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.