Tapped Out Local Real Estate Values Force Many Investors To Look Elsewhere
Twenty or more years ago there would have been scant ready data to pour over for potential investments in the out of town real estate markets. Today, there exist volumes of information online so the opportunity to perform due diligence in a particular area has been accelerated. Many Realtors are currently setting on their hands, due to slow market conditions, and would welcome an out of town investor to work with. Following is a discussion of a buying criterion to maximize the potential for your return on invested dollar.
Cities and States are not static. Likewise a company stock may have been beat up and bloodied in the stock market, but management toiled to improve the numbers and suddenly the stock became pretty in market's eye. Much the same has happened with cities around the U.S. One day many of the large businesses left and area and local economics took a hit and suffered years of struggling and economic adversity. However, over time, cities and states worked hard to reinvent themselves and have come back close to where it was before. Again this takes years to achieve. Many a city vows to diversify and spread their eggs out among several baskets as not to set them up to be crushed down the road by economic downturns. What any investor looks at is the trends. Just as it is with other investments. The question is always posed, "Is the investment trending up or down?" It is wise to take positions as things are moving in an up trend and have a way to run for a good play.
In many areas it was necessary to look at multifamily properties say in the 4 units or less just to have a chance to have some cash flow. For many, this is just too much property management to consider. By looking outside the area and focusing on attractive single family homes in established subdivisions with minimum three bedrooms, two baths, with a two-car garage the cookie cutter property begins to take shape. Sticking to basics and not deviating from this style will maximize the investment. When investing from afar there is little room for specialized properties so unique they become tough to manage or sell. Vanilla is what is called for here with homes in good condition and repair. Even in some of these newly uptrending areas there is still some desperation in seller's mind because it had been a dry period for so long. Normally, the public is slow to recognize that change is afoot. An investor, to be successful will need to exploit this opportunity.
Wells Fargo and the National Association of Home Builders reported in the third quarter of 2006 that the least affordable housing in metro areas were found in California and New York city and Nassau/Suffolk areas of New York state. Again, this is not a static situation, this is the way it is now. These numbers are based on average income for the areas tied to the medium priced home. Los Angeles was reported to have a 1.80% affordability index. Fresno was reported to have a 7.10% affordability index. It further gives fuel to the fact that many homeowners will drive an hour and a half just to get to work in an effort to find a more affordable suburb.
The 10 most affordable major metro areas includes Indianapolis at 85.9%, Youngstown at 85.5%, Detroit 82.9%, Buffalo at 82.9%, Grand Rapids at 81.6%, Dayton at 81.2%, Toledo 80.5%, Harrisburg 79.5%, Akron, 79.5%, Rochester at 79.0%. The common thread here is that many of these areas were considered as "rust belt" cities. Times are changing, nothing is static for long unless zero effort is invested to make positive changes. Smaller cities in the same study that were big in affordability index were noted as Springfield, Ohio, Mansfield, Ohio, Lansing and East Lansing, Michigan, Lima, Ohio, Battle Creek, Michigan and Canton-Massillon, Ohio. This is in no way a directive to immediately jump in and buy an investment home in these areas, rather, it's just a heads up to start looking in these areas. There are pluses and minuses in every state and city. This is just an identification exercise to see where there "might" be some deals.
To focus on an investment criteria of buying three bedrooms, two baths, two car garage homes may indicate that these properties may not exist in the older cities. An investor may need to look at the surrounding suburbs that will match the criteria. Locate a Certified Property Manger, which is a Realtor designation of someone who specializes in property management. In most cases the fees will be half or all the first months rent and 10% of the collected rents. Find out, what the rental levels are for a subdivision home that is a 3/2/2 in various locations. With that number an investor can start performing due diligence in starting with the projected rents and working the numbers backward to try and achieve a $200+ cash flow each month. Land values and depreciation are factored in to determine the cash flow before tax and after tax. These are unique times in the mortgage industry with a buy down rate of 5.5% on a 30-year fixed available right now. Next week, who knows? To quickly figure the deal, it would take a factor of $5.6778 per $1,000 loan amount to get a monthly principal and interest number. With this add the projected insurance and taxes for a projected payment. You will have the management fees to factor in as well a vacancy factor of a conservative 7% of projected annual rents. Since this is a single family home, the rental customer will pay for the electric, gas, garbage, water, sewer and say a negotiated repair limit of the first $50. Coupled with an extremely affordable mortgage interest rate and an uptrending area this could work for a longer-term investment. Highly leveraged properties would not work as far as cash flow goes UNLESS the seller were willing to offer terms by way of a seller held second with very low payments and interest rate. Even an investor with challenged credit can get a rate buy down on a subprime mortgage. The numbers will tell if a property will work or not OR it will tell the maximum price that can be paid based on the due diligence phase and the information inputted.
