 4.7 million before the recession to 5.9 million (14.2% of the age group) in 2010.

The study was done as part of the Census Bureau’s wider report on income, poverty and health insurance. The report shows that household incomes dropped sharply last year. Since 2007, they have fallen 6.4%. Not surprisingly, the number of people living in poverty rose sharply, up for the fourth year in a row to 46.2 million people, or 15.1%.

If counted separately, some 45% of the young adults who live with their parents would fall below the poverty threshold. Because an entire household’s income is counted when determining poverty status, the group has an official poverty rate of only 8.4%.

What does the Census Bureau data mean for landlords?

• Fewer households mean lower demand for rental housing.
• Americans have less income to spend on housing and other necessities.
• Fewer home sales will continue to drag the housing market down.
• Once the economy starts to improve, many of the families and adult children will move out on their own, spurring a strong demand for housing.

Now, if only the economy would start to improve!

But if you’re thinking about buying your first rental property, the same factors that most landlords consider before diving into the business apply to you, too. Here are a few reasons to consider investing in rental property:

You want a diversified investment portfolio. Ask your financial advisor (preferably a professional, not your brother-in-law!) how rental property would fit into your investment mix. Diversification can help you protect your assets.

You want additional income. Most rental property owners are middle-class working people who decide another income source would be beneficial. It takes time to manage a rental property business, but you can do it part time and keep your day job. And who knows? If you’re successful, you can always work into making your rental business a full-time venture.

There are tax advantages. Again, check with your tax professional, but real estate is one of the most favored investments, tax-wise. A few benefits are deductible expenses, depreciation write-offs, and favorable capital gains tax rates. Writing off depreciation alone can offer a large tax break against annual cash flow.

In the long run, real estate holds value. Despite the housing bubble the US recently experienced, depreciating home values and foreclosures, over the long term, rental properties have held their value through all the boom and bust housing market cycles. Of course every business has up periods and down periods, and rental property is no exception. Think long term, and be cautious.

Investing in rental property can help you in retirement. Done well, and with a thought-out strategy, real estate investment can augment your retirement fund. As with any investment, the earlier you begin, the better your results will be. Think about holding properties for 20—30 years, not 5. Think tortoise—not hare—when it comes to making decisions about rental property as an investment.

The contents of this article are intended for general information purposes only, and should not be relied upon as a substitute for obtaining tax advice applicable to your situation.

When considering upgrades to your rental units, don’t look at them as expenses; upgrades can potentially earn you several times their expense in profits. Just be sure to compare the cost of the upgrade with the amount of increased rent to see how long that will take.

If you’re considering upgrades, here are some guidelines to help you increase the value—and therefore, the monthly rent—of your investment property:

1. Maximize the view: If you can add a window to reveal a mountain, water, park, or forest view, do so! Your unit will instantly increase in value.

2. Increase storage: Tenants love closet space, built-in shelves, and built-in bookcases. Fill in dead space areas with additional storage and watch tenants fall in love.

3. Find outdoor living space: Add a patio or deck to give your tenants the outdoor living areas that everyone wants now.

4. Upgrade fixtures: Look at your rental property through a tenant’s eyes: are the light fixtures and switch plates tired and outdated? Faucets chipped and tarnished? Carpet stained and out of style? Adding fresh carpets, tile, molding, and paint will delight potential tenants.

5. Increase energy efficiency: Keep tenants toasty warm and maximize curb appeal by upgrading windows and patio doors. French doors and new windows instantly increase value.

6. Let there be light: The amount of natural light directly affects the value of your rental unit. If you enlarge or add windows or skylights to bring in more light, you will increase value; therefore, you can increase the rent and see a return on your investment.

7. Replace worn out appliances: A new dishwasher or a microwave/exhaust hood combination are simple upgrades that don’t cost thousands of dollars—and are seen as a real treat by prospective tenants.

Remember, if you want high-quality tenants, you must give them what they’re looking for. If they want a nice place for their family to live, they will pay a premium for it. Spending money now will increase your income and cash flow in the future!

More Homeowners are Hanging This Sign

The economy is making landlords out of homeowners in ever-increasing numbers. For some, their home’s value has plummeted, and they are reluctant to sell at current prices, believing their home is worth more. Sellers are riding out the market, renting their homes until values increase again. 

Others turn to renting because they cannot keep a house on the market indefinitely, while paying mortgage, taxes, and insurance.  Renting becomes a way to cover out-of-pocket expenses.

Still others become landlords as a way to supplement income in retirement or while still employed. As times get tougher, investments trickier, and jobs uncertain, owning income-producing real estate makes sense to more and more people.

If you have decided to rent your home or invest in rental property, you now face another decision: to manage your property yourself, or hire a property management company.  Ask yourself these questions to help you decide:

Are you a people person? Do you enjoy helping people solve problems—without much appreciation? Landlords cannot be shy or guarded—they should enjoy working with people from all backgrounds and personality types.

Are you patient? Do you convey a professional demeanor? Landlords must be tough, fair, and not easily ruffled.  Some tenants will try to manipulate you; others will need more attention; still other tenants will require a firm hand.  Landlords must be consistent with the rules, applying them equally to all tenants. Are you ready for this challenge?

Can you easily separate personal emotions from business decisions?  If you rent your home, it becomes a business venture—some people cannot see it that way. If you manage tenants, their personal problems cannot become yours.

Are you well organized? Property management requires excellent record keeping skills, bookkeeping, and time-management. You must become familiar with housing laws and contracts, too. 

Do you have maintenance and repair skills? Or can you manage someone who does?

Finally, are you willing to commit the time, effort, and stress involved in becoming your own property manager?  

If you answered “yes” to all of these questions, then rental property management could be a good fit for your skills.  If not, you might still consider it, knowing which areas need work, and where you need to be more flexible.  

If your answers are all “no”s, then you might turn your attention to ventures other than managing property. Still, owning income property is not out of the question, because you don’t have to manage it yourself.

Start the decision-making process by being honest with yourself. Know your strengths and weaknesses. If you are truly up for the challenge, educate yourself to ensure you are not stepping over legal boundaries or into unfamiliar territory. The better prepared you are, the more successful you will be.

Managing rental property on your own does not have to be a completely solo venture. Seek out the resources that will help you do a better job, such as educational opportunities, maintenance service providers, and tenant screening services.