Real Estate Investing Realistically

Motley Fool has yet another article about the real estate bubble (Registration Required).

Some of the juicier quotes from the article:

It’s safe to say that people’s expectations are out of whack and that real estate investments won’t increase at the same rate they have in the past five years. As a matter of fact, in some markets, I don’t think it’s out of the question for some properties to lose 20% to 30% of their value in a given year or to see no increases for a decade or more.

I think there could be some truth to this. My last post talked about the Increasing Risk of Price Drops in the housing market. My advice to avoid this is to invest in areas that aren’t so hot at the moment. See my previous post about the Evaluation of Home Prices in Various Markets to get some ideas of good markets.

If a home is selling for 150 times the monthly rent (or less), it’s generally a good deal. If it’s selling for more than 200 times the monthly rent of a comparable property, you’re better off renting.

This might be a good figure if you are looking into buying or renting for yourself, but it is too high if you are looking for an investment property. I personally look for something closer to the price being 100 times the monthly rent.

If you’re not a real estate expert, now is not the time to start speculating.

I 100% agree with this. I don’t think speculating at any time is a good idea. Stick with investing instead of speculating.

Filed by Webmaster at 11:53 pm under Article, Real Estate Investing
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Here is an interesting report that studied the risk of home values dropping in various housing markets.

Topping the Risk Index list with a greater than 50 percent chance of experiencing price declines are Boston, MA, San Diego, CA, Long Island (Nassau-Suffolk), NY, Santa Ana, CA, and Oakland, CA.

These types of reports make it more important that your real estate investments are wise ones at this point. Many people who are speculating in hot markets could be in for a big surprise.

Filed by Webmaster at 3:52 pm under Real Estate Investing
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If you live in an area where the real estate prices seem sky high, it is often a good idea to look out of you area for investment properties. One possibility is buying in Mexico. This article examines some of the pros and cons of doing so:

The Costs of Buying In Mexico

Filed by Webmaster at 5:57 pm under Real Estate Investing
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Interest rates are above six percent for the first time since January 2003, and there are predictions that it will continue to rise to as much as 6.7% by next year.

The difference between a $250,000 30-year 6.0% and a 6.7% loan is over $100 per month. This difference could make a significant difference to the cash flow potential of an investment property, so this might be a good time to buy. On the other hand, the higher interest rates could cause a cooling in the house market, causing prices in some overheated markets to fall. That’s what makes real estate investing so much fun, there are so many variables to take into account.

If you haven’t already done so, this might also be a good time for a second mortgage or a mortgage refinance, before rates rise any higher.

Filed by Webmaster at 11:06 am under Real Estate Investing
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A new study has been done that lists the relative values of homes in 299 different markets across the US. The study can be found at National City Corporation’s Economic Insight page (look for the Housing Valuation Analysis section). This is very valuable information for investors to have. If you are buying real estate to hold onto, you probably don’t want to be buying in over valued areas.

Some interesting quotes from the study:

• As of the first quarter of this year, 53 metro areas representing 31 percent of the total U.S. housing
  market are extremely overvalued and confront a high risk of future price correction.
• California and Florida have the highest concentration of overvalued housing markets, as do parts of the
  Greater New York and Greater Boston areas.

You don’t want to be holding homes in areas where there is a danger of “future price correction”. The 5 top over-valued markets are:

1. Naples, FL (79%)
2. Santa Barbara, CA (74%)
3. Merced, CA (72%)
4. Salinas, CA (70%)
5. Stockton, CA (69%)

The five most under-valued markets are:

1. College Station-Bryan, TX (-20%)
2. El Paso, TX (-17%)
3. Huntsville, AL (-14%)
4. Killeen, TX (-13%)
5. Montgomery, AL (-13%)

Filed by Webmaster at 1:25 pm under Real Estate Investing
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CNNMoney has an article discussing some possible proposed changes to the tax code which may reduce the tax benefits of real estate investment. The presidents Tax reform Panel is look into ways of changing the tax code to make it fairer and promote economic growth. The article lists some possible options which may be proposed:

* Reducing from $1 million the size of a mortgage on which interest may be deducted. If such a proposal were made, it’s possible that the mortgage size would vary by region depending on local home prices.

* Replacing the mortgage-interest deduction with a tax credit, allowing all homeowners with a mortgage to get a tax break — not just those who itemize.

* Reducing the tax rate at which mortgage interest may be deducted. Likely a proposed rate would be a middle-income tax rate, such as 15 percent or 25 percent. That would preserve the benefits of homeownership for middle-income taxpayers, Poterba said.

* Reducing the total capital gains exempted from tax.

* Combining two of these elements — say, reducing capital-gains exemption threshold and lowering the deduction rate on mortgage interest.

Its not quite time to panic yet. These are just proposals, and even if they are introduced, they may be grandfathered in or phased in over time.

Filed by Webmaster at 1:26 pm under Article, Real Estate Investing
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CNN Money has an article that reminds us that real estate investing is not always a sure thing. House prices can, and do, go down at times.

When listening to real estate investment guru’s, one can get the impression that it is impossible to lose money in real estate. But here are some examples:

• Los Angeles house prices fell from $222,200 in 1990 to $176,300 in 1996
• Austin hose prices fell from $109,000 in 1986 to $81,200 in 1990

Real estate may be less volatile and risky than other investments, but it is not fool proof. This is just a reminder to be careful when investing in real estate. As the article says:

Before they purchase a home, buyers better figure on scenario of many years of little or slow home-price appreciation. Counting on home price increases could be a big mistake.

Filed by Webmaster at 2:05 pm under Article, Real Estate Investing
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We have added two new pages to our site about asset protection. The protection of your real estate assets is very important when becoming a real estate investor. You need to know about liability insurance, and limited liability companies (LLCs).

Filed by Webmaster at 7:35 pm under Real Estate Investing, Site News
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One of the best ways to learn anything is to learn by watching what other people do. Whether they are successful or they fall flat on their faces, there is usually something to learn from other people’s experience. This is one of the great things about the Internet; people are willing to write about their real estate investing experiences and you can learn from them. Here are some of my favorites:

Shaun’s Real Estate Adventures

“D”igital Breakfast

Hespy’s Real Estate Blog

Filed by Webmaster at 12:08 am under Real Estate Investing
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RealEstateJournal.com is reporting some good news. It looks like the rental market is starting to pick up.

From the article:

The nation’s rental-apartment market improved for the third consecutive quarter, leading some experts to declare that a recovery is taking hold.

This makes buying a new house even more attractive and holding on to existing real estate look like a better deal.

Filed by Webmaster at 10:46 pm under Real Estate Investing
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