Buying Investment Property


It’s not your imagination: The housing market recovery is on a roll, upwards! A recent survey of over 100 real estate and economic experts predicts that by the end of 2013, home values will have increased nationwide by an average of 6.7% over a year ago. This is significantly more than the 5.4% bump anticipated in an earlier study.

The Home Price Expectations Survey was conducted by Pulsenomics, LLC on behalf of Zillow. Based on market expectations, the panel predicts that home prices will continue to rise until 2017, coming very close to the record highs of May 2007. The rate of increase however will not be as dramatic as 2013, with appreciation anticipated to slow to 4.4% in 2014 and down to 3.4% in 2017. This represents a cumulative increase of 23.7% through 2017, at which point appreciation is expected to be more in line with historic norms.

Interestingly, most panel members did not feel that rising interest rates would derail the recovery, unless interest rates rise above 6.0%. According to Zillow Senior Economist Dr. Svenja Gudell, “As long as interest rates don’t rise too far and too fast, most markets should be able to absorb these changing dynamics and remain healthy.” It is anticipated that as interest rates rise, investors will pull out of some markets, increasing inventory and helping to stabilize the market.

What does this mean for you? If you are looking to buy, now is the time as prices will continue to rise. Looking to sell? You are more likely to get top dollar between now and the end of the year as inventory, especially here in San Diego County is very limited. As appreciation slows and more inventory hits the market it is less likely that the multiple offer scenarios that we are currently experiencing will continue.

Questions about the value of your home? Interested in an investment property? Just give me a call and I’ll be happy to answer all your questions.

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Freddie Mac announced yesterday that for the first time in history, the average interest rate for a 30-year fixed rate mortgage has dropped below 4.00%  to 3.94%.  Rates for 15-year fixed rate mortgages are even lower, at 3.26%.  Last year at this time the 30-year rate was 4.27%  and the 15-year at 3.72%.

When you combine the low rates with prices that have generally declined throughout the county you have a great opportunity to buy more home for less money.   On a $300,000 mortgage the principal and interest payment at 4.27%  is $1479 per month.  At 3.94%  the monthly payment is $1421 per month.   That is a savings of $58 per month which may not sound like much, but over the length of the mortgage, that is a savings of over $20,880.

So whether you’re looking for your first home, a move-up, or an investment property, now is a great time to buy!  Curious about what’s available?  Give me a call and I’ll be happy to send you some listings of homes and investment opportunities throughout San Diego County.

With the number of homeowners declining, the demand for rentals increasing, prices and interest rates low, and the stock market in disarray, this is a good time to consider purchasing an investment rental property.  But before you buy, make sure you understand that what appears to be a great price isn’t necessarily what you should pay.

Most real estate investors in today’s market are looking for two things:  Building long-term equity, and cash flow.  Unless you simply need a write-off, a property should pretty much pay for itself through the rental income produced.  The potential rent is therefore an important factor in determining what you should pay for a property.

Before writing an offer on a single family home, a condo, or a multi-unit building, do your research.  If the property is currently rented, income information should be available from the owner or listing agent.  However, even in that case it is important to research the local rents to make sure the current rents match the market.   A good place to start your research is online, looking up similar properties for rent in the immediate geographic area.  Another method that works well in a condo complex is to simply walk around and ask people that you meet how much rent tenants pay for comparable units.  You’d be surprised how eager most people are to give you the information you need.

Once you know what you can expect to collect in monthly rent, determine how much cash you will put down and the amount of the mortgage you will have on the property.  The property should rent for no less than 1% of the amount of the mortgage.  Thus, if you purchase a property for $200,000, put 20% down and have a mortgage of $160,000, the monthly rent you collect should equal at least $1600 a month.

There are other considerations of course, such as taxes and HOA fees, etc., but this simple 1% calculation will serve as a good starting point to determine whether or not the property you are considering is worth the asking price.

Please don’t hesitate to call for more information about buying an investment property in Southern California.  There are some great deals that I’d love to share!