Should You Invest In Real Estate Now?

6 Reasons Why You Should Invest in Real Estate Now

      The media has been buzzing over the past few months with stories about the fledgling economy. Given its current state of slow growth, many investors and businessmen are asking the same question: Where Should I invest and Why? Look no further, keeping faithful to our mission of providing you with the best investment resources, we’ve assembled a list of 6 Compelling Reasons why you should take advantage of the current real estate market and invest now before it’s too late.

1.    Capital Appreciation—As most news sources may have told you, real estate values have dropped significantly since 2008. In fact, indicators show that because of the recession, most markets have bottomed out.  What does this mean for you? Within the next few investors, investors can expect to see returns and appreciation on their property investment.  Real estate is different from other investments because you don't have to purchase it outright—you can finance just a portion of the cost to acquire it.  The capital appreciation of a property is not based on the home-owner’s equity. This means that regardless of whether a property is owned free and clear or there is a loan covering 60% or more of the value, the property will appreciate exactly the same.   Take advantage of this now: buy low and you’ll be able to sell high.

2.    Easier Cash Flow –One of the strongest reasons for investing in real estate is its easy access to cash flow. Like the stock market, real estate investment comes with a risk--the value of your asset can go up or down.   However, in the stock market, when the value of your stock portfolio drops, you need to invest to gain back the value lost or hope that the stock recovers its previous value. If you are retired, a loss of stock portfolio could mean having to figure out how to live on less.   Although real estate values go up and down, with investment property you still have the cash flow because your renters are still paying the rent regardless of the current value of the property.    With real estate investments, money is flowing into your accounts every month.  With enough of these types of investments, you can live comfortably on the cash flow that comes from real estate.

3.    Diversifies Your Financial Portfolio – Like the old saying, “Don’t put all your eggs in one basket,” every good investor knows that it’s important to diversify your portfolio. Real Estate investments made in the form of a 401K or Self-Directed IRA, for example, can be made in different markets across the US.  Because the real estate market only sometimes follows the stock market, real estate investments can be a good asset to fall back on if you are in financial trouble or if your other investments are providing negative returns.

4.    Affordable Pricing – Congruent to reasons #1 and #3 , investing in real estate today is far more affordable than it was in previous years. Because real estate values have dropped significantly since 2008, it is now a much more affordable and feasible investment option than ever before.

5.    Use Leveraging to Afford Costs – One of the great benefits of real estate is its ability to easily finance itself, especially in the form of leveraging. Like most other assets, if you want to purchase a $100,000 stock investment today, you will be required to produce $100,000 to purchase it.  With real estate, however, the cost of the investment can be leveraged with a real estate loan.   For example, if you have $200,000 to invest, you could buy one rental property for $200,000.  If the investment doubles in value, you will have made $200,000 (which covers the price you paid to purchase the place).  If, however, you purchase two investment properties with $100,000 down each and the properties double in value, you now have $400,000 worth in assets (an additional $200,000).   If you’re renting these places, this can help greatly with your cash flow because you will now have 2 rents being collected each month instead of one.

6.      Invest with Partners – Unlike the stock market, if you do not have the funds to purchase an asset or property today, you can team up with friends or partners.  You could pool Self Directed IRA or Self Directed 401(K) funds to make your purchase.   This is very different from the stock market where you purchase everything on your own. The ability to team  up means that even investors who don’t have hundreds of thousands of dollars can purchase and own real estate AND profit from it. Indeed, the time to take advantage of these opportunities is now before the market picks up again and before the pricing of properties climbs.

--Raj Persaud, Business Development Manager, Manhattist Inc. 

[thanks to Charity Shehtanian 

Cal Coast Financial Corp]

Changes for borrowers

New rules went in effect today for loans insured by the Federal Housing Administration to adjust the types of mortgage insurance paid by homeowners.  The annual insurance premium, paid monthly by borrower, increased to from 0.85 to 0.9 percent from 0.5 to 0.55 percent, while the upfront insurance premium fell to 1 percent from 2.25 percent.  However, the decrease in the onetime upfront payment will barely offset the increase in the monthly premium.  For example, “The changes, under an example provided by the F.H.A., mean that a borrower who puts 3.5 percent down on a $154,000 house with a 30-year fixed-rate mortgage at 5 percent (such a consumer typically earns a gross annual income of $54,000, according to the agency) and who finances the upfront premium into the loan will see monthly mortgage payments, including taxes, interest and the two insurance premiums, rise to $1,238 from $1,205. The example is based on median data, including property taxes put at about 2.5 percent of home value. That increase includes the drop in the upfront mortgage insurance, to $1,486 from $3,344 — but also includes the rise in the monthly insurance premium, to $111 from $68.”  It is clear that the borrower saves $1,858 upfront, but pays an additional $15,480 over the period of 30 years.

