Want to invest in real estate but think there isn’t a safe place to make the jump? Think again! Some Denver metro areas are swarming with investment activity. Bad press and some of the highest foreclosure rates in the nation have pushed this area close enough to the bottom that investors are quietly snatching up properties and laughing all the way to the bank. It has only been a matter of time and the stars have aligned. Lets look at the data……
All the foreclosures that Colorado has experienced has pushed many owners back to renting. Historically the national homeownership rate has been about 63%. We have topped that over the last few years with a record rate of almost 70%. However, this number is at a steady decline, currently at about 68%. All the creative financing which led to the foreclosures has created a boom in the demand for rental property. The folks that are forced out of their home because they can’t pay their adjustable rate mortgage aren’t necessarily bad people that don’t pay their bills. And these people still need a place to live after foreclosure. The interesting thing is the rise in bank owned properties has lead to downward pressure on prices. And with the rising demand for rentals, rents have went up and vacancies have went down. This is the perfect investor opportunity.
Investors are happy to see purchase prices less than 150 times rent. Well, in many Denver areas we are seeing prices that are less than 100 times rent. There are over 400 properties listed under $100,000 and many of these are renting for over $1,000 a month. Estimate your property taxes at about 1% of the purchase price and your insurance at about .5% and consider a 7% interest rate. If you bought a property in Thornton for $100,000 with 80% financing and rented it at $1,200 a month you would be enjoying over $500 positive cash flow. Think this is a pipe dream? Its real and happening right now. As a matter of fact, many of these bank owned properties are experiencing multiple offers. And I have talked to one investor who has purchased 40 properties in this year alone. Properties are being picked up at half of what they last sold for. One good example is a house my mother in law sold in 2003. She sold back then for $185,000. It is now bank owned and listed for sale at $119,000. This may sound like a good deal but I bet it sells for less.
So could this scenario hit Tampa? Absolutely. However, two major obstacles to positive cash flow in Tampa is the high cost of property taxes and insurance. Prices will come down eventually…….. after everyone leaves the state. And if you think that is an exaggeration….. go try and rent a U-Haul these days. When I ran into problems with the delivery of my truck I found out that there are more trucks leaving Florida than coming in. The U-Haul centers won’t transfer trucks to other locations and if you try to call Penske, they will charge twice as much IF they have a truck available. True story.
I have been surprised to see prices start to come down more quickly in parts of Tampa but I think they still have a ways to go. In January I said that prices needed to drop 20%. My husband was baffled by my estimate saying it was too steep. Well now there are reports out there that top economists estimated a drop of 28% needed based on June 2007 numbers. The slide isn’t over. So buckle your seat belt and ride it out. There will eventually be an upside. You will eventually be able to buy property in Tampa for half of its last sold price. In the mean time you may think of investing in the West. Taxes are lower, insurance is lower, rents are rising 3-5% and vacancies are falling below 5%.
If you want more information email me andrea@1228home.com
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