While news reports continue to scream negative comments on the condition of the Real Estate market, only a few commentators have noticed the opportunities available to long-term residential property investors. In some markets , single family home prices have receded to 2002 levels while today’s interest rates for investors are less than in the early 1950’s. It’s a recipe for major gains for those astute enough to look beyond conventional wisdom and the pundits in the media.
Nationwide, 26% of homes sold in 2011, continuing the same trend as 2010, were purchased by investors to hold long-term for significant cash flow and eventually appreciation. The main goal for these astute investors is to maximize monthly positive cash flow while their renters are essentially paying all of the mortgage and operating expenses.
Historically, monthly interest payments have been the largest expense for investors, but not today. With the extraordinarily low rates, interest represents less than 1/3 of the cost of ownership with a 15 year mortgage. Currently, a 15 year investor loan carries a 3.37% interest rate. The current rate with a 25 percent down payment is about one half of what has been typical. it is now common with as 15 year amortization to maintain a positive cash flow.
The vacancy rates for homes in Davis,California and the rest of Yolo county are dropping while rents due to a limited supply are inching up. unfortunately, a significant reason for increasing rents results from short sales and foreclosures requiring individuals and families to become tenants. Additionally, a new home construction is at the slowest pace since the early 1960’s. With the dramatic drop since 2007, the over building of the previous four years have been absorbed, leading to predictable shortages in the near future as the economy repairs itself with normal demographic processes continue. This building contraction will lead to more demand and higher rents particularly if the UC Davis expansion occurs.
In nearby communities, the maximum purchase price for positive cash flow with existing rents with a 25% down payment is approximately $225,000. Duplexes in Davis around $430,000- $450,000 range still makes good financial sense. My philosophy is quite simple. If your around 60 years old or younger and looking for supplemental income when you retire, these astronomically low-interest rates are an unprecedented opportunity. There are positive cash flow opportunities throughout Sacramento, Yolo and Solano counties, the areas I specialize in. Please contact me with any real estate related questions at 530-219-1518 or visit my website at www.JohnnyBrooksHomes.com for helpful tips in buying or selling a home, to view my other Blogs and easy access to view all of the local area homes for sale.