North Coast San Diego Real Estate

The Taylors - Prudential California Realty - Carlsbad

Is in NOW the Perfect Time to Buy a Home

Are we finaly in a 'Real Estate Martket' where it makes sense to just 'DIVE IN'?  

For what has now become at least a 5 year period of waiting for some people, it may be that perfect time to just go ahead and buy that home you have been waiting for.  In this video, Stan Humphries, Zillow Chief Enonomist, predicts that prices will continue to decline very modestly through out 2012 and then stabilize in 2013.  Looking forward, the prediction is that in 2014 and 2015 the prices will remain flat or possibly tick up slightly.  And then in 2016 we will begin to see a normal but somewhat modest rate of increase in the 3% to 5% range.

Depending upon what you believe to be the situation with home loan interest rates, this may be the year to buy......

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Should you Rent or Buy?


Should you Rent or Buy?

  

A few minutes ago I sent this Rent vs. Buy presentation to a client who is relocating to North San Diego County.  I think that this is a presentation that bears consideration.  I certainly welcome different points of view, so please tear this thing apart.  Remember, I already said that “Cash Flow” in not a factor in this presentation.

A few weeks ago I was holding an open house at which I met a couple of Physicians.  They were coming to this area and were going to be here for only three years.  When I asked why they were not going to just rent their reply really made me think.  The said that they could rent for about $3000/month or buy a similar home for about $500,000.00.  In the three years that they were going to be in the area they figured that they would pay out $108,000.00 in rent.  The way they looked at is was that if they bought for $500,000.00 they would put $100,000.00 down and have a monthly payment of around $2600.00.  At the end of the three year period they would sell and probably get most of their initial purchase price back.  (We have to remember that CASH flow is not a factor in their argument).

The formula that they used for the return of their initial purchase price went something like this.  If they were able to sell for the same price that they paid, then after paying all of the costs to sell they would wind up with about $462,500.00.  They used 7.5% as an estimate of what their costs to sell would be.  Then if they applied the savings in income tax, things like the interest deduction, property tax deduction, depreciation of the portion of the home used for business, etc.  Their cost of owner ship would be even less.  When I presented the argument that interest is a tax deduction vs. tax credit and that their tax savings would be their effective tax rate as it applies to their interest expense their response was that if they pay 4.0% interest their total expense would be around $42,000.00 over the three years, maybe less.  Their effective tax rate is 35% so they save $14,700.00 on Federal Income Tax plus what they save on their state taxes.  The same theory would apply to the Property Tax expense.  

Anyhow to make a long story short, these folks figured that if they sell the home for exactly what they paid ($500,000.00) they would loose $37,500.00 in sales costs, $27,300.00 in interest after the federal tax formula is applies, and $10,725 in property tax (again after application of the federal tax formula).  There for they feel that after adding up all of the after tax expenses they would spend about $75,525 as a true cost of ownership versus $108,000 actual cost of renting. They also figured that if the prices were to drop an additional 5% during the time that they own the home they would loose an additional $25,000.00 and still they would break even.

 

Survey: Next 2 years is prime time for real estate investors - By Inman news

June 3, 2011
 

Survey: Next 2 years is prime time for real estate investors

18.5% plan to pay in cash

By Inman News
Inman News™

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Real estate investors are likely to be three times more active than other types of homebuyers in their local markets within the next two years, according to a nationwide survey from Realtor.com operator Move Inc.

Market research firm GfK Custom Research North America conducted the survey on behalf of Move from April 11-15, 2011. The survey included telephone interviews of 1,200 U.S. adults, of which about 200 were identified as real estate investors. Data was weighted by age, sex, education, race and geographic region.

A third of real estate investors are planning to buy in the next 24 months, compared to 8.6 percent of typical homebuyers -- those planning to purchase a primary residence, vacation home or retirement property. Another 9.1 percent of typical homebuyers, and 28 percent of investors, plan to purchase between two and five years from now.

Among the investors, half plan to hold their properties for five or more years while 11 percent expect to sell within a year of purchase, according to the survey.

Some 56.5 percent of investors said the repair and maintenance of their property has not been difficult, and 42 percent plan to spend their own time and energy for that upkeep going forward.

Among the rest, 29.5 percent said they would hire a contractor for repairs and 28 percent said they would purchase move-in-ready properties. About 65.7 percent don't expect repair costs to surpass 20 percent of the property's purchase price, the survey said.

"This data suggests today's climate is hot for investing and is attracting a lot of new people that don't fit the stereotypical deal-driven flippers who buy and sell properties quickly," said Steve Berkowitz, Move CEO, in a statement.

"They're mostly entrepreneurial individuals who will make vital contributions to local communities by investing their own money and sweat equity to improve and maintain properties. These personal sacrifices made over the long run will help improve housing stocks, home values, property tax bases, and thousands of local communities."

More than half of investors, 53.5 percent, expect home prices to remain the same in the next six to 12 months. Of the rest, 23 percent expect prices to fall. About 69 percent expect it would be easier to find properties in the next six months, though 43.5 percent expect it would be harder to find bargains.

Some 41.5 percent of investors expect it would be easier to sell their properties in the next six months, the survey said.

Only 18.5 percent of investors said they will engage in an all-cash purchase, while 75.5 percent plan to combine cash and credit to purchase a property. More than half (59.5 percent) plan to put down cash but finance more than half of the purchase.

Sixteen percent plan to put down more than 50 percent in cash and finance the rest. Of the cash-only buyers, eight out of 10 expect discounts from sellers.

About 65.5 percent of investor respondents expect the financing difficulties first-time buyers are having will make it easier for them to compete for properties, according to the survey.

"The fact that most real estate investors plan on combing cash and credit for their purchases goes against the conventional wisdom that investor transactions today are mostly cash-only sales," Berkowitz said.

"This suggests they're seeing tremendous or once-in-a-lifetime opportunities and may be tapping into credit or taking out second trusts on existing properties. The data also shows they're expecting high returns to match the level of investment they're making in an arena that is new to many investors."

Most, 59 percent, of investors said they were new to investing; only 36.5 percent had experience with more than one property transaction. Nearly half (48 percent) said they expected a profit of 20 percent or more from their property investments, equal to a 4 percent annual rate of return over five years, the survey said. Another 40 percent expected a profit of 10 percent.

Original URL: http://lowes.inman.com/newsletter/2011/06/01/news/143883