In the early years of the new millenium investing in Real Estate was considered a “sure fire” way to becoming a millionaire before you were 30. Simply buy a few houses and you were on your way. Housing prices started the millenium rising 5-10% a year and exploded from there. Banks were offering loans of 100% of market value because “housing prices always go up” and so the banks couldn’t lose. At one point it got so crazy that lenders were actually willing to loan 120% of market value.
And then in 2008, it happened, the housing bubble burst and the starry eyed dreamers were abruptly brought back to earth. Housing prices crashed, and first those who had borrowed 100% or more were “underwater,” prices were no longer going up and their visions of sugar plums were no longer dancing in their heads and so they just wanted out. This created even more downward pressure on the market and banks started foreclosing on thoese borrowers who could no longer pay creating even more downward pressure.
Today, the situation is quite different, housing prices have come down and speculators in the Real Estate market are few and far between. Opportunities are much more readily available. The old addage to buy into fear and sell into greed is just as true in the real estate market as it is in the stock market. When others are selling (or forced to sell at firesale prices) is the time to be buying. When everyone tells you that you are crazy for buying that is a good sign that it may be a good time to buy. But when prices are being bid up and bargains can’t be found you are better off waiting on the sidelines.
One of the worst hit markets in the country was Phoenix Arizona, According to Trulia median home prices were starting at around $100,000 in 2000. Prices rose to $235,000 and then fell back below $100,000 briefly but according to Phoenix mortgage brokers prices have begun rebounding.
Las Vegas is another market where speculation was rampant. The median price of a Las Vegas home in 2000 was around $140,000. Over the next 7 years prices more than doubled (up 125%) peaking out at $314,000. Then over the next two years housing prices lost all their gains and then some, bottoming at $108,000 in 2012. Currently prices have started picking up and are back to almost exactly where they were in 2000.
Another hard hit area was Orlando, Florida. Median home prices there started in 2000 at around $100,000 and rose to $255,000 before falling to $80,000. Currently they have recovered to around $125,000 and appear to have been climbing slowly over the last two years. This looks like it is building a nice steady base and is unlikely to fall further since it is now much closer to the bottom than to the top.
Every market around the country is different having its own dynamics based on the local economy, the supply of houses and the characteristics of the local government such as tax rates and whether they are pro-business or more inclined toward becoming a welfare state.
Not all markets around the U.S. experienced this severe a drop and so some areas have better bargains available than others. When considering a real estate purchase you have to take all of these factors into consideration plus the financial aspects of the individual purchase. If you are considering renting the property out, what kind of rent can you get? What are your operating expenses? What interest rate are you able to borrow at? All of these are factors in your potential for profit. So you need to do everything in your power to lower your costs including shopping carefully for a mortgage. You should check not only with local banks but with mortgage brokers as well.
A mortgage broker works with several lenders and can often help you get a better rate. They will help you determine which mortgage options are best for your specific situation and answer any questions you may have. If you’re planning to finance or refinance an investment property or looking for VA home loans in Phoenix , or are looking for other mortgage options  you might want to consider Capstone.
In addition to morgage costs, you need to consider vacancy rates and be sure to allow an adequate cushion for times when your property is vacant. Also be sure to allow for taxes, insurance and maintenance. If after taking all of these factors into consideration you find the numbers work out now might be a good time to look into real estate investing.
See Also:
- 2 Types of Mortgage Insurance
- Appliances That Bump Up Your Electricity Bill
- Flood Coverage Isn’t Included in the Standard Homeowner’s Insurance: What Does This Mean for You?
- Should You Apply for a Home Equity Loan?
- Five Important Things about Your Homeowners Insurance Contract
Recommended By Amazon:
- Real Estate Investing For Dummies, 2nd Edition
- Investing in Real Estate
- The Wall Street Journal. Complete Real-Estate Investing Guidebook
- What Every Real Estate Investor Needs to Know About Cash Flow… And 36 Other Key Financial Measures
- Buy It, Rent It, Profit!: Make Money as a Landlord in ANY Real Estate Market
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Hi,
I am a new business owner of a fitness studio, started 23rd December 2012. I have just had a rent rise in accordance with the CPI index of just over $10.00 per week. I am trying to understand more about the CPI, very confusing. All I want to know, is this rent rise accurate with the CPI index. The rise took place December 2012, I have back pay the $40.00 per month since December.
Kim,
It is difficult to say based on your question. You did not say how much your initial rent was but if your lease was started in December you should not be subject to a cost of living increase for a year unless you assumed someone elses lease and it has a clause for being adjusted at calendar year end rather than after 12 months. The inflation rate is a percentage so your rent should increase by a percentage rather than a flat $10.
Using the Cumulative Iflatio Calculator http://inflationdata.com/Inflation/Inflation_Calculators/Cumulative_Inflation_Calculator.aspx
Total inflation from the end of December 2011 to the end of December 2012 (i.e. the whole year of 2012) was 1.79% so if your weekly rent was $100 it would increase by $1.79 (assuming it should be increased at all). If your weekly rent was $500 you would multiply $1.79 times 5 or $8.95. At $560 the increase would be $10.02 so the only way that $10 is a fair increase is if your weekly rent is more than $560.