House prices have almost doubled in the last ten years, but even so, is the bank a safer bet for your savings? There are many articles written lately urging the public to ‘invest’ in realty. These investments are suggested in several forms: e.g. as a second home, as accommodation for your university student child in another town, or an astute chance for a first-time buyer.
The reasons given for the ‘invest-now’ message is two-fold. Firstly, the mortgage rates are still very low and secondly the cost of property has dropped. True. Or more accurately, the cost of property is dropping, dropping, dropping. Is this acknowledged continual dropping a good climate for buying?
A company called Global Insight has recently released figures reporting that seventy five per cent of US housing markets have shown decreased prices for the third straight period. They based their research on 262 out of 330 housing markets.
Therefore three quarters of known housing markets in USA are suffering continuing price decreases, and no-one wants to buy a house that may drop further. Much of the business guile in property investment is to catch the market when it has finished dropping to its very lowest, and is just starting on the up-turn. There is no guaranteed formula for knowing this!
Since the market is still dropping, many seasoned investors are holding off – for now. This means there are even more properties on the market that will be snatched up in a flash when the realty climate changes course. If you are planning on buying a value-priced property, the first things that you must take care of are preparing your finances and choosing your real estate agent.
If there is a hint of an upturn, experienced investors will get there first with their cash deals. Obviously someone who has yet to be approved will not fare well against this competition, so become approved. To get ‘first pick’ choose your real estate agent carefully. A keen agent will analyze exactly what you are looking for and will have access to each listing before you.
Perhaps even before you plan the ‘how to’ of buying an investment property, you should run through the ‘whys?’. Would you be investing to make a quick profit, or is it to build your financial portfolio?
If it is to make a quick profit, you may wish to run through some figures with an accountant or tax professional. Costs to be taken into account could include: the sale price and approximately 5% closing fees. When you re-sell, you must deduct from the profit margin approximately 8% selling and legal fees and the cost of the interest on the mortgage. You may also have to pay a penalty to the lender for early release on the loan and renovation costs.
There are many other numbers to put into the equation, including capital gains tax and mortgage interest rates etc. However, an experienced professional can also advise ways to avoid some of these losses (gift the property before sale, some mortgages offer tax breaks etc).
If the property is for long term acquisition, it is easier to make a profit; time is always on the side of real estate investors. Over the last ten year period house prices have almost doubled, in spite of the current situation. There is no bank that gives such good returns on your savings account.