Tuesday, July 1, 2014

Why now is the best time to be a landlord or the next closest thing!

Thumbing up the screen on my iPhone yesterday while on Yahoo! I came across the article, Three reasons why the US housing market won't be back to normal anytime soon, by Stan Humphries (chief economist at Zillow).  Three reasons why...

Mr. Humphries lays out in reasonable fashion, why he believes housing won't be back anytime soon, citing specific reasons, such as the fact that most current homeowners are underwater, drowning in negative equity.  People will simply not sell under these conditions as the pain of having made a mistake buying will materialize in such a scenario.  As they say, the chickens will come home to roost.

Holding on to their homes, as many homeowners with underwater mortgages have decided to do (including me! but I got to do the HARP so I can bear it) impacts the supply side of the curve.  And as Mr. Humphries cites, though mortgage rates are still historically low (under 5% for a 30-yr fixed rate mortgage), it does not do the market any good.  Sure, there is demand for homes, but the inventory is low thanks to the catastrophic drop in home values last decade.

I'm not going to summarize the article in its entirety.  I want you to do as I did and dig deeper into the significance of the last few paragraphs where Mr. Humphries begins to describe rising rents and paralyzing student debt as a problem to the home affordability dilemma.

While it is a problem for someone in the market, someone looking to buy their first home, it is music to the ears of a real estate investor like me, and maybe you.  If you're a landlord then there will be plenty of renters for years to come, provided home values take their sweet time to step up.  If you're not a landlord, own rental properties or something similar, then this is the best time to become one!  What, you prefer investing in stocks?  By all means continue to do so, but now is the time to pull some money off the table, especially the equities table and allocate elsewhere.  Will the bull keep charging ahead...maybe...but probably not.  I mean, we're on year 5.5 of this great run in stocks.  So take profits and invest in RE.  That's what I recommend.  The odds of having another RE bubble burst of similar magnitude to the one we experienced last decade is very slim.  And I mean near statistically impossible.

I have profiled two ways of becoming a landlord on this blog.  There's placing your disposable cash as a 20% down payment on rental property.  I like Meridian Pacific Properties MPP's website for this purpose.  You'd need around $20K to $35K, good credit and a solid financial track record to win over a bank.  If you already own a few residential rental units, you may want to grab a share of the commercial RE market.  I like Rich-Uncles, the CA crowdfunding REIT Rich-Uncles' site in this case.  Both MPP and R-U are based out of CA, but only R-U requires you to have a CA address, though they do welcome international investments.  Entry into this REIT is much less cumbersome, though there are criteria to qualify, having the minimum investment amount, $5K, for example.

Three reasons...by Stan Humphries presents a compelling case to own rental property or the next best thing.  Make an effort to get your hands on an asset that you can rent out or earn steady cash flow from, before interest rates rise, before you too are priced out!

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