Who Else Wants to Make Money in Real Estate?
March 19th, 2008
It wasn’t until the past month that I have turned the corner on seeing real estate as being a great investment. I know, I am a Realtor, and should be preaching this night and day, but I haven’t. Now is the time!
I am usually a skeptic while reading the newspapers and magazines (just ask my wife!). After many months of doom and gloom, I am seeing cracks in the armor of despairI. There are properties out there that are ripe for a great investment.
Here is an excerpt from Time Magazine titled “Ignore the Headlines” by Dan Kadlec:
But let’s say you are emotionally ready to be a homeowner. You have good credit, plan to stay put for five years and have been waiting for the perfect entry point. It’s time to get serious–before an inevitable rise in interest rates wipes out your advantage. “The thing that will make home prices stop falling is the very same thing that will push mortgage rates higher,” says Jim Svinth, chief economist at mortgage firm Lending Tree. So anything you gain by a further drop in prices might be offset by rising financing costs.
Consider a typical home that sells for $218,900. You put down 20% and get a 30-year fixed-rate mortgage at today’s rate of 5.5%. Monthly principal and interest come to $994.31. Let’s say that 12 months from now the same house goes for 10% less, or $197,010. But by then the recession is history and the Fed is jacking up rates to stem inflation. If mortgage costs rise a point, to 6.5%, your monthly payment would be $994.94 and you’d have saved nothing. Meanwhile, home prices might steady and sellers might become less willing to negotiate. And you have spent a year living someplace you’d rather not be.
It’s more complicated if you must sell before you can buy. But that logjam won’t persist forever–and if it appears you’ll be trapped for a few years, try to refinance at today’s lower rates. Risks always seem most acute when the headlines give you ulcers. But that’s exactly when you should think long term–and get off your thumbs.
There are 2 people contacting me this week to talk about where the good investments are right now. We talk about goals of appreciation or net rental income, judge how much renovation work they wish to do, and also timeline for cashing out. Each one of these goals put us on a different path.
Example one: Buying a rental property for net income and eventual appreciation. There is a one bedroom condo in Framingham that is bank owned and sitting vacant on market. Comparable renovated units have sold for $125K in the past 6 months. Non-renovated units attempted to sell for the same price and were wildly unsuccessful.
This bank owned condo is listed in the $80K’s. How can you go wrong? Renovate it immediately and list it - maybe? Rent it out in current condition, make a net gain each month - maybe? Live in it, renovate it, sell it when market appreciates in a few years - maybe? No matter, I like the possibilities!
Example two: Single family home in great neighborhood is a short sale. This means essentially that the owner owes more than they could sell it for. They ask the bank to accept less rather than foreclose on them. Throw them an offer with the market depreciated over the past 2 years, enjoy life for a few years, and sell it for fair market value in a few years. I think I remember an old saying… something like this… “buy low, sell high”. Ring a bell?
Psst… this is pretty “low” right now!
You will only know that you are in the bottom of the real estate market when you are viewing it from the rear view mirror. Prices will be going up when we recognize the market was at the lowest point.
Categories: Market Conditions, Mortgage Updates, Real Estate
This entry was posted on Wednesday, March 19th, 2008 at 10:38 am and is filed under Market Conditions, Mortgage Updates, Real Estate. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
that is a great article. it seems that we all know that the media is twisted at times but for some reason we love it when they agree with us.
that is a great article. i love when the media says what we have said all along.