Over the last few years, we've all been bombarded with news stories and predictions about what will happen in the real estate market. As I type this, the real estate market in 2011 is predicted to falter again. Believe it or not, these predictions may not be helpful for you if you're thinking of buying or investing in real estate.
The reason why is because we have a tendancy to make decisions about what we should do after listening to the news or reading a news article. These news stories may lead us to incorrect decisions.
A better option might be to actually get on the street and see what homes are selling for in your area with your own two eyes. Physically walk through homes listed for sale. This is exactly what I've been doing for the last few weeks. In fact, I've probably walked through 75 homes for sale in our area.
To be perfectly honest, I've been blown away by some of the "deals" available right now.
As an example, I walked through a home listed for sale that was 1,914 square feet, had 4 bedrooms, 2.5 bathrooms, a two car garage, and on top of this, the home was situated on half an acre. The asking price for this home is $80,000.
This is an unbelievable deal.
The asking price per square foot is $41.80. Now, I'm not a home builder, but I would have to think it would cost between $153,000 ($80 per sq. ft.) and $191,400 ($100 a sq. ft.) to have this home built today.
Next I studied recent sales of homes surrounding this one and I found homes that sold in 2010 for $150,000, $175,000, and higher.
Finally, if you're an investor you might apply the 1% rule to see how the property is valued. For the most part, great rental properties typically rent for 1% of their value. Consider these examples:
Market Value of Home $80,000 - Monthly Rent $800 (1% of Market Value)
Market Value of Home $150,000 - Monthly Rent $1,500 (1% of Market Value)
Market Value of Home $200,000 - Monthly Rent $2,000 (1% of Market Value)
You know you've found a good rental property investment when these numbers are in your favor. To find out, start with the extimated monthly rent for the property and see what it would be valued at by working backwards.
This home would rent for $1,300 a month based on its size and location. $1,300/.01 = $130,000
By every measure, this home is a fantastic deal. I cannot understand why it's still available. There is absolutely no way someone buying this home could lose money.
It's really that good.
Let's assume an investor paid cash for this home and planned to keep it for long-term monthly income. Here's how this would look for them:
Annual Rental Income ($1,300 * 12) $15,600
Less Annual Property Taxes ($2,800)
Less Repairs/Maintenance/Vacancy ($3,500)
Annual Income After Taxes $9,300
Annual Return on Investment 11.6% ($9,300/$80,000)
The investor buying this property would receive an annual return on investment of 10 to 12% after taxes, repairs, maintenance and vacancy costs. This would continue for life. If the real estate market continued to stumble for the next few years, it would have zero impact on this investor because their rental income wouldn't be impacted. Actually rental rates have actually increased since the real estate crash as the demand for rentals has increased.
More importantly, the investor would have an asset that was purchased significantly below value. When the real estate market eventually rebounds, they would have the opportunity to sell the home at a significantly higher price point.
So back to the question, why hasn't this fantastic deal sold?
Well, I guess it's because everyone is fearful because they are bombarded by news storied and predictions on the real estate market. The takeaway from this article is for you to shut off the "noise" about real estate and get out there and walk through some homes for sale.
I'll bet you'll be surprised at some of the deals you find available. I found several homes that were fantastic deals like this one. For someone thinking of buying or investing in real estate, it's like being a kid in the candy store.
By the way, if you'd like to walk through some of the homes I identified as a great deal during my tours, send an email to me at [email protected]. We can schedule a little "candy store" tour for you!
Comments