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Great investment property deals in short supply
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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 their investments.

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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 sold.

"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.

 
 
Next: "The prices are leveling off."
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