I have been saying for months, now is the time for investors to be buying homes. Now we are seeing evidence that they are doing just that. I would like to say that it’s because they are listening to me but I don’t have that much influence nationally. The National Association of Realtors is reporting that in July investors accounted for 18 percent of all homes purchased and in August that number rose to 22 percent of all homes purchased. Generally, investors are measured in cash transactions, however, speaking from experience, investors also borrow money to buy homes. All of the investors who have bought homes through us this year have a mortgage on those homes.
Who are investors and why are they buying homes? Investors are people with some cash who see a money making opportunity in buying homes. The people we work with aren’t the “1 percent.” They are people who work for a living and have managed to save over the years. They don’t have huge amounts of money laying around but they have enough to put 20 percent down on a house. I realize that 20 percent of $115,000 isn’t chump change but at the same time, these people don’t own islands in the Caribbean.
Why are they buying homes now? Three reasons: interest rates, prices and returns. There will come a time when you will tell your grandchildren about the great housing market that followed the Great Recession. I don’t have a crystal ball, as far as you know, but the current interest rates are not here to stay forever. Do you remember the 1980’s?
Price: I read an article yesterday that says, nationally home prices are at 2003 levels. That is back before people and lenders started getting irrational. There are great deals to be had out there and if you believe that investors buy homes because they think they can make money at it then maybe now is the time to think about becoming an investor. I’m not saying that all investors are brilliant at buying homes but things are starting to reach critical mass and even the less than brilliant investors are seeing opportunities to make money.
Returns: Not only does an investor get monthly income but hopefully appreciation too. In June I wrote about a couple homes that we were helping investors buy. One was returning 2.2 percent annually and the other 5.9 percent. What makes those returns attractive is that is after paying the mortgage, property taxes and insurance. If we look at it as a cash investment things get even better. Assuming a $111,000 purchase price and the house rents for $900/month: Subtract taxes and insurance ($2575/year) from total rent received ($10,800) and the return is 7.4 percent. It is tough to find that kind of return in the financial markets these days and we haven’t even talked about appreciation yet.
I don’t like to put numbers on appreciation because it is difficult to know what home prices will do in the future. The key with investing in rental homes is to understand that it should be for the long term. Greg Rand, CEO of OwnAmerica says, “Rents will get you a steady return on your investment over many, many years, and you’ll be left with a very attractive asset when prices finally pick up again, as they surely will.” The key is not to be worried about what prices are doing today but concentrate on income today and building equity (if you have a mortgage) for tomorrow.
If you would like to talk to a real estate professional about investment opportunities in Bend and Central Oregon please call Becky.
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