The time is ripe for investing in Houston residential real estate
In a recent AOL poll, the phrase "Real Estate Bubble" held a comfortable lead in a contest to select the most annoying buzzword of 2006.
So the bubbleheads are finally getting on the country's collective nerves, but that doesn't mean that concerns about the housing market are about to go away. There's a good reason for this. Consider the following statistics, drawn from data compiled in a recent study by Global Insight/National City Corp.:
Over the past 10 years the median home price in America has almost doubled, going from $96,000 in 1996 to $191,000 in 2006.
This amounts to an annualized price increase of around 7.1 percent, much higher than the historical average. Compare this to the preceding 10 years when housing prices increased at around 3.4 percent per year.
Over 40 percent of homes in America are classified as "extremely overvalued."
This exuberance is already spelling trouble for some markets.
But remember: Real estate markets are regional, and the price run-up over the past 10 years wasn't evenly distributed across the country. Residents of San Jose, Calif., saw their housing values increase at 11.4 percent a year. Prices in Naples, Fla., increased at a remarkable 13.2 percent a year. Meanwhile, Houston's numbers increased at a more reasonable annual rate of 5 percent from 1996 to 2006.
So the Houston market isn't one that speculators have pushed to the edge of the cliff. As a result, going into 2007 the Houston housing market continues to show healthy trends in both prices and volume, even as the overheated markets are starting to flatten and decline.
This means opportunity for Houston investors.
With that in mind, consider the following three factors when evaluating real estate investment opportunities in Houston:
- Buy cashflow. Positive cashflow investments -- rental properties that put money into the owner's pocket every month -- are a great hedge against the risk of falling property prices.
According to the Houston Association of Realtors, the median price for a home in Houston is 33.6 percent less than the national median price. This has a special relevance for investors: it means that a prudent investor can still purchase a property in Houston that generates enough rental income to cover mortgage, taxes and expenses.
This is an investment that pays for itself. And in the unlikely event of a decrease in local property values, an investor who owns positive cashflow investments will be able to weather the cycle.
- Understand the risks. There is an entire industry that centers on pitching exotic ways to invest in real estate -- zero-down deals, exotic mortgages, complicated contractual strategies and more. All of these tools have their place, and some of them can be useful, but using an exotic strategy or financial instrument that an investor doesn't really understand is a recipe for disaster. Keep it simple is a useful rule of thumb.
- Run the numbers. Don't jump into an investment without doing due diligence.
Consider vacancies. Unexpected repairs. Taxes. Fees. Transaction costs. What assumptions have been made about inflation and property appreciation?
A prudent investor will have an educated opinion about all of these factors and a view of how they come together to impact any potential investment.
Don't get paralyzed by the analysis, but running the numbers brings the investor right back to point No. 1: a prudent evaluation helps the investor to buy cashflow and avoid the money pits.
Every investment has its risks, and if the real estate bubble really does pop on the coasts there might be some implications for the national economy as a whole.
There goes that annoying phrase again. Expect it to keep turning up until some of these frothy markets find their equilibrium.
CHRISTOPHER SMITH, founder of equityscout.com, is a real estate investor specializing in buy-and-hold properties.
It is so important to know about Real Estate market before investing in it. Real Estate business wants more investment. You should have a basic knowledge of the Real Estate. If you invest properly in it than Real Estate is a profitable business.
Posted by: omaha homes | March 10, 2011 at 10:16 AM