OfflineIn an article posted on Forbes.com on Jan 28, 2009 the objective of seeking out poor markets is highlighted in stats in this article.
http://www.forbes.com/2009/01/28/reits-housing-prices-intelligent-invest...
This week saw signs of health in the housing market as existing-home sales rose 6.5% in December. As sales have increased, prices have fallen, down 15% to $175,400 for the median home. Home prices are now approaching 2004 levels, which is about a year after the real estate bubble started to form.
That means that home prices could have further to fall. Some of the most bearish analysts out there, like Forbes.com Investor Team member Gary Shilling, believe that home prices could fall another 20% before they begin to recover. But as they fall, and if mortgage rates remain below 6% (and the government can use Fannie Mae (nyse: FNM - news - people ) and Freddie Mac (nyse: FRE - news - people ) to achieve that), then sales could continue to pick up.
THe good news is that yeah, sales are up. So bottom fishers are starting to come out of the woodwork.
Bad news is that very likely most of these were REOs. (In my areas, that is all that selling). We need to clear those out before prices can rise. And expect more foreclosures as prime borrowers are now starting to have problems.
That's really great news.When thinking of an investment property, think in terms of maximizing your rental income. This means look for the 2, 3 and 4 unit properties. The more units a dwelling has, generally the more rental income to be made. If you purchase a 3-unit property that can demand rent of $600/month for all three units and it costs you $1200/month in mortgage payment, you not only have enough rental income to cover the mortgage payment but also have $600/month net profit. You will need more money down, the more units you purchase but it could be worth it if you have the assets.
With these tips in mind, you also have to consider the work that may be involved with owning investment properties. You could have problem tenants, maintenance and repair expenses and inconveniences, and possible times of vacancy. But if you are willing to take the good with the bad, you are ready to start looking for your first investment property.
Purchasing investment properties can be a great way to provide income and increase your net worth in real estate.
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Florida Closing Cost
I like to see them instead... a big rule of investing it don't try to catch a falling knife. However, if you have been watching the vitals as closely and long as I have, which many of you have, I don't think trying to predict a bottom from this point is necessarily risky.
Sure, maybe after prices reflect 20% off is when the market firms people rush in and you cannot get a decent discount from listing price... that I can believe, since we are getting 60-30% off FMV right now.
So if we are are say pulling 50% off FMV, and Wall Street thinks prices have 20% to go, then investing right now is providing a 30% return on that assumption. For our investing, I think we are at the bottom. Not that listing prices or avg sale prices won't drop from here, but I don't see the situation changing to allow us to get properties any cheaper than we can right now.
Wall Street is not to be taken likely. If they are pricing 20% from here into everything, we can bet when the numbers get close to that things will firm up or pop after that. Why? There is more money rolled into the housing market than the actual value of the houses. Banks won't need to clear there paper like they do now when they can hedge there default swaps, REITs will see an influx of cash that must be spent buying properties, and so many other side effects.
Look, when the news or CNBC is talking about "housing is looking like a good buy now" or "investors are moving towards housing as a safe place to put their money"... that means the window is starting to close instead of open.
To each his own, but if anyone is on the sidelines because they think they can wait for better deals I would hate to see the opportunity pass them by. If someone agrees that the market is going down 20% from here, them by all means, make sure you invest now, just getting at least a 40-60% discount on FMV to ensure you are still way ahead on any projected drops.
The beauty of what everyone is doing and trying to do is we don't have to call a bottom to be able to come out ahead. The more time you aren't active, the more opportunities you are missing.