|Great investment property deals
in short supply
An NAR survey of investment property buyers found
that 55 percent of those who bought a house as an investment did
so for the rental income, and 35 percent said they bought to diversify
The average cost of an investment property in 2004 was $148,000.
Last year that price tag jumped 24 percent to $183,500.
"Investment home sales are likely to decline
this year, in part because of higher interest rates," David
Lereah, NAR's chief economist said in a release. "There are
fewer incentives to speculate in the market with price appreciation
cooling in much of the country, and more oversight is being encouraged
in the mortgage market."
The early bird catches the deal
"Anytime you see a run-up in any market, it's generally true
that the people who enter the market later are more likely to get
hurt," says Paul Bishop, NAR's manager of real estate research.
Also, with real estate being such a sure bet in the past few years,
investors who didn't do their homework weren't punished as harshly
because properties nationwide continued to appreciate rapidly. Those
early buyers were confident that there would be a pot of gold when
"They went in thinking they would make money
on the other end of the deal," Bishop says, even when they
bought high and the property lost money on the monthly rentals.
"There is evidence that the overall housing market is slowing
a little bit. It's harder and harder to justify that type of deal.
"This is where you separate the experienced investor
from those getting into the market a little too late. Returns for
latecomers aren't going to be as good -- unless they have resources
and the fortitude to stick it out."
Jim Lofgren, executive director of the Rental Housing
Association of Sacramento Valley, says with more potential investors
eager to park their money in a house, finding one worth the risk
is more difficult.
There is "a lot of competition" for the
good investment properties, Lofgren says. "It's tough to find
a good bargain out there.
"It is really important for investors to determine:
What is their investment strategy? If you're looking to make money
real quickly, you'll have a tougher time in the market now,"
he says. "There's not the appreciation there once was. This
is a market where people are looking to the long run."
Lofgren's co-worker, Cory Koehler, has that long-term
mentality when it comes to his pending investment purchase.
Koehler, deputy director of the Rental Housing Association
of Sacramento Valley, planned to close on his second rental property
-- a single-family home -- the first week of May. Both of the homes
Koehler rents out are in Sacramento County, Calif.
Spending money to make money
Although Koehler thinks he will not have a problem finding a tenant
for the new house, he says he will have to give out of his pocket
"several hundred dollars" to make up the difference and
pay the mortgage. That, of course, doesn't include all of the other
costs of homeownership, plus possibly carrying the entire mortgage
if the property is vacant.