Ready, set, rent: considerations before wearing the landlord hat.

• Author: Kennard, David
• Position: Entrepreneur Edge

Falling home prices may have many thinking opportunity, but investors considering the rental market should proceed cautiously, according to some local experts.

Danny Gutierrez, a realtor with TruNet Real Estate LLC in Salt Lake and a landlord, says he sold nearly all of his rental homes when "the market was tanking." Like many rental property owners, Gutierrez witnessed the simple principle of supply and demand; as more rental homes became available, landlords needed to lower their rates to stay competitive.

As real estate prices have dropped, however, rental investments have become attractive. "Investors have come into the market and snatched up deals over the last year," says Andrew Oliverson, director of REO (real estate owned- property that goes back to the mortgage company after an unsuccessful foreclosure auction) sales at Green River Capital LC in Salt Lake. "While at the time the prices were good, we believe (and national contacts have advised) that we are in for a second, larger, more sustained surge of REOs."

Buy Low, Rent High

As in any investment, rental properties can be more profitable if the initial investment can be kept as low as possible.

Like owner-occupants, investment buyers should consider properties with a low cost per square foot and location, location, location. "Think about where tenants want to be," Gutierrez says. "If you are the cheapest house in the area, you are always going to be able to rent it."

There are no real secrets to finding a low purchase price, Gutierrez says, but he has bought more than 50 homes at foreclosure auctions. "The downside to buying homes that way is you rarely have time to do a walk through and you usually have to pay cash within 24 hours of winning the auction," Gutierrez says.

Homes going to auction can be found through legal notices published in local newspapers or online at utahlegals.com.

Realtors who specialized in bank-owned or REO properties can also help you locate rental properties. Realtors often know when a bank-owned property is about to go on the market and can help investors make an appropriate offer. And if the timing is right, sometimes a deal can be struck before the listing hits the Multiple Listing Service.

Buried in Maintenance

One of the hidden costs to rental properties is what many property managers call deferred maintenance. Manufacturers know that postponing equipment maintenance to reduce costs often leads to much higher costs down the road.

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