Lower Phoenix Prices Mean More Real Estate Investments Make Sense

By sonoran • December 18th, 2008

With the readjustment of home prices to more affordable levels and steady rental rates real estate investing is making more sense as an investments rather then speculation.

Real estate IS a good investment when made prudently.  It is a good investment when made for the right reason.  You can make money in real estate with speculation but with speculation comes risk and that is something many of us are averse to and it really does not make sense for most people.

Take a look at the annual appreciation rates by city in Greater Phoenix since 2001 .  This is a short period of time but it’s not a one year or a few month hold.  Despite the carnage out there if you purchased in 2001 your appreciation rate is still rather good.  If you purchased even earlier it’s good. 

On average in Greater Phoenix it’s been about 5% over the last few decades.  I won’t say it will be that but: it may be negative for a year or two more and it may be flat after that but at some point normal inflationary pressures will resume and even if you get 3% it’s good when you’re leveraged, that of course is in addition to cash flow which will increase your real return and cumulative wealth. 

We are seeing prices at 40% to 50% below peak -which was an excess- in some places and often prices below current normal market trends.  These are mostly outlying cities and neighborhoods but these are often newer communities that are very attractive to residents and tenants in common.  This drop in pricing has occurred while rental rates are stable: it is easy for a landlord to find homes that will "cash flow".

And it is these magic two words "cash flow" that makes real estate such a wonderful wealth building product. 

A $110,000 home can rent for $950 competitively: That means that with a normal down payment that property will cash flow and provide a decent return for the investor.  This is not an anomaly it’s quite normal now.

Investors still need to pick investment homes using certain criteria which will better their re-saleability in the future. 

Would you like to see examples of such homes?  Contact us and we’ll send over a selection of homes that can make good rental investments that will cash flow.  Sometimes these may need as little as a few thousand dollars in repairs but sometimes a bit more: on average $5,000 will do wonders.  Put a good home together with a competitive rental rate and you’ll be more likely to attract good tenants for the long term and built wealth with little risk.

 

original post at PMT

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