Why Today is the Perfect Time to Invest in Real Estate
I recently read an article by Isaac Taylor, the Director of Renaissance Capital, and he made some really great points of consideration for the Detroit housing and rental market which are very comparable to Memphis. Here's some food for thought.
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Beyond the strong rental income potential, the current dynamics of the housing market point to signs of a dramatic future price appreciation. First, current price levels are 70% lower than the average area housing prices over the last 15 years. It is reasonable to expect that once banks are able to unload their portfolio of foreclosed properties over the next few years, prices will likely begin to revert back to that 15 year average. This would point to appreciation of more than 300%.
Second, the current market rental rates, which average $750 per month for a three bedroom home within the city of Detroit and significantly more in the suburbs, suggest that home prices are significantly undervalued. It is currently 50-70% cheaper to buy than it is to rent. While the metro Detroit area does face negative economic pressure as a result of the declining auto industry, the continued strength of the local rental market is evidence that the effect on the underlying value of area housing has been somewhat overblown.
While no one can be sure exactly when the real estate market will normalize, it seems reasonable to expect significant price appreciation for properties located in desirable neighborhoods within metro Detroit given the above factors. Stabilization will likely begin to occur as the supply of foreclosed properties on the market declines. Appreciation should then accelerate further as demand from former homeowners increases as they rebuild their credit and begin to look to purchase homes they are currently renting.
In light of the relative stability of the metro Detroit population, it is likely that average rental rates will not fall significantly from the current levels. In fact, according to recent reports from Crain's Detroit Business newspaper, rental rates have increased by 1.9% on a year-over-year basis. Thus, over the long-term, home sale prices should increase to reach equilibrium with the rental market. Using the rental market as a guide to the underlying value of homes in the area suggests that home prices should appreciate by 200-300%.
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This article helped me think more about why there has never been a better time to get in on real estate investing. It is important to not only think of what is going on right now, but the great appreciation my rental houses may have in the future. I have always heard buy low - sell high. Today’s economy and this article help reinforce that.
Taylor, I. (2009, January 5). Why, Today is the Perfect Time to Invest in Real Estate, Part 2!. Retrieved March 28, 2009, from http://ezinearticles.com/?Why,-Today-is-the-Perfect-Time-to-Invest-in-Real-Estate,-Part-2!&id=1849782
Saturday, March 28, 2009
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Memphis Real Estate
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