August 2009 — The single family home market is amazing. The drastic drop in home prices combined with the very low interest rates and home buyer incentives have generated a huge number of buyers.
The inventory of homes in Fresno/Clovis has dropped from a high of 20 months of inventory in Sept of 2007 to a 2 month inventory today. We now see multiple offers on homes that are well priced and in decent condition.
About 80% of homes sold are bank owned and 15% are short sales so the supply is driven by foreclosures. Prices are beginning to rise as a result of the lack of supply. Future prices will depend of the number of foreclosures and interest rates.
If the number of foreclosures falls and interest rates remain stable - we will see a rise in home prices. If we see a rise in interest rates this will lessen demand and prices may remain stable.
Safety: Single family rentals are considered one of the safest investments available. Rental rates rarely decline. Tenants of homes are more stable than apartment dwellers so you have lower maintenance and vacancy costs. Every foreclosure results in a displaced family — a potential tenant so the vacancy rate is reasonable at this time. Homes also offer the best inflation protection available.
In the event you need to cash out, there is normally a market for houses. Remember, multi-family units are purchased only by investors. Houses are purchased by owner occupants or investors.
Profit Potential: There exists in Fresno a shortage of inventory of single family homes at this time. This means that there is a short window of time before the market adjusts where the wise investor can get some great deals.
The greater Fresno market has seen remarkable depreciation in the past two years. Home prices have dropped about 40% in that time. With the population of this area predicted to double in the next twenty years and current prices below replacement cost I do not see how this market can go anywhere but up. The best part of this market is that current prices allow the investor to realize excellent ROI anda real possibility for appreciation in the near future. Look 2 to 3 years out to see significant appreciation.
The best buys for the investor are the bank owned properties that are in poor condition and will not qualify for new financing — this limits the number of buyers to the all cash buyer which results in a lower sales price.
Ease of Purchase and Resale: Unlike apartment units, one can acquire, finance, sell or refinance homes on a one each basis over a period of time. Individual homes also resale much faster than apartment complexes. The owner occupant buyers have government assisted/guaranteed financing available to them.
Financing: Typical non owner occupied financing is 20% - 25% cash down. My best source for direct funding loans has been Wells Fargo - Mayra Ruiz (559)437-1177 or Chase - Lisa Dipple (408)399-7658. For those preferring to work with mortgage brokers talk to Steve Heintz at (559)432-2727 or Sue Sweda (559)225-0500.
See Estimated Cash Flow Work Sheet.
What to Buy: Location is critical, neighborhood, schools, shopping areas, traffic, common sense choices that an owner occupant would select.
Purchase Price: The purchase price should be at the low end - in Fresno that means $100,000 to $150,000.
Size: 3/2 with 1,100 plus sf of living area, two plus garage, 6,000 s.f. lot or larger. |
