Dennis' Mortgage Blog

Question of the week:  Is now a good time to buy investment property?

Answer:  Let me take the cover off my crystal ball….

No matter what answer is given to this question people will line up on the other side. There are those who are feel real estate will drop in value considerably in the next year.  There are those who feel real estate values are firming up and that we are near, or even past, the bottom of the market.  What matters most is what you believe will happen so you can make the best decision with the information available as to whether to invest your money in residential income property or not.

Before you answer the question as to whether now is a good time for you to purchase income property a few questions:  Are you purchasing investment property for equity growth or for income?  How long do you think you will hold onto to the property?  Are you thinking of buying a single family residence or units? 

This week the Clear Capital Housing Index reported that housing prices nationwide dropped below their March 2009 lows, a temporary dip or a trend to lower prices across the country?  If you feel prices are going lower you may consider holding off on purchasing some investment property because you might be able to get the same property, or a similar one, for a lower price if you wait it out.  However consider the index is national and you are not buying a national property but a local one.

If you feel the decline in prices is a dip then you may wish to act sooner before the dip ends and property values creep back up.  In some areas of Southern California we have seen price appreciation the past year, some neighborhoods recording over 3-4% increases year over year.  Did you miss out?

If you are purchasing an investment property for equity growth then buying when you feel the market is very near, or just past, the bottom would be important.  If you are purchasing for income then certainly the price is important, but so too is the interest rate you pay for the mortgage to purchase the property.  If/when rates rise while you are waiting to time the bottom of the price market how much will your monthly cost rise and monthly net income decline as a result of a higher interest rate?

If you are thinking of holding the property for a long period of time then an increase in interest rate before you buy could be more damaging to you in the long run than a decrease in price after you buy your investment property. 

How much money you have to invest in a property will also be a factor.  Currently to purchase a single family residence for investment property you need 20% down payment for a conforming loan, if you are purchasing 2 – 4 units you will need 25% down.  Fannie and Freddie have shown they are not real interested in financing investment properties so no one is sure how long the 20% down payment criteria will be around for non-owner occupied single family residence purchases.  If you wait you may find you need an extra 5% down to qualify if underwriting guidelines tighten.

Is now a good time to buy investment property?  If you see a property that meets your investment objectives at a price you can qualify for and potential rent that will suit your goals then maybe so.  Since you are not going to live in the home, or property, however you can, and should be, more emotionally detached from your purchase and consider all the factors from neighborhood price trend, interest rate trends, market rents and cash available to purchase the property and keep it operating for the next several years. 

Collect your information, contact me for mortgage and purchasing options, and make your decision based upon your objectives, abilities and where you think the market will be in several months and several years compared to now.

Were you to ask, “is this a good time for me to buy a new home?” the answer is pretty much the same.

Have a question for me?  Ask me!

A reminder, you can check My Blog daily, or follow me on Twitter (dcslb) or my new Stratis Financial Facebook page which you can “like.”

This week’s blog postings:

No postings this week due to family matter that consumed much of our time and energy this week resulting in a very positive result.  I will return to several postings a week next week.

Jobs? Home prices? Familiar refrains this week for our economy that have investors pouring money into bonds and selling off stocks.  Unemployment claims hit an eight month high this past week at 274,000 applicants causing Mortgage Backed Securities and other bonds to drop in price.  Earlier in the week, as mentioned above, news came out on national home prices that would be defined as “double dip” in prices since the price drop is below the prior lows.  Both of these reports put downward pressure on rates.

But there are more jobs?  Adding to the economic confusion is today’s report from the Department of Labor that 244,000 jobs were added to the economy and knee jerk reaction had bonds selling off and what looked like could be an increase in rates.  Once the numbers were dissected however the good news appeared to be not so great.  Of note is the increase in the unemployment rate to 9.00%.  The unemployment rate is the result of phone calls to households asking, “is anyone in your household actively seeking employment?” The answer to that question in April was “yes” by 232,000 more people than it was in March and brings the total to 6.5 million Americans proclaiming they are actively seeking work.

Only the good news on the economy could be regulated to a small paragraph or sentence: Hey things aren’t as bad as they were in 2009.  Continued challenges for the job markets, lack of recovery for housing markets, consumers getting less meat, dairy and gasoline for their dollar all point to continued low mortgage rates for the foreseeable future. 

Rates for Friday May 6, 2011: Declines for the third week in a row and below rates on the first Friday of May 2010.

FIXED RATE MORTGAGES AT COST OF 1.25 POINTS*

30 year conforming                               4.50%     Down 0.125%

30 year high-balance conforming           4.625%    Down 0.125%

30 year FHA                                        4.20%    Down 0.05%

30 year FHA jumbo                              4.30%     Down 0.20%

Please note that these are base rates and adjustments may be added for condominiums, refinances, credit scores, loan to value, no impound account and period rate is locked. 

*With new Fed regulations in place cost increase has been added to weekly rate quote.  Please note that rates quoted are based on average of several lenders for a purchase transaction with 20% down payment with an impound account for taxes and insurance and a minimum FICO score of 740; APR is not quoted as it is dependent upon specific loan amounts, lenders and services selected.  Numbers provided are for comparative purposes only.

A special Mother’s Day message to Leslie who continues to model for our daughters what it means to be a mother, woman, wife and friend, shows how to face the ordinary, the difficult and the exciting with grace, humor, wit and common sense.  Happy Mother’s Day to my best friend, wife and mother to my children.

To the mothers, I hope you have a wonderful Mother’s Day filled with family and pampering, to the sons, daughters and husbands—spoil them!

Have a great week,

Dennis