An investor will need to locate motivated sellers with some sort of economic pressure, which will be noted with a vacant home. Offers with the seller paying all the closing costs and prepaids expenses would be noted in any offer to purchase. Further contributions to an interest rate buy down would be another point to negotiate with a motivated seller. In all cases, a very thorough home inspection must be performed. There is no room for major hiccups. As the up trends continue in these areas, a sale may be contemplated down the road. Many rental customers buy the homes they live in. It's the first built in prospect to buy for the investor.
Again, if an investor has tapped out the city he resides, there might be other options by diversifying in other areas. This will point an investor in a general area to begin a search. There is no substitution for good due diligence. Other cities may be equally attractive. Check it out.
Dale Rogers www.sellerhelpsbuyer.com www.brokencredit.com
Related Tags: cash flow, challenged credit, affordability index for housing, single family investment homes, seller held second mortgage, certified property manager
Your Article Search Directory : Find in Articles
Recent articles in this category:
- The Secrets to Getting Low Down Payment Car Insurance
Upon purchase of a new car, there is almost always a requirement to buy an auto insurance policy as - The Wisdom Behind Auto Insurance Comparison Quotes
No one in his right mind would not go for a good deal. In fact, everyone is out on their feet and ru - The Benefits of Auto Insurance Comparisons Florida
Insurance can be expensive. This is something everyone knows about especially in the sunny state of - Auto Insurance Florida: The No-Fault Policy
There are different kinds of car insurance offered by a wide range of providers today. Different sta - Finding the Cheapest Auto Insurance Companies
Everyone is asking and searching for the cheapest auto insurance companies available today. Consider - How do You Compare Private Health Insurance Cover in Australia?
Deciding what is the best and most affordable private health insurance cover can be easy if you take - How Payment Protection Insurance Was Mis-Sold
For over six years the issue of Payment Protection Insurance (PPI) and how it was mis-sold to custom - Finding Quotes For Auto Insurance Online
One of the many concerns when you are shopping for auto insurance is being able to get access to quo - How You Can Find the Best Auto Insurance Online
When it comes to renewing your car insurance you are going to quickly discover that there are a numb - Guidelines For Searching For Auto Insurance Online
The internet can be a great source of discounts and values related to auto insurance. However, many
Most viewed articles in this category:
- Trading Forex With Pivot Points
Forex Pivot Point Trading are used today by Forex Traders and are calculated on the previous days mo - Where To Search For Free Grants
Where do you look for free grants? The search must be thorough or it could be an exercise in futilit - The Connection Between High Blood Pressure and Salt
We are a society of Salt Addicts. It cannot be denied. When you look at the things we do and the pla - Tips For Avoiding HYIP Scams
Before knowing about HYIP Scams, refer to the functioning of HYIP or "High Yield Investment Programs - Getting Credit After Bankruptcy
Consumers do not have to live sans credit following a bankruptcy. By following certain steps consume - Tips For Choosing A Credit Card
Are you looking for that perfect credit card? If so, you may be confused about what exactly to look - Cheap Car Insurance For Teens Online
Many elements determine a car insurance policy. Car insurance companies look at the person's age, hi - What Exactly Is Free Grant Money?
You can apply for free grant money from various government agencies. But where exactly does this mon - Small Business Owners Marketing and Customer Service
Marketing can be time-consuming, but it doesn't have to be hugely expensive now, thanks to the Inter - Apply Online For A Credit Card - How To Choose A Card?
The best type of credit card for you will be dependant on how you intend to use the credit card. Are