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Real estate investments??? Is now the time?

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Mortgage and Lending with AFI Mortgage

Just as a "perfect storm" of various economic factors - the subprime mortgage crisis, weakening dollar, and rising inflation at a time when housing prices plummeted from their peak - contributed to the current housing outlook, another set of dynamics is now creating an upside for buyers. While most of the real estate news is focused upon the ominous clouds, another "perfect storm" of positive factors is conspiring to create a silver lining in the sector of the real estate market dedicated to income-producing properties.

Homeowners have begun to get realistic about pricing their listed homes. Whereas many were holding out for higher amounts at the beginning of the year, real estate agents report that sellers are now bringing their asking prices more in line with current appraisal values. Rather than trying to sell and make enough extra money to pay off extraneous debts like credit card balances, for example, homeowners are pricing property based on its own intrinsic value.  A recent storm in our area had everyone thinkning there homes were worth unrealistic amounts however they are getting back in line now. 


One of the most important sellers of single family homes this year happens to be lenders, because they have amassed a great deal of property due to an avalanche of foreclosure repossessions. Banks lose money when they hold on to such properties, and they are reportedly slashing prices aggressively. The homes that don't sell at foreclosure auctions are retained as so-called "real estate owned" or REO properties, and lenders have cut their asking prices for REO homes dramatically within the last several weeks.

But while the housing crisis is causing unprecedented numbers of homeowners to lose their homes - forcing many back into the rental market in search of housing - those who own income-producing rental property are experiencing a rare bull market.

As many as 40 percent of the foreclosures in some cities in the USA involve debtors who bought tenant-occupied rental houses, and savvy investors are now buying up those properties just as monthly rental prices surge.

That means that they can buy the properties at deep discounts but charge higher than normal rental fees.

As a result, they are able to realize positive cash flow. In essence they are buying homes and then letting their eager tenants pay the mortgage, which is a classic formula for investment success and high returns.

Prices have fallen in unlikely high-end markets such as NYC, for instance, and one of the most depressed markets within the luxury home market - Palm Beach, FL - is a prime example. Although the low end of that upscale market is in the millions, the discounts relative to normal pricing are extraordinary.

To maximize success when buying a rental property, experts offer these tips:

*It cost a little more but try to buy in neighborhoods primarily populated by owner-occupied homes, where few rentals are available. The added demand will help ensure a wider pool of tenants willing to pay higher rents.

*Its a good idea to aet aside an interest-bearing escrow account and put security deposits there for safekeeping to avoid the temptation of spending them.

*Those looking for retirement or vacation property can buy it as a rental and gradually convert it to a personal second home as retirement nears.  Generally you have the mortgage paid down substantially.

*Hiring a professional management company to manage rental properties can save money in the long run BIGTIME.  Its what they do, they do it better than you.  Let them do it

*Property owners can tax-deduct management costs while avoiding the time-consuming and stressful business of hands-on management such as late-night emergency repair calls, monthly rent collection, and background checks for potential tenants.

*Ok never use home equity loans to buy a rental property, because it can lead to owing more on your home than it is worth.

7) Consider setting up a simple corporation to hold investment properties. That can help to shield an individual from legal liability, and can make it easier to qualify for tax deductions available to those who own income-producing properties.

8) Be sure to maintain adequate homeowner's insurance coverage, and encourage tenants to take advantage of an affordable renter's insurance policy.

In recent weeks the new listings for homes on the market have slowed to a crawl, which may indicate that the inventories will diminish as demand at current prices grows. The Fed has always insinuated that it may begin a long series of interest rate hikes to fight inflation, and that would inspire those buyers who have been sitting on the fence to go ahead and purchase. If those signs appear it may point to a market bottom and renewed traction for real estate.

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