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Fort Caroline Shores : Real Estate Advice

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Sat Jan 25, 2014
Robin Turner asked:
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Sat Jul 5, 2008
Mmbi Real Estate answered:

Prices have not bottomed out in Jacksonville and will probably continue to fall slightly over the next two years. It seems many people don’t understand the economic concepts of recession and contraction. We’ve just ended one of the longest periods of expansion in our history. Just like drinking too much at the office party, this hangover will be intense and long. Inflation and employment numbers will continue to plague the housing sector for the foreseeable future. There is no doubt that raising oil cost will continue to weigh heavy on everyone's pocket and keep many homebuyers out of the market. Also difficulties in the lending sector with tightening underwriting standards will continue to erode an already small buying market. With all this gloom and doom you might think I would suggest that you avoid buying a home. To the contrary, I suggest, if you have the means and ability, to buy as many homes as you can. Why? A home's value lies not only in it's appreciation value (like you see so many of my colleagues speaking of here) but also in it's income or investment value. Income or investment value of a property is normally measured with some ratio of income or earning ability of an asset (in this case a home) compared to it's cost (in this case price plus cost of money). A very simple measure for single family homes is the cap (capitalization rate) rate. A cap rate measure the amount of net income a property could ideally generate compared it's price and it is normally expressed as a percentage. Not to long ago single family homes were selling at a miserable 2 to 4% cap rate in Jacksonville. Currently a home in an outstanding neighborhood at or around median can be had for as high as a 9% cap rate. That is outstanding. If I could draw you a graph here you would find that while appreciation or comparable value is falling and will continue to fall (no matter what Mr. Watson thinks) cap rates are rising and will continue to rise. What this means is that if you can obtain a home with this high of a cap rate now then the value at which you buy the home will be solid as you ride out this comparable value downturn (as cap rates rise with increasing rents and falling price). The most important aspect of a high cap rate in buying a home is the understanding that rental income (if that became necessary) could cover the mortgage and expenses. Bringing that down to earth: if times get tough during your homeownership tenure you don't have to be desperate like people who depend on appreciation for the value of a home and lose your home and investment if times get tough. Rather you can keep your investment and rent it to someone else while you rent at a cheaper rate until your fortunes turn around. Terra, while I am new to Trulia I have many years of real estate, investment, and finance experience. I regularly show people how to achieve wealth acquisition goals through real estate ownership. A home is more than just a place to paint and repair, it is a pathway to wealth. If you would like to understand a different way to buy and own a home just send me an email or call. My phone number is listed on my profile.
Ferris J. Anderson
Jacksonville, Fl.
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