Future of real estate

According to CB Richard Ellis Econometric Advisors, the amount of retail real estate available in the United States is expected to drop to 12.7 percent.  Furthermore, CBRE-EA predict that the demand for retail real estate will be positive for the first time since the burst of the housing bubble in 2007, but the increase is said to be modest. 

This information combined with the increase in mortgage applications are strong signs that the economy is starting to recover.  However, because the unemployment rate is still quite high, it is quite clear that the economic recovery is going to be slow and that it will take some time to restore all of the consumer confidence lost due to the recession. 

Changes for Century 21 NY Metro

Century 21 NY Metro, an independently owned franchise of the Century 21 brand, is suffering cash flow problems and is looking for additional investors.  It is said that A.C. Lawrence is going to absorb the troubled firm, but it is unclear what the new firm is going to be called.  A.C. Lawrence co-founders Anthony DeGrotta and Larry Friedman, both of who declined to comment on the merger, are now listed as agents on the Century 21 NY Metro website. 

Antonio del Rosario, the former president of the sales division at A.C. Lawrence said that the firms are a good match and have similar backgrounds in rentals.  The future looks bright for the two companies, and perhaps the struggles from the recession will make the companies stronger than ever.

Differences in identical houses

It is quite difficult to sell a house in the current jumpy market; it can seem so much more difficult when neighbors are selling houses at competitive prices.  In these situations, one house will seem better than the others, and then it will come down to which house has the better appliances or which house has the better bathroom fixtures.  And, sometimes the harsh competition can even create a race to the bottom with the prices. 

But, there can be a bright side to this strict competition.  The neighbor listings draw extra traffic to the open houses and the increasing amount of people help sell the houses even faster.  There are both positives and negatives to this competition, it is just important to figure out whether the positive outweigh the negatives or vice-versa in each individual case.

A six-month high for mortgage applications

According to the Mortgage Bankers Association, mortgage purchase applications increased by 14 percent at the end of last week to their highest level since May.  Michael Fratantoni, vice president of research and economics for the Mortgage Bankers Association, said "the increase in purchase applications last week aligns with other incoming data suggesting that consumers are feeling somewhat more confident with their financial situation."  Furthermore, the interest rate on the30-year fixed-rate mortgage rose to 4.5 percent, the highest since September.

Restoring consumer confidence is a key aspect in the economic recovery, and if trends such as this continue, it would be very encouraging for the people and further increase the consumer confidence in the market.

Abusive Manhattan landlord

A 65 year old housekeeper, Irma Diaz, is suing her employer Abe Haruvi, a landlord who owns forty buildings in Manhattan.  And according to the New York Post, Haruvi tried to evict rent-stabilized tenants by wrongly claiming he needed their homes for his personal use.  Diaz claims that she was forced to work around 130 hours every week, share her living quarters with a dog, and eat leftovers from the trash.  However, another one of Haruvi’s employers claims that she never heard of Diaz or the allegations in the lawsuit. 

Are these allegations true or just another way to scam a wealth landlord out of money?  It is difficult to decide who is telling the truth in this situation, and there seems to a great deal uncertainty in terms of the evidence.

The World’s Most Expensive Office Markets

Courtesy of Google Images

According to CB Richard Ellis Group, the Midtown neighborhood in New York City leads the North American market in office occupancy costs at $66.59 per square foot.  However, the midtown market falls down to rank 26 in the worldwide market.  The North American market still hasn’t recovered from the recession, and is still declining.  The major emerging economies are dominating the lists, and all four of the BRIC countries are on the list. 

The Top 10 Countries:

1.       London West End, United Kingdom         $193.69

2.       Hong Kong (Central CBD)                       $184.21

3.       Tokyo, (Inner Central), Japan                   $158.08

4.       Mumbai, India                                        $130.41

5.       Moscow, Russian Federation                   $128.33

6.       Tokyo (Outer Central), Japan                   $127.31

7.       London City, United Kingdom                  $124.59

8.       Paris, France                                         $115.72

9.       Sao Paulo, Brazil                                   $109.03

10.   Rio de Janeiro, Brazil                              $104.40

Donald Trump for President

Courtesy of Google Images

Real estate mogul, and reality TV star Donald Trump (who is registered under the Grand Old Party) might be running for the office of the president against incumbent Barack Obama in 2012.  His supporters say that the people of the United States are tired of politicians who make empty promises, and the country needs a strong, business minded leader who will get the people through these tough times. 

Of course, anyone who runs in an election against President Obama will have a difficult journey.  Moreover, can a moderate like Donald Trump get the nomination from the Republican Party?  However, the real question is that how a strong minded business man will “run” the United States different from a lifelong politician?

Is the Foreclosure Crisis Overblown?

The recent foreclose crisis occurred because of notary fraud and certain other illegal activities committed by the large banks/mortgage providers, but are the people of the United States overreacting to the problems?  Foreclosures around the country have been suspended till it is clear who has the right to the mortgages.  But, in the meantime the owners of the delinquent mortgages have been given a break and an extended stay in their house. 

