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7 Real Estate Investing Trends For 2017

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This week veteran real estate investor and property manager Larry Arth discusses what he sees as 7 real estate investing trends For 2017.

He says optimism is strong but watch these 7 trends.

By Larry Arth

I have held many discussions with investors, builders, buyers and sellers heading into 2017, and their consensus, as well as everything I have read, leads me to this conclusion:

Real estate investing over the next three years will bring slow and steady increases similar to what we saw in 2016.

Now you may be thinking we are navigating unchartered territories with all the changes happening in the political scene. You may see a mixed bag of information making it difficult to assess your investment strategy.

Many are asking, “Why do so many people have such a different perspective on what the market for real estate will look like?”

The reason is because real estate is a broad topic and no one answer can cover such a broad question. Just as a national weather forecast is not much help in your neighborhood, you also cannot give a national real estate investing forecast. That is why you are seeing such a broad array of ideas as to what the investing landscape will look like.

How Demographic Changes Have Impacted the Apartment Market

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Few dispute the notion that demographics drive the apartment market. When looking at demand, the most fundamental statistics that analysts consider include population, household formation and employment. While these statistics tend to move hand in hand, sometimes patterns emerge that show a chasm in these numbers, and demographers are keen to report how these chasms may explain more about the underlying apartment fundamentals than the more macro trends.

One of the more interesting findings in this expansion can be found in the demographic statistics. Data on households shows that non-family households have grown at a disproportionately faster rate than family households. Non-family households include singles, roommates and any kind of cohabitation arrangement that does not include marriage or children. The graph below clearly shows that this divergence started when the housing market collapsed, but it continued throughout the subsequent eight years. This chart illustrates the common notion that Millennials have put off starting a family and buying a home. It also explains why the apartment market has thrived over the last 10 years, expanding by 12 percent from 2007 to 2016.

Trump To Ax Mortgage Interest Deduction

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For more than a century, home-ownership has come with a small bonus: The mortgage interest deduction. It allows borrowers to deduct the interest paid on their home loans from their income taxes. Real estate agents, home-builders and mortgage lenders have long used it as a selling point. Every so often it comes up in debate, but it is so popular that lawmakers are more than a little bit afraid to touch it. The future Trump administration apparently is not. 

“We’ll cap the mortgage interest, but we’ll allow some deductibility,” said Steve Mnuchin on CNBC Wednesday after confirming that has been asked by President-elect Donald Trump to head the Treasury Department.

5 Reasons to Allow a Tenant to Break Their Lease

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As landlords, we want some amount of tenant stability; after all, tenant turnover is a cashflow killer. Very rarely will we sign a lease for a term of less than one year or allow tenants to break a lease without a very good reason. We just want the general comfort of knowing that we likely will not have to worry about that particular unit for at least a year.

Sometimes, however, tenants want to break their lease. By “break” I mean move out before the lease term is expired. The reasons for this are often quite varied and range from “I just don’t like it here anymore” to “I lost my job.” With the first example, we have to get our tenants to face the hard reality of the lease by explaining to them again that they have signed a contract which we expect them to uphold. We make them understand we really cannot force them to stay, but that there will be penalties if they do not get the OK from us to break their lease.

The second example, however, is a different matter. There are times when we will let a tenant out of their lease, and job loss is one of those potential reasons. I explain why below and also provide you with four other reasons we allow a tenant to break their lease. The 5 Legitimate Reasons to Allow a Tenant to Break Their Lease are

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Landlord Knowledge Base

If you’ve ever considered investing in a few rental properties in Philadelphia or Bucks County, PA now might be a good time. Prices are still low in Philadelphia, but have been on the upswing. According to the National Association of Realtors, the median price of an existing home in a US metropolitan area grew 13.7% between July 2012 and July 2013, the latest in a 17-month streak of year-over-year price increases. 

New landlords can choose from properties that are likely to appreciate and a large pool of potential renters.Licensed realtor Pat Mueller cites a few reasons for this trend: “Many families have lost their homes to foreclosure and are entering the rentals market for the first time in years. Mortgages are also harder to get now, so fewer people are qualifying for a new one.”The more skills you bring to the table to get into Houses for Rent in Philadelphia Philadelphia or Bucks County, PA and the more time you have to devote to your properties, the faster you can make a return on your investment. 

But investing in rentals can also be disastrous (or too stressful to be worthwhile) without expertise. Here are three professionals you may consult about your new rental properties, and what you can do to mitigate how much they cost you:Handyman:  You may need to hire a specialist for some work on your rental. If you need new outlets or new pipes, for example, hire an electrician, plumber or licensed contractor. Handymen usually tackle smaller, more manageable tasks, like:

  • Painting and paint removal
  • Drywall repair
  • Minor appliance repairs (fixing a leaky toilet or faucet, among others)
  • Installing tiling or flooring, moldings, windows, doors
  • Refinishing decks, cabinets and other wood items

When You Could Skip It: You could do any (or all) of these projects yourself if you have the time and interest in learning. Of course, this only works if you live relatively close to your rentals and are flexible enough to service them on short notice. And if you’re willing to respond to the occasional 5 AM basement flooding.

Average Savings: Any base rates or costs-per-hour vary from location to location in Philadelphia or Bucks County, PA , but nationally, you can expect to spend an average of $60 to $85 per hour for repair costs. It general costs less to hire an individual handyman than a handyman employed by a company. Expect an additional charge if your job requires a trip to the store for materials.

Resident Property Manager As the owner of a handful of rental properties, you may be able to manage them yourself, but if you want help, a single resident manager would probably be more cost efficient than a property management company. Resident managers may:

  • Serve as a handyman
  • Advertise vacancies in your units
  • Show apartments to prospective tenants
  • Review rental applications
  • Collect rents

When You Could Skip It: Again, the closer you live to your properties and the more spare time you have, the less likely you are to need a manager. The obligations of being a boss will also cut into the time you save on maintenance.

Average Savings: The national median wage for residential managers is just over $25 per hour. Research the wages in your community and adjust according to how much responsibility your manager will take on. 

Real Estate Agent: Once you’ve gotten your financials in order and done your own research on the neighborhood(s) you’re considering, you might contact a realtor to show you potential properties. You can also arrange for a realtor in Philadelphia or Bucks County, PA to show rentals once they’re ready to rent.

When You Could Skip It: It depends. Even if you’re a local, or have thoroughly researched the neighborhood(s) you’re considering, a realtor is a great resource for a first-time rental buyer. Realtors have access to data and statistics not necessarily available to the general public and first-time buyers may not know all the right questions to ask. Using a realtor to fill your Houses for Rent vacancies is less of a no-brainer, depending on your other time commitments or whether you plan to hire a resident manager who could do the same thing.

Average Savings: As a buyer of rental properties, as when buying your own home, sellers typically pay most, if not all, of the buyer’s realtor fees. In this case, Mueller points out there’s little reason not to work with a realtor. For help in filling your units in Philadelphia or Bucks County, PA, the services of a realtor would set you back between 10-20% of the unit’s rent per month.  Mueller recommends interviewing with several brokers before making your final decision to invest into Houses for Rent .

The Bottom Line: As a new landlord, you can’t necessarily control the flexibility of your schedule or the amount (and cost) of unexpected repairs to your properties. Rentals are a long-term investment. However, to maximize profits from your Houses for Rent, new rentals, you can buy close to home and start small. It is best to begin with just one or two properties. This will allow you to maximize the time you spend on your properties’ needs, and minimize the amount you’ll have to pay anyone else.

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