Everywhere you turn today you hear that now is the right time to buy real estate – especially for investment purposes. But is this sentiment true for corporate housing investors too?
The answer isn’t black and white. Those wanting to invest in corporate housing real estate must be sure to do their homework, work out the numbers and then decide if it’s time to move forward with an investment property.
Here are some questions to ask yourself before you invest in a corporate rental property:
Is the market still depreciating or are you seeing signs of a recovery? It’s important to look at whether a particular geographic market is still on its way down or if it’s showing signs of recovery. You can find stats on individual cities online, or talk with several real estate advisors in the area you’re looking buy. You want to look for areas that are just starting to go up – this way you know the market has already hit the bottom but you’ll still be able to buy low.
Is the area ripe for corporate housing? Typically major metro areas attract business travelers, so they are usually a sure-thing for corporate housing. That said, corporate travel is down so you want to look for an area that also attracts others looking for furnished, short-term housing. Great places to invest include areas that include universities, hospitals and sporting complexes.
Are condo buildings with lots of foreclosures a good or bad investment? While you can probably get a fabulous deal by buying in a condo building that has several foreclosures (after all, the prices are probably rock bottom), what you must be aware of is the problems that foreclosed units create in a building. A foreclosed unit is probably not paying HOA fees – and multiple units not paying HOA fees can create a huge crater in the building’s reserves. If the building is 20 years old, it will likely be facing some maintenance issues in the next few years (new roof, furnace, etc) and you may be assessed a special assessment to cover those costs simply because the HOA’s reserves were depleted by foreclosed units. Be smart and do your homework on the building to determine if it’s the right investment opportunity.
Do the numbers add up? A good way to ensure you’ll be making vs. losing money on a corporate housing rental is to make sure the property cash-flows well. Because you’ll be furnishing the home and paying utilities, cable and other fees that come along with a furnished unit, you’ll want to make sure the rental fee you’ll charge more than covers the costs involved with ownership. Investment properties must cash-flow well – as appreciation is an unknown and can be icing on the cake if it happens. Assess the going rate of other corporate housing rentals and hotels in that area and see if your asking price is on-par or below those rental rates.
Is that the real price? One thing every real estate investor knows is that just because someone asks for a price doesn’t mean that IS the price. Make sure you do your homework and get the property at or below fair market value so that you get instant appreciation on the home. Don’t let your emotions guide you – if the numbers don’t work with the amount the seller is willing to sell it to you for, then walk away. Even today, when houses are sitting on the market for months and even years, homeowners are still overpricing their homes because they are stuck in a 2006 mindset while buyers are in a 2009/post-bubble mindset.
What are your investment goals? Investing in real estate will have its ups and downs so you’ll need to be prepared to go along for the ride. If you have extra cash to invest, then it’s obviously a great time to buy – after all, who wants to put that money in the stock market these days?!? But if you’re worried about losing your job and don’t have six months of reserves on-hand, then don’t get sucked into the buying frenzy. Some investors are investing in rental homes through their self-directed IRAs so they can grow their retirement nest eggs, while others are doing it to diversify their income streams. Work with your financial advisor to determine your financial goals to assess whether real estate – particularly corporate housing – is the right investment for you.
Photo: Casey Serin