Now is the Time . . .

The beat goes on . . . people are losing their homes by thousands and there’s no end in sight.  Back in 2005, life was good — so good that families who had no business buying a home were given the opportunity to do just that.  Life was good.  Brokers offered these wonderful little deals, whereby they could get into their dream home and pay a nice affordable mortgage payment, say $800/month.  Sounded great.  They bought into the idea, knowing full well that these adjustable rate mortgages (ARMs) would jump in three years.  No problem? 

Well, when their mortgage payment went from $800 to $1400 or higher the reality hit home for these individuals.  They couldn’t pay the new rate, and here we are.  All those garbage loans are worthless now and millions of families across the nation have lost their dream homes.  They’re being forced into rentals, which is a perk for those of us who are in the business, or are contemplating getting into the business.  Now is the time!

In 2008, there were 2.3 million foreclosures, in 2009 that number jumped to 2.8 million.  According to RealtyTrac, a huge foreclosure sales website, the trend will continue through 2010, 2011 and into 2012.

The government is putting out stats that indicate there’s been an increase in new residential building starts, but upon closer examination you’ll find they’re predominantly in multi-family dwellings (apartments).  Many of the families who’ve lost their homes can still afford to pay rent and would rather live in a single family house, not an apartment.

When I began my real estate investing career 15 years ago, my research showed that duplexes gave me a better return on my investment than single family homes, so I bought only multi-family housing.  However, with the glut of foreclosures on the market now and in the foreseeable future, prices are very low and that margin has narrowed.  I’ve been buying single family houses recently because of the great deals out there right now.  This 3-bedroom home below is a good example.  I got it for $25K and only had to put 5K in it to get it in rentable condition. 

It has central air, a two car garage and needed mainly cosmetics to get it up and running.  Before purchasing it, I checked out what kind of return I could get on the investment.  I filled out the table (Diamond or Dud) contained in my book, The Landlord Chronicles: Investing in Low and Middle Income Rentals and found I’d be making 12% on this purchase.  Beats the hell out of the stock market, right?  Here’s a picture of the kitchen, which only required cleaning.

So whereas multi-family rentals used to surpass the single family homes as investments, this is no longer the case.  If you buy them right, single family homes can be great money makers as well.

Now is the time to invest in rentals.  This downturn represents tremendous oportunity for the smart investor.  Banks are being stingy with loans right now, but if you have decent credit and a good relationship with a bank, you shoud be good to go.  They’ll require about 20% on an investment property and the interest rate will be a couple points higher, but it can be done. 

Now is the time . . . educate yourself, trust yourself and go for it!

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