News of mortgage rates going down and the housing market cooling are making their rounds recently. Is now the best time to find rental property?
Table of Contents
- Best Time to Find Rental Property: Highest Inventory
- Best Time to Find Rental Property: Lowest Prices
- Best Time to Find Rental Property: Seasonal Breakdown
- Should You Buy a Rental Property With an Existing Tenant?
- How to Find the Best Rental Property in 6 Steps
Recently, we’ve seen a housing slowdown in a lot of US markets. We also witnessed mortgage rates go below 5% for the first time since April 2022. Experts and analysts, however, agree that we’re not on the brink of a housing market crash. The red-hot market was, after all, expected to reach its peak and start cooling down eventually.
As it is, there are a lot of different factors that come into play as housing sales and mortgage rates go down. Real estate investors – both seasoned and newbies – are now asking themselves, “Is now the best time to find rental property?”
We hope to give you a better understanding of how real estate investing works at this time so you can make wiser decisions. We will talk about how to find the right investment properties and when to know when is the right time to buy. You will also learn how Mashvisor’s rental property finder can help you in your real estate investing journey.
Best Time to Find Rental Property: Highest Inventory
One of the things that rental property investors consider when buying investment properties is seasonality. Home sales and rentals have peak and off-peak seasons, depending on the location and time of the year.
Generally, the real estate market slows down during colder months and starts picking up by springtime. There are several reasons behind this. Parents aren’t keen on moving in the middle of a school year. It is why the busiest moving times of the year happen during summer.
The cold weather also provides more challenges to moving and transferring places during the winter. It is why there are far fewer buyers and more sellers during colder months.
Seasonality does not just apply to home sales. It also affects the rental market in the same way. Because people prefer to move during summertime, rental rates go up during this season.
Inversely, the lowest rental rates are found during the months of October to February. You can say that how hot or cold the weather is will reflect how hot or cold the market will get.
Seasons affect the housing stock and property prices. However, you shouldn’t be scared of low-inventory, high-priced seasons. Chances are, if you do your due diligence, you are bound to spot some pretty good deals, especially with motivated sellers.
Opportunities During High-Inventory Seasons
A lot of potential rental property investors stay away from markets with low inventory and high costs. Most investors find it prudent to buy real estate properties during seasons with higher inventory, like fall and winter.
The period of April to June has the highest housing stock almost every year. Inventory is plentiful during spring because summertime is ideal for moving. However, because of this, the competition is at its fiercest during this time. It limits the number of available properties and increases market prices.
Fall and winter, on the other hand, are slow seasons for real estate as not many buyers want to deal with the inconveniences of moving during such periods. It creates low demand for housing, which consequently means there is more inventory to go around. As a result, rental property prices decrease. This makes it the best time for rental property investors to find investment opportunities in a lot of markets.
Because demand is lower, sellers – especially motivated ones – are forced to lower their asking prices to increase the chances of making a sale during this time. It is harder for them to find buyers during colder months, so they are more willing to negotiate as long as they find the terms reasonable.
Buyers’ Market vs Sellers’ Market
Another thing you need to consider when it comes to inventory is whether a location is a buyers’ or a sellers’ market.
For-sale properties don’t stay listed for too long in a sellers’ market. It usually means that the demand for housing exceeds the supply in the area.
A sellers’ market is characterized by an abundance of interested buyers but a housing stock that cannot meet the demand. Since the stock is low, sellers have an advantage over buyers as they can set higher prices according to the law of supply and demand.
On the other hand, a buyers’ market is one where there is an abundance of housing supply and not much of a demand. Usually, it has something to do with location and season. The low demand and high supply swing the pendulum over to the buyers. It gives them the upper hand when negotiating with sellers.
Best Time to Find Rental Property: Lowest Prices
Since we’re already on the topic of prices, the colder months make buying a rental property much more affordable. As mentioned earlier, sellers who want to sell during this time are willing to negotiate. You can get the best possible deal during this time if you know how to negotiate well enough and make a convincing case.
Now, wintertime isn’t just the best time to find rental property investment opportunities. It may be the ideal time to buy, but it is still possible to find some of the best deals during spring and summer. However, it will still depend on the location and how badly the seller wants to sell. You just need to find promising properties more diligently as they are not as easy to find.
Home prices may go down during the colder months, but so does the inventory. It means that if you want to find a rental property during winter, it might not be a good time to find the best house on the market.
Again, generally, the best times to spot low prices on rental properties are during the colder seasons. However, we still recommend talking to a local real estate broker or agent to get a better idea of peak and off-peak sales seasons in the market you’re considering.
Best Time to Find Rental Property: Seasonal Breakdown
To summarize the previous sections, here is a breakdown of the best (and worst) times to buy a rental property.
Best Time to Buy Real Estate
The best time to buy real estate, whether it’s to be used as a primary residence or rental property, is from October to February. Median sales prices are typically more affordable within this time. There are more price reductions during December. Usually, January has the lowest median property prices and higher median days on market.
Transition Period to Worst Time to Buy Real Estate
March is the time when things start to pick up, and the real estate market starts to get hotter. The period between February and April functions as a transitional phase between the colder and hotter markets.
Worst Time to Buy Real Estate
April to August is considered the peak months for purchasing real estate. More sellers come out during this period because they know that it is the best time to sell. However, as a buyer, you will face more competition during these months. There may be higher inventory, but prices are also higher because there is greater demand for housing.
Transition to the Best Time to Buy Real Estate
The summer-hot markets start to fizzle around September as the year moves into cooler temperatures. As the weather gets colder, so does the real estate market. At this time, the inventory dwindles, but demand for housing and prices also go down. It sets the stage for a colder real estate market, which is the best time to find investment opportunities.
