Believe it or not, Matt Woolsey is still writing bullish real estate pieces for Forbes (some of his previous work). His latest gem: Top U.S. Real Estate Markets For Investment
Encouraged by a weak dollar and a belief in the resiliency of the U.S. economy, individuals like [Australian dentist Rahul] Reddy, along with institutional investors such as pension funds and private equity groups, are seeking investment properties and development opportunities in the United States.
Their markets of choice include New York City, Los Angeles, Washington, D.C., Seattle and San Francisco.
The bullishness of the article was at least somewhat moderated this time around:
“The U.S. is good for speculative higher-risk investments from our perspective because the strong Australian dollar will enable us to gain hold of properties at prices we will probably not see for a long time,” says Reddy. “The U.S. is an economic powerhouse that I think will recover, and if the exchange rate goes back to figures from a few years ago, that will benefit us.”
Key word there: Risk. With every passing month, a few pieces of conventional wisdom fall by the wayside.
Since Forbes is so fond of the top 10 list format, here are their top 10 US markets for real estate “investment.”
- New York, NY
- Washington, DC
- Los Angeles, CA
- San Francisco, CA
- Seattle, WA
- Boston, MA
- Chicago, IL
- Las Vegas, NV
- Phoenix, AZ
- Orlando, FL
Here’s what he has to say about Seattle on that list:
American investors have been a little ahead of the curve on the opportunities available in Seattle. While the residential real estate market has cooled, Seattle has so far bucked the unemployment trends plaguing much of the national economy. According to the Bureau of Labor Statistics, metro area unemployment has remained flat in year-over-year terms at 3.7%, something that bodes well for commercial and retail investment opportunities.
I thought we had heard the last of the “bucking the trend” clichés, but apparently not. It also seems that Mr. Woolsey is using rather dated information, since the latest unemployment statistics for the Seattle area showed a sharp increase, which throws the trend-bucking idea out the window.
But don’t let the facts deter you if you want to throw your money at a real estate “investment” in Seattle. We are the fifth best market according to Forbes, after all.
(Matt Woolsey, Forbes, 07.10.2008)
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WestSideBilly
“Only true for the first payment – you pay a lot more capital at 6%”
I started to write that too! But, I am not sure now it is correct either. 1st base ump?
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2. No Mortgages are set up where you pay all of your interest up front and the principal is on the back end. Clearly you have never had a mortgage.
And just where did I say that? Why don’t you respond to what I actually said, which is that at higher interest rates a higher proportion of a given payment is interest?
And in actual fact, almost all of the early payments of any mortgage are interest , and almost all of the late payments are principal.
Why don’t you find an on-line mortgage calculator and educate yourself at bit?
The dumbest thing anyone can do is to buy a house when interest rates are at a low point. Anyone who claims otherwise knows nothing about economics or even simple arithmetic, or does know and is trying to fool people.
“Buy now before rates go up” just means “buy now before my commission goes down”. You are peddling the standard realtor BS and we of all people can see through it.
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Forbes is a mouthpiece for the tycoons who run this country. Speaking of tycoons, Steve Forbes was on TV this morning and asked what he would do to try and fix the financial mess we are in…..”Lower Taxes on Businesses That Create Jobs”…..brilliant….just brilliant.
The pro-Business “let capitalism and free markets take care of everything” crowd are the same crowd that is now begging Uncle Ben and the FED (i.e. you and me as taxpayers) to bail THEM out because they ran their businesses onto the rocks.
Indeed!!!! capitalisms finest hour!!!!
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Yeah because it’s less than half the cost. I have a friend that is paying more than double what I am monthly and he’s in a condo and I’m in a much bigger house. You forgot to factor in lost of costs such as taxes, insurance, maintenance, possibly HOA dues, and the opportunity cost of the downpayment. It also seems pretty shady that a $360k house rents for 1600 in this area. 1600/month would get you a much more expensive house in Bellevue, but maybe it’s a lot different in South Snoho?
