What a Deal!!

There have been a number of recent stories in the press about the opportunities the current real estate market offers.  Warren Buffet’s interview on CNBC, the one in which he said the market is so cheap right now that he would buy a couple thousand homes if it were practical, has gotten the most buzz.  The Oracle of Omaha didn’t say how he would pay for them, however.  My guess is cash.

Which leads to our first opportunity.  The current real estate market is so discounted that many people, particularly investors, are paying cash for homes that are priced under$350,000.  When the value of homes increase this opportunity to pay cash for properties will decline.  In Chatsworth there are currently 35 homes that are on the market for $350,000 or less.

Speaking of real estate investors, now is the time to become one.  Whether as a group or as an individual, because of the low prices of single family residences and multiple dwelling units such as duplexes and apartment buildings, the cost of becoming an investor is cheaper now than it has ever been in the 25 years.  Keep in mind, however, that financing rental properties is more expensive than financing a home that is will be the buyer’s primary residence.  The interest rate is usually higher, around 30% and the down payment is more, sometimes as much as 40%.

Similarly, this is a great time to buy that second home you’ve always wanted.  Some people purchase a second home as a weekend getaway or vacation destination.    Again, expect your loan for a second home to cost more than you would pay for a primary residence.  But the opportunity to purchase your second home will never again be as great in our lifetime.

An increasing number of parents are using this opportunity to purchase a home for their college bound children.  They figure that, at the very least, they will receive the corresponding mortgage interest tax benefit and, hopefully in a few years, an appreciation in the home’s value.  And when the kids graduate, the house then becomes either a second home or an investment, having been purchased in a market of  historically low prices and interest rates.Another segment of the population that is benefitting from today’s real estate market are first time buyers.  With FHA loans, the cost of which has recently gone up, buyer’s can purchase today’s discounted homes with only a 3.5% down payment.  Many of my active clients are indeed first time buyers.

Of course, before you engage in any of these opportunities you need to do your homework.  Talk to your real estate agent and your tax professional about the benefits and drawbacks involving your particular situation.  Check out the neighborhood into which you are thinking of buying.  Do the math.  Talk to people who have made similar purchases for similar reasons. 

But at the very least, think about it.