I recently read an article on Forbes.com by Matt Woolsey called Best and Worst Cities for Renters, that I am summarizing here. I have found the Forbes website to be a valuable source of information, and an amusing place to find some top 20 lists. (I like looking at the lists of the top billionaires in the world. It helps me daydream.)But the article about the Best and Worst Cities for Renters had a lot of good information that I wanted to share with other investors. It was no surprise to read that the highest rents are paid in New York City and San Francisco. The 2.8% vacancy rate in NYC is partially responsible for keeping the rents so high. The sales prices of homes are much higher in the city, but so are the incomes. So those people who cannot afford to buy a home and need to rent, have a higher income than in other areas of the country. Therefore they can afford the higher rents as long as the cost is still less than that of buying a home.
In places like Cincinnati, that are expecting 100% more new homes this year will see a slow down in rental prices of only 2.7% (the lowest increase nationwide). More inventory slows the growth of prices and rents in the city. This rental increase is predicted to be the slowest nationwide. For a comparison, a 2% raise in construction in Washington DC is expected to lead to a 5% increase in rents there.
Job growth also plays an important part in rental rates. Salt Lake City boasts one of the most rapid new construction rates, but it still cannot keep up with the rate of job growth in the area of 3.1% in 2008. Of course more jobs means more people and higher wages and increases in sales prices and rents.
“Slow sales countrywide means more opportunities for renters as developers and homeowners look to lease their properties while waiting for buyers.” This is happening in Miami, but a lot of the new rental units here are unsold condos that are not really affecting the overall rental market.
Those are the basics of the article. I hope it was informative.
Saturday, February 09, 2008
Sunday, February 03, 2008
What real estate to buy in 2008.
This week we attended a meeting of the New Jersey Real Estate Investment Club. The topic this week was What real estate to buy in 2008. The founder of the club, Christopher Goodson, was going to talk to us about his recommendation for investing in the New Year. Since it is a real estate investing club, it was no surprise that he recommended investing in real estate. It is also important to point out that he recommended buying real estate for the long term, and not flipping or short sales. He had a lot of good things to say about flipping and short sales, but he believes that it is vital to invest in real estate for the long term.
He believes, as a lot of economists currently do, that we are in a recession. A recession is simply defined as “A period of general economic decline, specifically, a decline in GDP for two or more consecutive quarters.” I have never followed the GDP levels, but from what I have heard, it is easy to believe that we are in a recession. But being in a recession is not necessarily a bad thing, especially for people just starting to invest in real estate. I am a big believer in going back to the basics. Everything that we do is based off of some basic facts and ideas. It is vital to never forget those basics, or any new knowledge gained is baseless. These are some of the basics that were reviewed before Mr. Goodson made any investing suggestions:
There are 4 ways to make money in real estate:
1- Rental Income (cash flow)
2- Depreciation (phantom cash flow)
3- Amortization
4- Appreciation
Mr. Goodson believes that a lot of the problems that investors are having is because they bought real estate based on appreciation only. We were in a long period of time that saw unprecedented increases in real estate appreciation. A lot of investors were buying real estate based solely on the appreciation. They were willing to lose some money every month in hopes to make it all back plus extra when they finally sold. Those who did not sell prior to the downturn of the market have not been getting the returns they expected, and I am sure that a number of them have lost money.
The main thing that he stressed throughout the whole meeting was that you should only buy real estate that is cash flow positive, even if your goal is appreciation. In a nutshell this is what he was recommending to all of us for 2008. Only buy real estate that cash flows. He also recommended buying 2-3 family houses. (Please keep in mind that he is only speaking about buying real estate in the New York/New Jersey/Pennsylvania Metropolitan Area. The rest of the country was not discussed.) He made this recommendation because of the abundance of these types of properties, and the ease of using alternate types of creative financing, such as seller financing. Since real estate has not been selling quickly in this area, sellers are going to be more willing to make creative deals now, in order to make the sale.
He believes, as a lot of economists currently do, that we are in a recession. A recession is simply defined as “A period of general economic decline, specifically, a decline in GDP for two or more consecutive quarters.” I have never followed the GDP levels, but from what I have heard, it is easy to believe that we are in a recession. But being in a recession is not necessarily a bad thing, especially for people just starting to invest in real estate. I am a big believer in going back to the basics. Everything that we do is based off of some basic facts and ideas. It is vital to never forget those basics, or any new knowledge gained is baseless. These are some of the basics that were reviewed before Mr. Goodson made any investing suggestions:
There are 4 ways to make money in real estate:
1- Rental Income (cash flow)
2- Depreciation (phantom cash flow)
3- Amortization
4- Appreciation
Mr. Goodson believes that a lot of the problems that investors are having is because they bought real estate based on appreciation only. We were in a long period of time that saw unprecedented increases in real estate appreciation. A lot of investors were buying real estate based solely on the appreciation. They were willing to lose some money every month in hopes to make it all back plus extra when they finally sold. Those who did not sell prior to the downturn of the market have not been getting the returns they expected, and I am sure that a number of them have lost money.
The main thing that he stressed throughout the whole meeting was that you should only buy real estate that is cash flow positive, even if your goal is appreciation. In a nutshell this is what he was recommending to all of us for 2008. Only buy real estate that cash flows. He also recommended buying 2-3 family houses. (Please keep in mind that he is only speaking about buying real estate in the New York/New Jersey/Pennsylvania Metropolitan Area. The rest of the country was not discussed.) He made this recommendation because of the abundance of these types of properties, and the ease of using alternate types of creative financing, such as seller financing. Since real estate has not been selling quickly in this area, sellers are going to be more willing to make creative deals now, in order to make the sale.
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