Position Your Investments to Profit from a Real Estate Recovery
There’s been a lot of chatter lately in major press sources about the pending recovery of the housing market. Everyone in the country seems to be holding their breath and crossing their fingers at any positive report related to Real Estate.
I welcome the return of the sunshine and lollipop days of the last decade. Whether the return happens tomorrow or in 10 years, Real Estate investors have a unique opportunity to position themselves for consistent cash flow today and huge returns when the market fully recovers.
Last week I published a blog post disputing Warren Buffet’s assertion that the Real Estate market has begun to recover (read the article here: http://hardmoneybankers.com/real-estate/?p=2284). While I don’t believe we’ve yet reached a recovery point, there are some great housing numbers that shed light on investment opportunity.
The nation vacancy rate is dropping. According to a Trulia.com, the US Postal Service reports the number of vacant properties has declined from 3.6% to 3.4%. Vacant properties are identified as those where mail has not been delivered for 90 or more days.
It’s certainly positive that there are less empty houses. Communities are safer and stronger. Fewer neighborhoods have their property values negatively affected by the blighted board-up down the street. The decrease also sheds some light on a diminishing “ghost inventory” of homes repossessed in foreclosure and held by banks.
The most positive indication from the decreasing number of vacant properties is that the trend is led by areas hardest hit by the housing crash.
Higher Rental Rates
Thousands and thousands of families have lost their homes, jobs and credit in the past several years. The unprecedented number of foreclosures and the economic recession has introduced many traditionally considering home ownership to instead enter the rental market. This factor, in conjunction with the decrease in vacant properties, has yielded some positive results.
According to research firm Reis Inc., rental rates have increased to their highest levels in 5 years. I’m excited about these numbers. I have seen them first hand in my property management company and with my own properties. It’s true that the cause for these increases is nothing to celebrate. But the affect provides a silver lining that’s attractive to Real Estate investors.
Numbers released in July indicates an increase in the average price of sold homes. The increase is great to see in a market that’s had few bright spots since 2008. Before kicking off the recovery party, it’s important to look more closely at what these numbers really reveal.
Money is cheap right now. Interest rates are ridiculously low. These low rates are a real incentive for people to buy. But banks continue to be tight on their lending requirements. The people purchasing properties right now fall into two categories: traditional buyers and investors.
Traditional home buyers are people with good jobs and good credit. They want to live in areas that are predominately owner occupied. Since interest rates are so low, they are able to buy more house or pay more money for a house than in recent times past. Properties in predominately owner occupied neighborhoods have pushed the increase in the average home sale price.
The sale of homes in rental neighborhoods is dominated by investor purchases. Traditional owner occupant buyers in these areas don’t have the credit or money to qualify for a loan in today’s credit climate. Since a Real Estate investor’s decision is based more on profitability than on emotional attachment to a house or neighborhood, they buy at investor prices – typically well below “retail.”
What’s the Bottom Line?
Our nation is getting multiple indicators from the housing market that could signify a Real Estate recovery. The number of vacant houses is decreasing. Rent rates are going up. Home sales prices are increasing. We may well be just around the corner from a great Real Estate market. Or not.
Regardless of what the future holds, the current Real Estate market provides an incredible opportunity for investors to profit.
Now is the time to buy rentals. These properties are still available at significant discounts and can return immediate cash if they’re purchased at the right numbers. When the market does reach full recovery, Real Estate investors who get in now – at the bottom – will realize massive returns.
No one knows what the future brings. The recent positive housing numbers may end up as just a temporary uptick in a long road to recovery. They may also end up being the first signs of our imminent return to normal. Either way, now is the time to profit.