residential real estate,inventory for residential housing,residential real estate investment
Foreclosed properties are at record levels and the opportunity for private and institutional investors to capitalize in the market conditions are ideal. The analysis of a residential real estate markets can be tricky, especially when a great number of both institutional and private investors are flooding the market with multiple offers on the already low real estate inventory driving up prices and creating uncertain market evaluations throughout the country. So, how do you really know if you are getting a good deal when you purchase? What do you need to be looking out for when you analyze your real estate markets?
Well, we put together a list of the most important aspects of a real estate market analysis for anyone to consider before purchasing a single-family investment. Buying residential real estate, especially income producing properties has many advantages and should be considered especially if you as an investor are aware of the management responsibilities. There are several important factors to consider in any residential real estate market in order to minimize your risk and exposure to market changes. You should never make any investment without really understanding the nature of the risks involved. And
it’s important to avoid the mistake of today’s bias, which leads to buying yesterday’s winners at high prices and selling yesterday’s losers at low prices. To avoid that error, you have to know both the historical evidence and actual evidence that leads you to make an informed investment decision.
Real House Prices.
One of the most intriguing questions at the moment is how to determine the real house prices before making an offer for a residential real estate investment. Like everything else, house prices are set by supply and demand; but clearly, the supply situation in 2013 is very different that how it was in 2007.
Real estate inventory for residential housing is very low regardless of the high foreclosure rates throughout the country. Banks are keeping the inventory at hand in order to avoid flooding the marketplace with excess of properties driving demand low and prices along with them so they must artificially manage the inventory that makes it to the market place in order to avoid another housing catastrophe. Make sure you take a look at the supply and demand conditions of the market that you are considering investing. If you are planning to buy, fix and flip you must look at the demand in order to understand what your exit price will be. You also need to look at the supply and how much inventory is available in order to understand the likelihood of your offers being accepted. If your strategy is to buy and hold, then you have other factors such as price to rent ratios to consider before making an offer.
Price to Rent Ratios
This mathematical calculation is utilized to calculate the total cost of homeownership with the total cost of renting a similar property. We use this index to determine if the areas we are investing are worth purchasing today. When considering the total cost of homeownership the ratio includes, mortgage principal and interest payments, property taxes, insurance, closing costs, HOA dues if applicable and mortgage insurance costs. Tax advantages for owning are also an important factor to consider as part of total home ownership. The total cost of renting includes actual rent, renter’s insurance as the total cost of renting. These ratio uses the average list price with the average rent on a a similar property. The price to rent ratio is then calculated by dividing the average list price by the average yearly rent price, as follows.
Price to rent ratio = Average
list price / (Average rent * 12).
Price to rent ratios of 1 to 15 = much better to buy than rent
Price to rent ratios of 16 to 20 = typically better the rent than buy
Price to rent ratio of 21 or more= much better to rent than buy
Zillow has introduced the “breakeven horizon” which shows how many years of homeownershp it would take before owning a home becomes more financially advantageous than renting the same home. It incorporates all possible costs and benefits associated with buying and owning a home as well as those for renting the same homes.
HIS Capital Group has been investing in 4 out of the 5 markets with the lowest breakeven horizons and lowest price to rent ratios. Plenty of experts are quick to throw a simple rent vs. buy index and tell you that if you live in, San Francisco, you should be renting, while if you live in Detroit, buying makes more sense. Indices that look only at monthly rents and compare them to mortgage payments for similar units or homes are only looking at a tiny part of the overall picture. When you analyze a market place, you need to capture everything potential buyers, tenants and other investors will also consider.
Time horizon:
How long you plan to stay in the home is one of the most important factors to consider when making rent vs. buy decisions and is a factor that is forgotten by many analyses using the simple price-rent ratios.
Future prices and rents: Look at the demand for ownership and the demand for rental housing. If there is a high number of foreclosures and default mortgages in the area, these homeowners will need a place to live which will drive rental housing up. Buying usually becomes more attractive as home prices are starting to stabilize (at least artificially) but with high foreclosures now rents are still going through the roof. Tax deductions, Maintenance costs & transaction costs: Tax benefits are not the only reason for purchasing a home mortgage interest and property taxes are still a deduction when filing for federal and state taxes. There has been a lot of speculation over how the current administration may stop the tax benefit of mortgage interest payments but as of 2013 tax deductibility is a very nice perk.
Homeownership is a “for better or sores” relationship. When you buy your house, you inherit all the good and the bad that comes with it. You are responsible for all the repairs and maintenance for your own place but on the good note, you are also entitled to paint your house, fix your yard, make holes in the walls and remodel as you wish. Homeownership also incurs additional expenses such as down payment, closing costs, escrow and title fees and other costs associated with your mortgage such as mortgage insurance. These factors should also be considered when you compare rent vs. buy options.
Our investment objectives take all of these factors and more into consideration when we move into a new market place.
ONE Real Estate Today OF THE BEST WAYS TO BUY Commercial!
The first week of September 2012, the US Federal Reserve announced one of the most radical central banking decisions in recent history. The third round of quantitative easing also known as the money printing experiment immediately opened the flood gates to $40 Billion per monthor $480 Billion per year to be used by the big bankers to purchase mortgage backed securities.
Families Growing Their Wealth Together
It doesn’t matter if you have been in the real estate investing business for 2 monthsor 20 years. We all know that we make the money in real estate when we buy, especially a commercial income producing property. Though the buying process is one of the most important components of investing, many entrepreneurs don’t have a clue how to determine the true value of an income producingproperty or
Commercial real estate make your money when you buy!
As Vice President of Business Development I meet and speak with Investors, Wealth Managers and other industryprofessionals around the U.S. and abroad. It’s my job to identify investor trends to help us stay ahead of market conditions; where they invest, what they invest in and more specifically who they invest with and why.At a recent mastermind session we discussed the strategy and importance
