Market Conditions in Leander>Question Details

Eleda, Home Buyer in 77479

Rent vs own

Asked by Eleda, 77479 Wed Dec 1, 2010

My question is HOW/WHY are the rental rates for a 3/2 or a 4/2 in Blockhouse (Leander, TX) between $1200-1400 WHEN to buy, with NO MONEY DOWN (if there were still such loans) the mortgage would be PITI around $850???

Why such a disconnect? Where are the investors? This would pull in a HUGE positive cash flow. What am I missing?

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Eleda, you may be able to buy a home with no money down USDA loan if you are looking in Leander. Leander is an eligible area for 100% USDA financing which is one of my areas of expertise. For more information on the program go to http://www.elliottoliva.com/USDAhomeloan

Please do not hesitate to contact me for more details. Thank you and I look forward to hearing from you.
0 votes Thank Flag Link Fri Dec 10, 2010
Good morning Eleda,

Thank you for the opportunity to answer an age ol' question. Actually your question is two fold. Your specific question as it relates to the property in Blockhouse and the general question of ownership vs. Renting.

1st. Question: Answer- Economics (Supply & Demand) and the forces surrounding it. As the housing market has softened over the last 2 years due to most specifically tighter credit/lending practices more people have been forced to rent as opposed to buying a new home. This drives demand up for rental properties thus the rent values go up as well. It has been good times recently for landlords. The landlord is reaping the benefit of ownership and the positive cash flow on their money (investment). Their money is making them money. Your money is well, making them money and not you money. The mortage comparison you reference is based on financial principals. You borrow x and pay interest on x which is ammortized over a certain time period thus creating a lower payment. You simply are re-paying a principal amount plus the cost of borrowing that money over time. The rental rate takes the previous statement into account and then adds to it a profit (cash flow) based purely on what the landlord can get on a specific property.

2nd. Question: Answer- Core investment rules just do not change. Your money can work for you or for someone else. If you pay rent each month you might as well take the money and thow it in the street in terms of any return. You lose out on:

1. The growth of your money (Equity)
2. Tax Benefits
3. Interest Deductions
4. Ownership Benefits

You give all these up to someone else in a rental situation. If there is anyway you can qualify for a mortgage you are always better off owning vs. renting. We all work to hard in todays' world to throw away our money.

Hope this helps.

Stephen B. McClain, Broker Owner
Cornerstone New Home Solutions
512 876-3116
smcclain@cornerstonenewhomesolutions.com
0 votes Thank Flag Link Fri Dec 10, 2010
There is a disconnect. Investors are very present just for this reason. Nice caps rates on single family right now. Renters are not able to buy due to down payment requirements, lack of savings, or desire to move in short term, or past credit problems now resolved, but still prohibiting them from getting a loan.
Web Reference: http://www.teamlynn.com
0 votes Thank Flag Link Thu Dec 2, 2010
Bruce Lynn, Real Estate Pro in Coppell, TX
MVP'08
Contact
This is expected. If you look at past real estate cycles you will find the same thing.

There are two main forces that create the market cycle. Fear and Greed.

In 2005, the level of greed was mind boggling. It pushed a lot of people to make very poor decisions.

Now we are the period of fear. Fear is everywhere.

In my area there are a few very bright investors (the same ones that sold near the top) that are buying again. The masses will hide in fear until gains are obvious.
0 votes Thank Flag Link Wed Dec 1, 2010
The simple answer is supply and demand. A lot of potential home buyers are unable to buy because they cant meet the stricter criteria set by the lenders in today's market. Other potential home buyers (& investors) don't want to buy and the reasons are many...waiting for prices to go lower, waiting for rates to go lower, fear, the media, etc.

So people are renting. As long as rental demand is high and supply is low, the rent prices will go up.

I don't think your missing anything unless the home you own is paid for and you have cash (no mortgage) to buy investment property.

Best, Todd
Web Reference: http://homesarehere.com
0 votes Thank Flag Link Wed Dec 1, 2010
The "disconnect" occurs because there are numerous families who cannot qualify to buy based on their credit score, employment issues (self employed less than 2 years) or other situations. Thus there will always be a market for leases even when it is a no-brainer to buy. I just pulled a report showing the average LEASED price in Block House Creek which is $1155 per month, approximately 1600 sf home, leased in an average time of 36 days. There are lots of great buys in the Leander-Cedar Park area right now. I am a local, full-time, real estate professional. Any unrepresented buyers in this area should give me a call. I have a HUD key also! I work with owner occupants as well as investors. ~Rose Land, REALTOR 512-924-2208
0 votes Thank Flag Link Wed Dec 1, 2010
Generally speaking, the equilibrium you are questioning will return to the market. If rental rates are offering an abnormally high return, the investors will come to the market and either property values will rise or rental rates will fall. In the interim, there may exist some period of time where current landlords make a premium.

These periods exist in any market. They used to be more prominent in the stock market than now exist - the speed of a stock transaction is now so fast that these windows do not exist for very long. You don't hear as much about arbitrage in the stock market as you did 30 years ago, but that was a similar imbalance that allowed the quick moving to make a short term profit.

I don't have access to MLS data in your market, but if you are in a position to capitalize on this market, then I would suggest that you contact a local REALTOR, verify your hypothesis, and then act!

Hope it works well for you.
0 votes Thank Flag Link Wed Dec 1, 2010
Eleda,

The numbers you give are a big reason that first time home buyers who can qualify are a larger and growing segment of the home buying market.

It is also why there are so many people are investing in real estate. But remember there are many other factors for investors when calculating their return on investment like; amount needed to bring a property up to code and make livable for investors, periods of time property is vacant and the resulting negative cash flow, repairs, and the cost to rehab after a tenant moves out. For investors cash flow is not the only question when considering a purchase.

Best of luck .. Bruce
0 votes Thank Flag Link Wed Dec 1, 2010
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