I'm not posting as often as I would like. So many times I've heard retirees say that they don't know how they ever found time to work. I'm not exactly a retiree but I now understand that comment. I used to go to the office every day. I attended to day-to-day affairs and had numerous meetings with clients and potential clients. I don't do that any more. I don't know where the time goes except that I am certainly more diligent with health issues and exercise schedules. Of course, I still meet with clients and occasionally potential clients but I no longer actively market my services or that of the company. Anyway, I plan to post more often in the future by just speaking my mind and not being so critical of what comes out.
I Attended the Exchanger Meeting Yesterday. I also had lunch with several old-timers who have observed many market cycles in this town. Now is not a good time for a real estate agent that spends most of his or her time collecting residential listings and trying to market the same. We all agreed on that. But we disagreed somewhat on the signals that indicate we are in a good market for investors. As I mentioned in my last post, we are evaluating some residential investments here and there. The signs I look at are the rental market and the amount of inventory for sale. These are somewhat positive in that vacancy rates are low, indicating high tenant demand relative to the supply of rental units. Inventory levels are still high which means that buyers have a lot of choices. Foreclosures are high which means that there are numerous properties that have to be sold (although many lenders haven't figured that out yet). You can sometimes cut a good deal on pre-foreclosure property by convincing the lender to take a short pay off to save the hassle of foreclosure. The trick there is to find some one in the lender's office who can make a decision. I guess I still think your best bet is to find a foreclosure property already listed with an agent so you have someone who already has a contact with the proper representatives in the lender's office. According to one of the old timers at yesterday's breakfast, another quick measure of whether or not the market is nearing a bottom is monthly rental rates near 1% of the purchase price. This means a $120,000 property that rents for $1,200 a month. The average isn't quite there yet but careful screening can locate a property here and there. We are going to continue researching these markets. More on this soon,
Thursday, September 27, 2007
Monday, September 03, 2007
TIME TO BUY AN INVESTMENT PROPERTY???
Let's Think About A Real Estate Investment. Is it time to buy something? If you are looking for a definite answer, you won't get it here. It depends on where you are in your quest for financial independence, what other kinds of investments you own, your cash flow needs, your stress and risk tolerance, and the current market conditions. Since all my readers are different, I will confine this column to the pros and cons of current market conditions in Denver, Colorado.
We Have Ample Inventory. There are many properties available and you have many choices. There are numerous motivated sellers who stretched themselves too thin in an attempt to buy all the house they could afford. Some are investors, some are lenders, some are owners who need to move for business or personal reasons. As the mouse pleaded, "Forget the Cheese, just let me out of the trap." If you are going to buy, you will need to sift through a number of deals to find one that will offer you an opportunity for profit.
There are Fewer Investors. Up until the last year or so, investors looking to diversify their portfolio and take advantage of the strong demand for housing were lining up to buy properties that they could remodel and sell for a profit. It was possible to borrow 100% on an investment property at very low initial interest rates. Investor demand has slowed as both neophyte and experienced investors found they could no longer count on selling remodeled properties for a quick profit. The financial press devotes headlines to "The Real Estate Bubble" and touts Denver as "The Foreclosure Capital of the Nation." If you are looking for a good deal today, you will no longer find a multitude of investors driving up prices.
Rates are Still Low and May Well Go Lower. You may not find lenders lined up to offer you 100% investor financing but long-term fixed rates are still low and likely to go lower. If you are willing to put 20-25% of your own money into a deal, you will still find a host of lenders willing to offer you rates that are only slightly above recent historic lows.
Rental Demand Continues to Improve. This is the most important factor in long-term investment success. Last year when we made a commitment to increase our property management, we entered a market where virtually anyone could borrow 100% of the purchase price of a new home. This meant more buyers and fewer renters. The few renters left had horrible credit and were virtually guaranteed to give you an unfavorable landlord experience. That situation has improved as vacancy rates have fallen and rents have gradually begun to increase. As an investor, your risk is highest in markets where tenant demand is low and investor demand is high. Under those circumstances, you will likely find it almost impossible to get a good deal on a property and, after your purchase, you will find it difficult to get a competent tenant to provide income to pay operating expense and debt service. We are just emerging from such a market and your odds for success are definitely improved.
So What's Not To Like? We can buy properties at below replacement cost, finance at low rates, get tenants to pay holding costs, and we have a high probability of increased rents in the future. Why aren't we encouraging our clients to get out there and buy? The answer is that we may not have turned the corner. The unfavorable supply/demand balance and future foreclosure risk is such that things may continue to worsen before they start to improve. In the 1987-1991 cycle, those who bought too soon found their properties continued to depreciate for some time before the real turnaround. Our position is that we should begin to look for some good deals and buy when we are able to locate opportunities. During the next few weeks, we will evaluate some potential purchases and contact those buyers on our list when we find a deal worth making. If you want to be on our list, give us a call. In the meantime, keep an eye on this blog for reports on some of the deals we are locating.
We Have Ample Inventory. There are many properties available and you have many choices. There are numerous motivated sellers who stretched themselves too thin in an attempt to buy all the house they could afford. Some are investors, some are lenders, some are owners who need to move for business or personal reasons. As the mouse pleaded, "Forget the Cheese, just let me out of the trap." If you are going to buy, you will need to sift through a number of deals to find one that will offer you an opportunity for profit.
There are Fewer Investors. Up until the last year or so, investors looking to diversify their portfolio and take advantage of the strong demand for housing were lining up to buy properties that they could remodel and sell for a profit. It was possible to borrow 100% on an investment property at very low initial interest rates. Investor demand has slowed as both neophyte and experienced investors found they could no longer count on selling remodeled properties for a quick profit. The financial press devotes headlines to "The Real Estate Bubble" and touts Denver as "The Foreclosure Capital of the Nation." If you are looking for a good deal today, you will no longer find a multitude of investors driving up prices.
Rates are Still Low and May Well Go Lower. You may not find lenders lined up to offer you 100% investor financing but long-term fixed rates are still low and likely to go lower. If you are willing to put 20-25% of your own money into a deal, you will still find a host of lenders willing to offer you rates that are only slightly above recent historic lows.
Rental Demand Continues to Improve. This is the most important factor in long-term investment success. Last year when we made a commitment to increase our property management, we entered a market where virtually anyone could borrow 100% of the purchase price of a new home. This meant more buyers and fewer renters. The few renters left had horrible credit and were virtually guaranteed to give you an unfavorable landlord experience. That situation has improved as vacancy rates have fallen and rents have gradually begun to increase. As an investor, your risk is highest in markets where tenant demand is low and investor demand is high. Under those circumstances, you will likely find it almost impossible to get a good deal on a property and, after your purchase, you will find it difficult to get a competent tenant to provide income to pay operating expense and debt service. We are just emerging from such a market and your odds for success are definitely improved.
So What's Not To Like? We can buy properties at below replacement cost, finance at low rates, get tenants to pay holding costs, and we have a high probability of increased rents in the future. Why aren't we encouraging our clients to get out there and buy? The answer is that we may not have turned the corner. The unfavorable supply/demand balance and future foreclosure risk is such that things may continue to worsen before they start to improve. In the 1987-1991 cycle, those who bought too soon found their properties continued to depreciate for some time before the real turnaround. Our position is that we should begin to look for some good deals and buy when we are able to locate opportunities. During the next few weeks, we will evaluate some potential purchases and contact those buyers on our list when we find a deal worth making. If you want to be on our list, give us a call. In the meantime, keep an eye on this blog for reports on some of the deals we are locating.
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