invest in real estateMany people want to know… Why invest in real estate now?

Over the past few months I’ve talked with numerous people who are thinking about investing in real estate both here in Reading, and surrounding communities, but there’s sometimes a bit of hesitancy.

A waiting period or a pause.  I don’t blame them.  Successful real estate investors carefully evaluate an impending opportunity.

But carefully evaluating and reluctance are completely different.

One is a consideration. A possibility.  Reluctance is a general qualm about the entire process.
Yet that’s a fair set of questions:

Why invest in real estate now, and why wait? The answer lies in rates and prices.

Anyone involved in the real estate industry, or any human being living in the United States for that matter knows that interest rates are at or near historic lows and have been for more than a year now.

You can’t open up a newspaper or visit a website without some lender bragging about how low their rates are.  But few put that into perspective to see what interest rates really represent: buying power.

Normally (assuming other consumer debt to be in line) a buyer can qualify for a housing payment of 30-35% of their monthly gross.  The housing payment would need to include taxes and insurance.  So the cost of the house is not the only factor to consider when financing is being used. If one house has taxes of $10,000.00 per year and the other is $18,000.00 the person buying the home with the higher taxes would qualify for less in the amount of the mortgage.  The amount would be calculated as follows:  $8,000.00 / 12 = $666.66 per month / $4.64per thousand of amount borrowed has the person buying the home with higher taxes qualifying for $143,000 less in a mortgage amount.

Someone making $6,000 per month would qualify as follows:  $6,000 X 33% (housing ratio) = $1,980.00 total available for mortgage payment which would need to include taxes and insurance.  So if we follow the scenario above, the property with the taxes of $10,000.00 yearly, $833.33 monthly taxes and say $120.00 monthly insurance would qualify as follows:   $1,980.00 – $833.33 – $120.00 = $1026.67.  This is the amount that is then divided by the factor of $4.64 per thousand to get the amount of the actual maximum mortgage calculation.  $1,026.67 / $4.64 = $221,300.00.

(The above figures were contributed by a top real estate broker ~ Keith Zielaskowski)

Now go back in time just over 24 months ago when interest rates were near 5.50 percent, that same person making $6,000/month would qualify for a loan of much less.

That’s the power of interest rates.  Waiting can mean losing thousands based on interest rates alone.

And one other important note as to why invest in real estate now…

Home prices appear to have stabilized in certain communities with slight gains in value in others such as Wyomissing, Reiffton or Whitfield.

When you combine the power of today’s low rates with the recognition of price stabilization, then the answer to “Why Invest in Real Estate Now – Why Not Wait?” becomes crystal clear.

Talk soon,
David Slabon