Currently most financial news we hear seems to be bad news. Markets are down and most investments are not paying decent returns.
Contrary to what you hear in the news, fantastic returns are offered to those who buy foreclosures.
Amidst the “Great Recession” an opportunity appears for those who purchase real estate.
However, among the doom and gloom is a hidden goldmine. A unique set of circumstances makes real estate a hot ticket for any investor looking for a safe, sustainable, fixed return. Those circumstances are: low interest rates, a pricing vacuum and a record inventory of foreclosures. Briefly, we will discuss each element and why it adds to the attraction of real estate as an investment.
Low rates: With pressure on the Fed to help keep inflation in check, Bernake and company have stated their intent to keep rates as low as possible. As of today, it is not difficult to have a rate of 4.75% (if you have a 620 FICO score or higher).
Record foreclosures: Due to the massive bubble burst, banks are foreclosing on toxic loans at an aggressive pace. As the inventory builds up, prices fall. The falling prices help perpetuate the pricing vacuum.
Pricing vacuum: Historically, fall has a slowdown in the real estate market. With fewer buyers, the ability to have highly favorable terms assists with keeping your acquisition costs low. Banks and private sellers are paying closing costs on behalf of buyers. Not every offer will have all of the buyers costs paid, however, with a little diligence; you can find sellers who will pay up to 4% of the buyers closing costs. For the right property, this means the buyer will not have to pay any money out of pocket for their own costs.
High ROI: You can buy property for a deep fraction (some instances 50%) of what it was just a few years ago. If you look hard enough, right now, you can buy property with little or no money down and turn a decent profit. Many of the people who are losing their homes to foreclosure are turning to rentals for their housing needs. This has created an increase in demand and a decrease in supply. As a result the market rents for property are high and the vacancy rates are low.
For example: Currently, in San Diego, you can buy a 1 bedroom condo with a total payment of $615.71 per month that is leased for $850.00 per month. This is purchasing the condo using a 30 year fixed conventional with 20% money down at a rate of 4.5% (today’s prime). This yields a profit of $234.29 per month or an ROI of 17.1% off of an investment that is less than a Scion or used Mercedes. This is not a bad return by anyone’s metric.
Conversely, if you are active duty military stationed in San Diego, you can buy the same 1 bedroom condo with a total payment of $698.81 per month. Eventually, you will get out of the service, need a bigger home, etc.. When you move from this home, you can lease out that condo for current market rent of $850.00 per month. For this example, we will presume that the rental amount will not increase within the next 3 years and you move within that time frame. Purchasing this condo using a 30 year fixed VA loan with no money down at a rate of 4.5% (today’s prime), yields a profit of $151.19 per month or an ROI of 275% off of an investment of $475 (the cost of a VA appraisal). A 275% return is something you will never be offered on your TSP account.
In a long enough time line, real estate historically appreciates. Once the housing markets rise again, another level of profit comes from the ability to sell the property and either; tax defer the profits via a 1031 exchange, leverage the funds, occupy the property and use the $250,000 / $500,000 capital gains exclusion. Because of the returns proffered, the recent bubble has created vast investment opportunities for anyone looking for an alternative to devaluing and volatile stocks. To apply for a VA loan, or other government insured mortgage, call or click VA Home Loan Centers today.
To apply for a conventional home loan, or other non-VA loans, use the contact info below to speak with a conventional specialist.
Right now, the US government is selling foreclosures for as little as $100 down. Many of these properties will offer a positive cash flow immediately. To apply for a VA loan or to receive a list of VA homes, call or click today.
