6 Reasons to Buy an Investment Property to Generate Rental Income in 2018

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Most of us like to invest our money in ways that make us more money. But most people tend to invest only in the stock market. There is nothing wrong with that, but 2018 looks like it could be a good year to buy an investment property to generate rental income. With rental income, you can enjoy passive cash flow without too much work, if you do it right. The way the economy is looking, 2018 will be a good year to invest in real estate.

how to buy investment property

The timing looks favorable for buying investment properties and rental income homes in may regions of the country in 2018.

Here are some of the reasons why below. Also, we provide you with some ideas on where and how to invest to generate your rental income.

#1 Economic Growth Looking Strong

There are indications that Q4 2017 and Q1 2018 could experience strong economic growth beyond what has been achieved in 2017. According to the GDPNow Real GDP forecast for this quarter, growth for Q4 could top 4.

If the growth rate indeed is in this range, this will bring about some very tantalizing possibility for those who buy investment properties. GDP growth in the range of 4% has not been seen for at least a decade. If there is that type of growth, more workers will have money in their pockets and will be working more than they have in years.

When workers have more money, it is natural for the housing market to get stronger. More workers are going to be renting homes and apartments. So, with strong economic growth on the horizon for 2018, buying investment properties in strong markets could be a great decision for 2018.

#2 Unemployment Rate Is Approximately 4%

It appears that unemployment will be only 4% or so for 2018. This also suggests that economic activity is picking up. When more people are working, more people need places of their own to live. This means that rental property investors should see lower vacancy rates and tighter demand for rental housing.

#3 Interest Rates Are Still Low on Investment Properties and Rental Homes

Mortgage interest rates have not climbed as much as many people expected in 2017. For owner-occupied homes, it is possible to get a fixed rate mortgage in the near record-lows. While it’s true you will likely pay higher rates for a loan on an investment property, it is still a good move to buy rental homes and investment properties with loans if you have the credit and assets to do so. Check mortgage rates for second homes and investment properties now.

#4 Home Ownership Is Still Near All-Time Lows

The US government does not consider it good news that home ownership is near an all-time low of 62-63%, but it can be very good news for rental property owners.

Obviously, the more people who are in the rental market, the greater the demand for rental properties. With the economy heating up and many people still unable to buy their own homes due to credit problems from the last economic downturn, rental property owners will be in a very good position in 2018.

#5 Rents Are Near an All-Time High

Rents as a percentage of income are near a high of 29%. For comparison’s sake, the rate was 25.8% from 1985 to 2000. So, this is allowing may rental property owners in major cities to increase rents. This means a better rate of return for your financial investment.

If you own rental properties in Los Angeles, New York, San Francisco or Miami, you probably can do extremely well in 2018. In those cities rents are costing people 45% of their income. Meanwhile, in cities such as Dallas and Houston, it is more around 30%. Many believe that 2018 will be another great year to buy a rental home with affordable financing still being predicted.

#6 Oil and Gas Prices Are Staying Low

Gas prices in much of the country continue to be at $2 per gallon or below, unless you are in California or other high-priced areas. With gas prices low, more renters are able to afford living in their own places, which leads to a lower vacancy rate for rental property owners in 2018.

As far as where to consider investing your money for rental properties, these look like good bets for multifamily properties for 2018:

  • Sacramento
  • Seattle
  • Tacoma
  • Portland
  • Colorado Springs
  • Phoenix
  • Tampa
  • Chicago
  • Jacksonville
  • Los Angeles

For buying rental homes, experts believe that these cities have very good potential for 2018:

  • Pittsburgh
  • Louis
  • Indianapolis
  • Oklahoma City
  • Richmond
  • Memphis
  • Columbia
  • Cincinnati
  • Cleveland

Summary on Buying a Rental Home or Investment Property

2018 looks to be a strong year to invest in real estate properties. The market generally is getting stronger, rental demand and prices are going higher, and the job market is strong. For investors with less cash, you may want to go for lower cost but high growth cities such as Oklahoma City and Cleveland. But investors that have a lot of cash will definitely be attracted to the strong markets in San Diego, San Francisco, Seattle and Los Angeles.

References: Ways to Invest in Real Estate. (2015). Retrieved from https://thecollegeinvestor.com/10414/ways-to-invest-in-real-estate/ and US Economic Outlook 2018. (2017). Retrieved from https://www.thebalance.com/us-economic-outlook-3305669

About Bryan Dornan

With over 20 years in the mortgage industry, Bryan Dornan has started several companies, such as the Lead Planet, Mortgage Lenders Plus and the Refi Guide. Mr. Dornan has written hundreds of finance related articles in an effort to promote home-ownership to consumers across the United States.