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1600 a month is basically in my guess is a california rambler with 1600 square feet and a 1967 popcorn/kitchen and all the works!!!. Basically a bigger apartment.
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Possibly, but what’s a condo if not an apartment that you take a mortgage out on? So a 1600 sf rambler for rent is like a really big condo with it’s own yard and that costs much much less per month.
Also the house I rent was refinanced in 2004 and the rent I pay doesn’t even cover monthly principal and interest. So much for rent being more than PI in 2004 let alone PITIM (M is for maintenance) in 2008.
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The pro-Business “let capitalism and free markets take care of everything”
Correction: “let capitalism and free markets take care of the little people and let the government take care of us”
Socialism for the rich.
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lol, I wouldn’t invest in any of those markets right now. Real estate investors are buying in the bible belt right now.
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“With 20% down, that gives a mortgage of about $350,000. The monthly P&I is $2,150. Add in taxes and insurance and the monthly payment is about $2350. If you put the bare minimum into maintaining the house you might get away with another $150 / month in maintenance (0.5% of house value per year).
Total cost to homeowner: $2,500
Actual rent for comparable homes in the area: $1,500
In my experience as a landlord it isn’t unreasonable at all to say that rents are about $1,000 less than a comparable purchase.”
I’m not going to disagree with your numbers, but I think there’s another aspect to consider. The “P” part of the payment is principal and actually goes towards buying the property, so it’s not directly comparable to the rent payment. Of course, if your property value is declining then you’re experiencing a negative interest rate on that money, but that’ll change some time in the next few years.
I’m not a landlord, but the calculation that is of interest to me is comparing the carrying cost of the house, to the expected rent payment over time. (IA = inflation adjusted)
Carrying cost: Interest + IA Maintenance + IA taxes + IA Insurance
For any given year of ownership, the Interest portion will decrease and eventually trend to zero. Of course your actual *payment* will stay the same as the “P” component increases, but that’s not money you’re “spending” – it’s your money (although the value of that P payment depends on the ratio of current value of your home vs purchased value).
Rents will also Inflation Adjust too. Wages and consumer prices tend to track, so you can make a similar calculation for rents.
If you make a spreadsheet for this you’ll find that after some number of years, the carrying costs for the property will equal the rent payment, and after that the rent payment will be more than the carrying costs. For any given property, the question is *when* that will occur. Awesome investment properties will be zero years, of course, but most properties will likely take a few years. It all comes down to your expectation of declines in actual asset values, and your comfort regarding the calculated time period to “break even” on the carrying costs before you start making money.
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“The dumbest thing anyone can do is to buy a house when interest rates are at a low point. Anyone who claims otherwise knows nothing about economics or even simple arithmetic, or does know and is trying to fool people.”
OK, Economist, you got some ‘splainin to do to the dumb real estate agent:
Sure, early in the mortgage years, most of the payment is going to interest, and sure, there is a tax advantage in paying interest, but why is it ” the dumbest thing you can do” to buy something with a low fixed interest rate if it means you can afford the payments?
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With you on that one Ira. Spending money to “save on taxes” doesn’t make a lot of sense to me. You can write off max, maybe 35 cents on the dollar. It may in certain cases be better to pay a higher rate if at the time you can get a lower price – and are assuming you can refinance later. But given the choice of high rate or a low rate for a house at a certain price? My understanding of math tells me to go with the low rate.
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HOT OFF THE PRESS FROM CBS MARKET WATCH
Fed planning interest rate hikes to stabilize real estate [LOL], bonds getting tanked bad.
http://www.marketwatch.com/news/story/treasurys-down-feds-plosser-says/story.aspx?guid={46F1E72C-76B4-4B17-9A8D-179D32918A6B}&siteid=yahoomy#comments
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Place your bets. I’m calling this a headfake. When the next wave of write-offs hits the financials while oil continues to slide the inflationistas will be wondering what hit them and treasuries are going to look pretty sweet. I wouldn’t be running to the refi office right now
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