Get a Second Mortgage Loan and Become a Landlord
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UPDATED: Apr 16, 2012
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Now that we’re approaching what some believe is the tail of the recession, prudent investors and first-time buyers alike are looking at the current housing market and taking the initiative to capitalize on this once-in-a-lifetime opportunity. Today’s mortgage loan market has likely bottomed out, revealing figurative gold for those willing to dive headfirst into the housing market.
Such a move, however, is not for everybody. Those who watched their friends and loved ones get burned by the 2008 housing collapse will likely feel very apprehensive about meddling in real estate again for some time. But those who can stomach it may find that now is the perfect time to take out a second mortgage loan.
A Landlord’s Paradise
Investing in a second property is usually synonymous with “flipping,” the practice of buying low and selling high, but some experts are saying the real money-making opportunity is to buy and rent.
The reason? Second mortgage loans can be paid off with other people’s money—tenant’s money.
“Prices are not just dropping, but staying low. Interest rates are not just dropping, but staying low. And former homeowners aren’t able to buy,” explained Tara-Nicholle Nelson, a real estate broker, attorney, and founder of RethinkRealEstate.com, according to Reuters.
Since former homeowners aren’t able to buy—due to defaulting on their mortgage loans—they are forced to rent. That renting population has grown by millions in the last few years, rising by the tens of thousands with each passing month.
Even successful flippers are seeing this growing market as a source of huge opportunity.
“Today, there are people who never intended to be landlords, but they are saying, ‘There is a demand, the economy is moving, and I need to move, so I’m going to turn my real estate into an investment,’” Kimberly Smith, a corporate rental business owner, told Reuters.
Take Advantage of the Recession
From a utilitarian’s standpoint, recessions are awful economic catastrophes. They scar the economy, breed uncertainty and anxiety, and put a halt to forward movement. Recessions scare foreign countries and dissuade them from working with the afflicted society, which often only adds to a slow moving recovery.
From a humanitarian’s standpoint, recessions are heartbreaking. Retirements are blown, jobs are lost, and, as we’ve been seeing for the past 4 years, homes are repossessed. Families are torn apart by stress, financial hardship, and depression, and everyday we’re reminded of how our neighbors are faring as the media continuously reminds the nation of what sort of state we’re in.
But from an investor’s standpoint, recessions are buried treasure. For those unaffected by the collapse, a recession can lead to seemingly unreal opportunities—much like those we’re seeing in the mortgage loan market today.
Due to the fact that property values have dropped immensely coupled with historic low interest rates, willing and able homebuyers have never faced a more opportune time to take out a second mortgage loan.
The Transition from Simple Investor to Landlord
The one downside to acting as a landlord, however, is the fact that such a position requires ongoing work. Unlike property flipping, landlords must be aware of their responsibilities, and must constantly satisfy those responsibilities. Many homeowners—and even seasoned investors—have no idea how to be a landlord.
“Landlording” requires somebody who is willing to learn a new craft. The future landlord must take the initiative and learn property codes, fair housing laws, and be available to hear and respond to tenant requests.
Once a future landlord does his or her due diligence on what’s required of them, they can secure a second mortgage loan and purchase a property at today’s amazing deals. To find appropriate tenants, Danielle Babb, a landlord of four different properties told Reuters, to avoid “gut feelings.”
Discrimination based on sex, gender, and religion is prohibited by law, but landlords can use their deductive reasoning to select the most prime candidates.
“I’ll tell people to look at the car [applicants] are driving up in. If it’s dirty and messy, take note,” said Babb.
Erin Gleason, a real estate writer for About.com, gives similar advice. She advises landlords that tenants who reply to ads after normal working hours or on weekends may be of higher quality than those who seek a property tour at 1:00 PM on a weekday. While this isn’t always true, it’s an observation that comes with a “learning curve” that new landlords often disregard or are unaware of.
With the availability of resources online, obtaining a second mortgage loan and entering the world of property management has never been easier.
Sure acting as a landlord may be hard work, but the potential payoff can be tremendous. When properties that cost upwards of $300,000 five years ago now are appraised at $150,000 to $200,000, a prudent investor should have no problem building equity and paying their second mortgage loans off with other people’s money.