If you are currently investing in Florida real estate, could a rental agreement solve some of the known problems of the Sunshine State’s housing market?
Although Florida is and remains one of the most attractive and popular real estate destinations in the country, it is not without its current challenges for investors. Renting Florida real estate is worth considering, but before you do, you need to establish what’s going on in the market that makes this state a good candidate for this particular type of real estate investment.
Like all other forms of investment, renting and owning can be the right choice (and for some, even the holy grail). But you really need to understand when the conditions are right for this type of investment. Let’s take a closer look at what these conditions are.
When is the right time to invest in rental properties?
Investors considering rental properties should consider two key factors. The first is whether there is strong demand for housing in the location you are considering investing in. The second is whether there are a significant number of prospective buyers who are not yet able (or unwilling) to purchase the property. This is usually the case in popular markets that simultaneously have problems with affordability, inventory, or other key market parameters.
As an investor, you are looking for a housing market that is currently depressed due to difficult market conditions. do not have Because that area is not popular. Think of it this way. If you’re better off selling in a few months or years, and you’ll make more money renting out your home than flipping it now, rent-to-own can be a great option. You can secure a buyer quickly and sell at the right time and at market price.
Timing plays a big role when deciding to invest in a rental home. If you’re investing in a market that’s currently booming, with a glut of qualified buyers and properties selling like hotcakes, then home flipping options should be your priority. However, if the housing market situation is not very good and many people are unable to buy even if they want to buy, and as a result the housing market is depressed, rental contracts are the perfect solution between housing conversion and long-term rental. This could be a good compromise. of the property.
Why Florida is the best rental market right now
Florida has emerged as the perfect rental market because it offers the exact combination of factors that make this investment option attractive.
Florida’s population is rapidly increasingIn fact, Florida will have the fastest growing population in the United States from 2022 to 2023, with hundreds of thousands of new people coming to Florida every year. Urban areas like Orlando, Tampa, and Miami attract the most moving companies, but so do smaller metropolitan areas like Sarasota and Fort Myers.
But Florida’s home sales market is stagnant. Even popular destinations like Miami were rated by the government as markets with “not much competition.” LiDiffin; Few homes receive multiple offers, and most homes sell for less than list price (on average less than 4%).
This may seem contradictory, but the truth is that Florida is facing a major economic crisis. House prices continue to rise due to inventory shortages. The average home price in the state is currently $397,137— nearly $43,000 higher than the national average $354,179. But prospective buyers face high interest rates and the highest home insurance premiums in the country.
result? “This is the lowest home price in 40 years,” said Matt Walsh, housing economist at Moody’s Analytics. newsweek He said existing home sales in the state are at “the lowest levels since the Great Financial Crisis.”
Despite high home prices, Florida is not currently a seller’s market. According to recent information, Redfin ReportWhile home prices in Florida continue to rise, the number of home sales is down, and homes are on the market for an average of a week longer than a year ago.
This doesn’t mean people don’t want to buy homes in Florida or that Florida’s prospects as a real estate market are bad. The current situation simply means that now may not be the best time to sell. Many buyers are waiting for mortgage rates to be a little lower than they are now. Some of you may be looking for a solution to the home insurance crisis.
Having the option to buy a home you are currently renting will be attractive to many prospective buyers. they won’t leave. they’re just waiting.
For tenants, rent-to-own can feel like starting the process of buying a home months or even years before actually buying the home. This is ideal for prospective buyers who are hesitant or need a little more time to put together a down payment on a future home.
But what does it mean for investors?
Investor Benefits: Cash Flow and Security
The most obvious advantage of rental properties for investors is that rents are often above market rates and provide a stable cash flow. Renters in rental properties tend to stay put and have higher tenant retention rates, meaning less revenue loss due to vacancies between tenants.
Additionally, tenants who live in rental properties tend to take better care of the property because they intend to live there for the long term. In fact, as rental owners, tenants are often expected to take on many of the responsibilities normally assigned to landlords. From mowing the lawn to making repairs, leases give tenants more leeway to participate in the upkeep of the property. This is actually a great perk for out-of-state investors and investors who want a more passive investment experience.
Additionally, a non-refundable optional fee paid by the tenant to secure the right to purchase increases the upfront profitability of the transaction. Additionally, when tenants purchase a home, the price they pay at the end of the lease includes a capital appreciation rate (usually around 10%).
How does rent-to-own work?
In a typical rental agreement, the buyer agrees to rent the property for a specified period of time (usually up to five years) with an option to buy at the end of the lease at a pre-agreed price. During the rental period, you can put aside a portion of your monthly payments as a down payment. Some leases require the tenant to purchase the home, while others only give the tenant options.
Locking in the sales price at the start of the rental agreement is a great option when investing in a volatile market. If you believe that the price of the home will increase significantly by the time your tenant is ready to buy, you can write a contract that says the final sale price is dependent on the current market value of the home at the end of the contract.
Whichever structure you choose, always be careful to set a sales price that is profitable but not so high that the property is overvalued. This is because it makes it harder for tenant buyers to obtain a mortgage.
Be sure to do your due diligence before signing a rental agreement. This includes researching local market trends, the legal details of rental agreements, and the financial stability of prospective tenant buyers.
Investors should also consider working with a real estate professional who specializes in rental properties. These experts can provide valuable guidance on structuring fair and profitable contracts and ensuring compliance with state and federal regulations.
final thoughts
Florida is the perfect rental market for both buyers and sellers, offering an alternative to home ownership for the former and a lucrative investment niche for the latter. The Sunshine State is a unique real estate market with high demand for real estate, but there are multiple hurdles to home ownership that will continue to be so for the foreseeable future. If your current goal is to avoid a premature sale here, rent-to-own can help you generate stable rental income from your investment while ensuring you eventually sell for a higher price. .
This article is sponsored by IDG
An investment in IDG opens the door to an award-winning history of real estate excellence and leadership. As fellow investors, we understand your needs and are your trusted ally in the field of real estate investment. As the market evolves, so do we. Our agility to adapt to market changes is a key factor in our success, and we want to put that knowledge to work to help our customers succeed.
Note by BiggerPockets: These are the opinions expressed by the author and do not necessarily represent the opinions of BiggerPockets.
