When and where to buy rental real estate!

When to buy real estate!

The timing of when to invest in real estate has to do with location and events. Real estate sales and values run in cycles, and different types of real estate have different cycles. For example; the number of real estate sales and the prices paid for that real estate will be higher in the direction a city is growing. Sales and prices may also improve when a large employer moves into an area. Many events will affect the interest in a particular area and a particular type of real state such as tax rates, city growth, highway construction, interest rates, employer relocation, university expansion, etc.

Your job is to educate yourself about real estate investing and getting your financial house in order so you can take advantage of opportunity when it arrives by reading the local paper, driving around with your eyes open, and asking yourself how could I profit from this event? After you have done this a few times, an idea will pop into your head and you should investigate the idea as an exercise in possibilities. What you wish to accomplish is to change your way of thinking about what you see, read, and hear. You want to learn to think like an investor. Below, we will discuss some of the events that effect real estate and what you might look for. Timing your purchases to when prices are about to go up is a function your local real estate knowledge, experience and willingness to act on that gut feeling.

When Interest Rates Are Low:

When interest rates are low home sales go up and so do the prices. It is a good time to buy a home to live in, but not to rent unless you plan to hold the property for a long time. The exception is when the low interest rates last for years and older homes begin to sit on the market a long time. You can, with due effort, find a seller who has two mortgage payments and must sell, thus getting a bargain price.

The way to decide whether to buy a house you are considering as a rentable property or not to make the purchase, is to take the annual rental income, minus your annual cost of owning the property (taxes, insurance & payment). If you are willing to live with that amount of cash flow for a long time, say 10 years, then go ahead and buy the property.

When interest rates are low it is a good time to look into buying apartment buildings because, after several years of low interest rates, apartment building vacancy rates increase and the value of an apartment building has to do with the vacancy rate and rental income. Empty apartments and low rents mean less value, thus lower purchase prices, and low interest rates means lower payments for a you the buyer. You know when the timing is right, when you see move in specials at apartment buildings. It is time to start looking.

If you are a developer of a new property, low interest rates will reduce the carrying cost of a project and can make some projects do-able that might not be advisable with higher interest cost.

High Interest Rates:
The higher the interest rate the better. Why is that?

High interest rates means it is a good time to be a rent house investor (buyer).

Because home buyers do not buy when rates are high and new home construction comes to a stand still. Your competition is not in the market. If sellers can not sell their homes on the open market, they will have to sell to you and carry the mortgage themselves. Look for older homes where the current owner has no mortgage. You offer to buy at 10% below the market value with a small down payment and owner carry financing at 7% to 10% interest or less. If interest rates come down in a few years, you can sell the home, or refinance it, or raise the rent every year until the place is paid for. I would look for duplexes or homes with garage apartments for the dual income.

City growth plans:

Major cities will have a growth plan and you should check with your city hall to find out about it. Check the cities wish growth list and try to determine what area is in development, or what part of the plan is likely to become a reality. Start your look in the area the city is likely to be expanding into. In San Antonio, Texas there is a street called Austin Highway that has a re-development committee and they have been working for years on attracting new businesses. The people who purchased property early on Austin Highway made out very well as there is now a lot of new constructing going on.

When new homes are selling well:

When interest rates are low there is a high rate of new home sales. In this situation I look in the older neighborhoods for fixer-upper homes. The demand for fixer-uppers will be lower when new homes are selling well and you can some times find bargains, as most people prefer a new home, or at least one that needs no work.

Older areas of town:

Do not ignore the older areas of town. If all the growth is heading in one direction, check out the other sides of town for opportunity. While everyone is focused on that high growth area, what is being ignored in other areas? What real estate is needed there?

Is there a need for apartments, car lots, and strip centers, etc.? Are there areas where the home owners are beginning to make improvements to their homes? Can you buy the worst home on the block and fix it up? Are there strip shopping centers that need sprucing up? Are there buildings that need converting, or maybe a need for a self storage facility?

Future highway development plans: