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Your ROCK in Real Estate

A Great Time to Invest In Real Estate! Has the Market Turned or Is It a Mirage?

Throughout the United States residential real estate sales values are showing signs of stabilization. Well located properties in major metropolitan areas and many resort locations are selling faster and at higher prices. Many national and local home builders are experiencing higher sales volume than in the past several years. This is not to say that the morass is over but there is every indication that there is a renewed confidence in real estate as an investment among a significant number of potential buyers.

Florida properties are experiencing an unexpected resurgence driven in part by a significant number of foreign investors. Even with cash transactions rental properties can generate 8% to 10% cash on cash return on a low-risk investment. Many Realtors indicate that they have “buy orders” for multiple properties from foreign investors for any suitable property that is listed for sale.

Whereas there are fewer active buyers in today’s real estate marketplace compared to the “boom years”, there is also lower inventory available for purchase. It all comes down to inflation and supply vs demand. Inflation at some level is pretty much a given. In the long term, inflation dictates that the property must sell for a higher price, or builders can’t show a profit on the homes they build. Supply vs demand is a more intricate issue to contemplate. Obviously, when supply and demand are out of balance appreciation or depreciation occurs. The market is no longer flooded with properties for sale in the more stable markets. Statistics indicate that foreclosures and short sales are down 20% to 50% and even greater depending on the economics of the marketplace. Those who just could not handle the burden of the downturn are mostly gone leaving those who have found the means to persevere. A substantial number of homeowners can’t sell without taking a serious loss. This has virtually eliminated a large portion of the “move up” market. On the other hand, the resulting reduction in market inventory is offset by the years of pent up demand.

It has been said that every event or change in market conditions creates a new investment opportunity. Since the beginning of the real estate market downturn, rental values have increased at a steady rate and they are likely to continue to do so for the predictable future. The foreclosure and short sale victims have virtually insured this escalation. With the advent of depreciated property values and exceptionally low interest rates, the market for income-producing properties has accelerated as never before. The investors are out in droves. As a result of all of these factors working in tandem, most residential property purchased with a 20% down payment will create positive rental cash flow. Over the decades, properties purchased for rental purposes comprised approximately 5 to 15% of the market whereas today it could be as high as 40% in some markets.

The “show stopper” could be the overall economy. The public wants to believe in a prospering economic future and there are currently enough positive signs to indicate that the worst is over. However, it wouldn’t take much of an economic tailspin to erode a very tenuous return to consumer confidence. Most of us believe in real property as an investment vehicle for the long haul. When considering all of the industries that are dependent upon the housing market it is difficult to conceive of the possibility of a robust economy without an appreciating real estate market.