Is real estate becoming a good investment again? Â It is according to some key measures of value such as price-to-rent ratio, level of interest rates, affordability index, and relative yield vs. other investment classes. Â The SmartMoney.com article below talks about each of these measures and makes the case that this is the right time to buy houses again:http://money.msn.com/saving-money-tips/post.aspx?post=c318b495-e947-44e4-8eb2-2adefecc58a0
For investors multi-family properties may offer the best investment value both from a current cash flow perspective and for future capital appreciation. Â It's been close to 15 years since I've seen such attractive valuations. Â In Oakland multi-family properties in the most desirable neighborhoods routinely sell for 15-17x annual rents or more in a good market. Today you can often buy those same buildings for 10-13x annual rents or less. Â This means that your rental income will likely cover all of your expenses including the mortgage payments and you may still have a few bucks left over at the end of each month. Â Properties with 4 units or less are selling at prices that are closer to 13x than 10x annual rents but you can get financing terms that are more attractive, especially if you plan to live in one of the units.
Longer-term housing trends also favor rental properties. Â Since the bursting of the real estate bubble many people have become disillusioned with owning a home. Â Some have lost or will lose their homes to foreclosure. Â While this is a tragedy for those who are going through this hardship it is good news for owners of rental properties. Â More people will be renting and this means a stronger rental market and growing rental income for owners. Â And due to the fact that your largest expense (the mortgage) is fixed, the majority of any growth in rental revenue will likely end up in your pocket. More rental income also means your property value will increase because the value of your investment property is to a large extent determined by the amount of revenue that it generates. Â In other words, rising rents will lead to more cash in your pocket and
a higher value for your property.
Investors should be aware that in cities with rent control (i.e. San Francisco, Oakland, and Berkeley among others) rent increases will be limited unless/until one of your tenants decides to move. Â Nevertheless at today's prices and interest rate levels real estate is arguably the best investment option you can find today.
Please feel free to contact me for more information about multi-family properties. Â You can also post a question in the comments section below.