NAR looks at the monthly mortgage payment (principal & interest) which is determined by the median sales price and mortgage interest rate at the time. With that information, NAR calculates the income necessary for a family to qualify for that mortgage amount (based on a 25% qualifying ratio for monthly housing expense to gross monthly income and a 20% down payment).
Here is a graph of the income needed to buy a median priced home in the country over the last several years:
And the income requirement has accelerated even more dramatically this year as prices have risen:
Bottom Line
Some buyers may be waiting to save up a larger down payment. Others may be waiting for a promotion and more money. Just realize that, while you are waiting, the requirements are also changing.
Original Post from www.keepingcurrentmatters.com
Red Rock Management & Real Estate Investment
www.RedRockManagementLV.com
Info@RedRockManagementLV.com
FREE Property Management Consultation– CALL 702-622-8668
• August 24, 2015: -588.47
• August 21, 2015: -530.94
• August 8, 2011: -634.76
• Six more 600 points or larger drops since 2000.
Yes, if you just bought and held for 15 years, you would have done well in stocks. Unfortunately, many people can’t simply drop a major chunk of change into stocks and just let it ride for that long. And, depending on when you buy, having to sell after a drop like these can be devastating to your savings and retirement.
So, that said, I’m not saying dump all of your stocks and buy real estate … particularly not now. However, the next time your stock broker advises you to “diversify,” don’t just do it with stocks. Let’s look at some of the points referenced in the linked article.
Actually, the article wasn’t really that positive about the advantages of investing in real estate. Things like the ease of placing stock trades and low cost of transactions were mentioned. Property taxes were mentioned as a negative, and they are to a point. The article’s title really wasn’t in my opinion supported very strongly by the content. So, let’s take a look at some differences between stocks and real estate as an investment asset class.
Inflation Hedge
Stocks are susceptible to inflation risk. Your return is whatever it is, including dividends. When inflation gets rowdy, it can take away major chunks of your investment gains in stocks. That’s not to say that real estate is inflation proof, but there are some logical reasons why it may be better.
Let’s think about what inflation really is. It is an increase in the cost of goods and services. So, what do you expect to happen to home prices when wood, tile, wiring, plumbing and other materials and labor costs increase? If it costs more to build, usually within a reasonable period of time it will cost more to buy. Your owned property value can actually increase during inflationary periods.
Interest Rate Increases
When interest rates rise, stocks and definitely bonds usually suffer. It costs companies more to borrow to expand and finance operations, so their profits are reduced. Bonds carry a fixed rate of return, so their value drops when interest rates increase.
If you own rental real estate with a fixed mortgage rate, interest rate increases don’t really bother you. In fact, they can help. If mortgage rates rise, more people must rent than buy. Rental demand increases and rents rise.
Taxes
Sure, you must pay property taxes if you own real estate. However, if you’re doing your job, you factor those into your purchase of rental property and the positive cash flow you project to receive. Sure, they can go up, but you may be able to offset that with rent increases.
One major difference is in using the IRS 1031 Exchange rule for growing your real estate portfolio. While the stock market investor will pay capital gains taxes in the year they sell a stock at a profit, real estate investors get a major break. Using this IRS rule, you can sell and roll the profits into another investment and forego paying capital gains. It’s complicated and the rules are strict, so an accountant needs to be involved.
I’m not trying to push anyone into real estate who is afraid of it or not suited for a landlord’s duties. But, there definitely are reasons for real estate as a diversification strategy.
Article Written by Dean Graziosi on Twitter: www.twitter.com/deangraziosi
Red Rock Management & Real Estate Investment
www.RedRockManagementLV.com
Info@RedRockManagementLV.com
FREE Property Management Consultation– CALL 702-622-8668
- Who’s remodeling? See profits at HD Supply, Restoration Hardware.
- Homebuilding profitable? Watch Hovnanian earnings, out Wednesday.
- Look at real estate slice of Producer Price Index.
- Are rates moving? See Freddie Mac mortgage survey, out Thursday.
- Who’s borrowing? Watch mortgage bankers’ application survey, out Wednesday.
Source: Jonathan Lansner – writer OC Journal
Red Rock Management & Real Estate Investment
www.RedRockManagementLV.com
Info@RedRockManagementLV.com
FREE Property Management Consultation– CALL 702-622-8668
She writes, “Just recently, a reader asked me about the difference between buying a house with cash and buying a house with a home loan. That’s a great question!
Here’s a rundown of the differences.
Buying a house with cash saves you money. You don’t have to pay for an appraisal. That doesn’t mean you can’t or shouldn’t pay for an appraisal, you just don’t have to.
Buyers using a home loan have to pay for an appraisal. The lender requires an unbiased, licensed appraiser to give a thoroughly researched and documented report on the value of the home so the lender is confident you’re paying the right price and that they are making a sound investment.
A home buyer paying cash also saves on other lender related costs including a credit report, loan origination fee, flood certification, tax service fee (the lender has to be aware of any back taxes owed) lender required title insurance and any points a borrower chooses to pay to bring down the interest rate on the money borrowed.
In addition, a cash buyer is not required to purchase home owner’s insurance.
When you get a home loan, the lender requires evidence of insurance, and you pay for a full year up front.
I’d never recommend not buying home owner’s insurance. However, when you’re buying a house with cash, you can work it out directly with your insurance carrier as to the frequency of payments.
When you are buying with cash, you also save on escrow fees including the loan tie-in fee, the loan documentation prep fee, and the notary fees (you’re not signing anything that needs to be notarized).
The more subtle aspects of buying with cash include the need to prove you have the cash up front with your offer. This means you need to submit, up front, bank statements showing sufficient funds to cover the price.
If you are flush with tons of cash, you may want to keep a bank account that only has a balance large enough to cover the cost of the house and your share of the escrow fee and a processing fee.
You have no need to show the seller how much you have overall.
You get to keep your financial status a secret, as opposed to a buyer getting a home loan. Those who buy with a loan have to provide full financial disclosure to the lender to qualify for the loan.
There’s much less paperwork required when buying with cash. You can also close escrow much more quickly. You do not have to budget time for the appraisal review, underwriting review, management review, and all the time to prepare and review loan documents.
There’s also the advantage of representing less risk to a home seller. If you show the seller the money up front, and if your offer is a figure that is acceptable to the seller, you will probably win out over a buyer who needs a loan. Cash is much easier and less risky.”
Source: OC Journal – leslieeskildsen.com.
Red Rock Management & Real Estate Investment
www.RedRockManagementLV.com
Info@RedRockManagementLV.com
FREE Property Management Consultation– CALL 702-622-8668
The Realtor® Magazine published an article in March about real estate purchaser preference.
They claim that although incentives are attractive, lower home prices draw more interest.
Many Las Vegas real estate agents don’t oppose incentives and have found success with them.
However, one major factor that affects buyer interest is that fact that buyers who work with
Realtors® typically use the MLS home search. There is no search criteria for “incentives” or
similar terms. Potential buyers have to stumble upon incentives as they peruse and the odds
of being found are lower. However, most buyers do use price as a criteria and if a seller’s
house priced better than its competition it will draw more views. The important thing in a
tough selling market is to get as much attention as possible.
According to the article:
“The single thing that’ll drive buyers and salespeople to a property is that it must be
priced at today’s market value. If that happens, you’ll get buyers at the property, and
you’ll get practitioners there, too, because they believe buyers will buy.”
Red Rock Management
www.RedRockManagementLV.com
Info@RedRockManagementLV.com
FREE PROPERTY MANAGEMENT QUOTE – CALL 702-622-8668
]]>