Courtesy of Google Images

However, this crisis has created groups with two different sets of opinions.  One side believes that the banks deserve to lose the rights to the mortgages and the houses for the irresponsible/illegal activity.  And, that the owners of the delinquent mortgages should be allow to stay in their houses for the time being because the large amount of foreclosures will further slow down economic activity.  The other side believes that the owners of the houses should be foreclosed upon by the rightful owners, and that the people should not be allowed to live in a house that they did not pay for just because the banks engaged in illegal activities.  

Hotels show signs of recovery

Courtesy of Google Images

The national hotel market is showing significant signs of recovery as the average price of a room increased almost 90% to $107,988, and the number of transactions increased about 15% to 466 compared to September 2009. 

Not only does the data, provided by Lodging Econometrics, give evidence towards the increasing strength of the nationwide hotel market, but it also provides evidence of increasing consumer confidence.  The hotel market seems to improving because consumer demand grows as the number of vacations, business trips, and celebrations increase. 


~Karan

What does $600 billion mean for you?

Courtesy of Google Images

The Federal Reserve recently purchased $600 billion in treasury securities, and the stock markets rallied the next day.  But, what impact will this have on the average consumer?  The Fed purchased these additional securities to drive down long term interest to increase the amount of home refinancing, fight of the fears of deflation, and spur consumer spending.  However, it is still not clear whether the purchase will have as strong of an effect as was intended because of the continuously high unemployment rate and the large amount of existing consumer debt.

Timing was also important in last week’s large purchase.  The strong turnaround in the House and weakening of the Obama administration after last week’s election will most likely slow down the fiscal stimulus for the next two years. Therefore, this large economic stimulus came at an appropriate time. 

~Karan

Unions Continue to Grow Weaker

Courtesy of Google Images

Union workers extremely upset about the non-union construction on the new building on 500 West 23^rd Street.  And not only are the union workers upset, but they are also disturbing the people of the neighborhood by the early morning noise from the protests. 

This has been an ongoing struggle since World War II, when union membership started to decline dramatically.  One of the reasons that union membership started to decline was because of the ever growing international economy, and the decline of protectionism.  

Europe’s Influence on the United States

Courtesy of Google Images

Covered Bonds, a financial tool extremely popular in Europe, is gaining popularity and is attracting more and more investors in the United States.  A covered bond is different than a mortgage backed security because even after the issuer bundles it up and sells it, it is still kept on the issuer’s balance sheet.  This extra security feature leads to the bonds usually having a triple-A rating.  Furthermore, it prevents the issuers from underwriting risky loans. 

If the United States government adopts these bonds, it will be another move to strengthen the economy and lower uncertainty after the recession.  But, this is not the first thing the United States has picked up from Europe; the Corridor System was adopted not too long ago by the Federal Reserve to put a lower bound on the interest rates.  

Bad News for Freddie

Freddie Mac lost $4.1 billion in the third quarter after losing $6 billion in the second quarter.  The losses included dividend payment on the senior preferred stock owned by the United States Treasury Department.  Charles Haldeman, the CEO of Freddie Mac, stated that the continuing loss is because the housing market is still relatively fragile.  Other factors that may have been behind the losses include the high unemployment rate, slow economic growth, and foreclosure uncertainties. 

Courtesy of Google Images

Freddie Mac, the second largest provider of residential mortgage funding, is just an example of how the entire economy could suffer if the real estate market continues to be sluggish.  The consumers of the United States need incentives, discounts, and reassurance to help stimulate the housing market and the economy.  And, that is why the Federal Reserve has agreed to buy an additional $600 billion in treasury securities.  

Surprising Drop

Courtesy of Google Images

Usually, September is a great time for the real estate market.  But, surprisingly that is not the case this year.  According to data provided by StreetEasy.com on the properties gone into contract in September and October, the numbers are notably flimsy compared to the data from 2009. 

The cause of this unusually weak market is unknown, and one cannot figure out the real reasons till the data for the next few weeks is known.  This could be because of the high unemployment rate, the slow growth of the economy, and foreclosure uncertainties.  

Activity Stabilizes

Courtesy of Google Images

Although, the Manhattan office leasing market has improved drastically since the downturn in 2008, it is starting to plateau.  According to the most recent reports, office leasing volume rose by 60,000 square feet to 1.6 million square feet.  And, even though the rents have dropped about 25 percent since before the recession, they are now rising (although very slowly) and giving landlords the upper hand. 

Brokers say that there are still incentives to motivate clients to sign leases, but they are quickly disappearing.  However, the market is flat because according to the Federal Reserve, the economy growth is “disappointingly slow” and the unemployment rate is still quite high.  Therefore, the economy and the clients need more incentives to get the leasing market growing at a steady rate.