Should You Buy a Rental Property With an Existing Tenant?
When it comes to rental property investment, people are divided on the idea of buying one with an existing tenant. There are some benefits and drawbacks to investing in rental properties already occupied by tenants. Let’s look at some of them.
Pros of Buying a Rental Property With a Tenant
Here are some of the best things about buying a rental property with an existing tenant:
- No need to find tenants. Finding tenants is a long and arduous process. As an investor, you want to find only the best possible tenants. Landlords are often faced with this challenge and already know how to screen the best potential tenants from the bad. When you buy a property that’s already occupied, chances are you are inheriting a good tenant, too.
- Instant cash flow. Since you no longer need to find a tenant, you can expect immediate income within the month of your purchase. You don’t need to worry about losing income on vacancy rates.
- Code-compliant property. A rental property with tenants is one of the best properties to buy. It is because, as long as it actively functions as a rental, the property should be compliant with local building codes.
Cons of Buying a Rental Property With a Tenant
On the flip side, properties that come with tenants may also come with some excess baggage, such as the following:
- Inherited legal risks. Although buying an occupied property may be one of the best things you can do, it may also bring certain legal risks. For instance, you might get a property that doesn’t meet some legal requirements. It can be quite problematic for you. Make sure that before buying an occupied property, you do a thorough home inspection first and check on all other related legal documents.
- Lease terms must be honored. Lease terms vary depending on what was mutually agreed upon by both parties. As a potential landlord, you are legally bound to honor any existing lease terms when absorbing tenants along with your property purchase. Unfortunately, you cannot make any changes to the terms until they expire.
- Removing a tenant may be challenging. If in the unfortunate event that you inherit a bad tenant, you cannot just ask them to leave. The eviction process can be quite difficult and expensive. It will depend on the state you’re in. Some states are friendlier to landlords, while others favor tenants.
How to Find the Best Rental Property in 6 Steps
As an investor, more than just knowing when to buy a rental property, you should know how to find them. Even if you do decide to buy during the best time of the year for rental property investing, if you have no clue of how to go looking for the best income properties for sale, you’ll still be lost.
Here are a few practical tips for spotting the best investment opportunities regardless of the season:
1. Choose Between Buying in Cash or Financing Your Purchase
Your financial situation will greatly impact your buying decisions. Of course, the best strategy is to buy in cash, as it frees you from having to deal with monthly mortgage payments. However, understandably, not everyone has the luxury of doing an all-cash transaction. It will eventually depend on your financial situation.
If you can afford to purchase a property in cash without compromising your other priorities, go for it. Again, that’s the best possible investment scenario. But if you can’t, be wise and shop around for the best deals that you can get from lenders.
2. Look for the Best Location
Location is, perhaps, the most important factor in real estate investing. Fortunately, technology now allows you to find the best deals online. A website like Mashvisor exists for this particular purpose. It helps investors like you spot the best investment opportunities with its rental property finder tool.
The real estate website’s heatmap allows you to see how a neighborhood is performing in terms of monthly rental income (traditional and Airbnb), cash on cash returns (traditional and Airbnb), listing prices, and Airbnb occupancy rates. The tool makes it easier for you to zoom in on promising neighborhoods that can attract tenants and guests.
To learn more about how Mashvisor can help you find your next investment property, schedule a demo today.
3. Have a Clear Long-Term Strategy in Place
As an investor, you should have a set of goals for investing. You don’t just buy a property just for buying’s sake. It must be purposeful.
While the main purpose is to make a good profit, there are several ways of doing that. You can buy property to fix and flip. You can have a buy-and-hold real estate strategy for every investment property you purchase. Also, you can venture into micro flipping as a business.
However, the best way to generate a passive income is through rental properties. When it comes to rental properties, you are also faced with making a choice between going for a long-term rental or a short-term rental.
The great thing about using Mashvisor’s rental property finder is it generates a side-by-side comparison of any property you choose, pitting it against itself as a traditional rental and as a vacation rental. It will generate the necessary numbers that will allow you to make the best decision that applies to the subject property.
4. Estimate Your Potential Monthly Rental Income
The next thing you should do is estimate how much you will be making on rental income. It is especially important because it will determine how fast you get your return on investment.
If you’re inheriting a tenant with the property, ask the current landlord what the current rate is. You may also look at rental comps to get a better idea of the rental market in the area.
5. Determine How Good a Return You Can Get
When buying investment properties, you need to learn how to acquire data and make calculations based on it. Using Mashvisor will give you access to a massive database that contains the most accurate data and information you need. Its database is regularly updated so that you don’t need to worry about accuracy in your calculations.
You can use its investment property calculator to see if the math checks out and determine whether a subject property is a profitable investment or not. It will give you the current cash on cash return and cap rates in the market of your choice. You can then use the figures to determine whether a property is worth investing in or not. Investment property analysis becomes a lot easier with Mashvisor.
6. Consult With Some Local Professionals for Guidance
Lastly, we recommend connecting with local professionals who are intimately familiar with the market. Get in touch with real estate professionals, bankers, lenders, and other investors to know your options.
Also, you can ask them for advice regarding the local laws and regulations, as well as get leads in finding the best opportunities available.
Wrapping It Up
Knowing the best time to find rental property is a weapon that can be added to your arsenal as an investor. Timing is everything if you truly want to succeed in this arena. You can use your clear understanding of how seasons come into play to your advantage. However, you can also get an upper hand when you use a real estate website like Mashvisor.
Mashvisor’s rental property finder, real estate heatmap, and investment property calculator are some of the best investing tools available out there today. As a real estate investor, you would want to take advantage of everything that could get you ahead in the game and take it to the next level.
To start using Mashvisor’s real estate investment tools, click here to sign up for a 7-day free trial now, followed by 15% off for life.