Are there any trends that real estate investors should focus on? Is the market right for the small investor? Here is a look at a few things that I have noticed.
Looking back at 2010, I am almost want to say that it was the year when the small real estate investor fled the market, but that would not be true. In the past, I had a good deal of activity with real estate investors, many of whom were looking at owning a few properties to create an income stream. Last year that activity declined, but going over my records, I saw that a good 10% of my business was from the small investor. Most businesses have been making predictions on trends for the coming year, and I guess that I decided to look at the market for real estate investment, because my first jobs this year were investment properties. Here is some data for you if you are considering becoming a real estate investor in 2011.
The trend in the Houston market at the end of 2010 shows signs that may bode well for the investor. Housing prices are going up. This is a mixed bag. On the one hand, a rental property will cost more to purchase. On the other hand, you will not be loosing money by decreasing home values. Most home sales in Houston are at the higher end and lower end of the spectrum. Homes in the mid-value range (think somewhere around $200,000) are not selling well. This places the real estate investor looking for a purchase of a home in this price range in a strong position relative to the seller. Make a good offer, and you can quickly finalize the deal. The number of renters is also increasing. This is great, since you can probably find someone to rent the home to quickly. I have noticed in my own neighborhood that rental properties are finding tenants fast (within two weeks), while homes for sale can be on the market for many months. The interesting trend for the investor is that people are renting condominiums and townhomes in greater numbers. Most condominiums that I inspected last year were close to the Medical Center. Most townhomes were on the edges of downtown. We do seem to have people wanting to be living closer to the city center, rather than the outskirts.
What kind of problems may you encounter? First is obtaining a mortgage. Lenders are perceived as being too tight with their money. This perception is fairly consistent among many of my clients. I think that you have to expect to have everything in place with your paperwork and credit history if you want to find a good loan. The lesson: go over your finances carefully, before trying to obtain a mortgage. If you try and fail, your credit score will suffer. Second is finding that perfect house/foreclosure. Be prepared to make repairs. Be prepared to have a good sized budget. There are homes which are reasonably priced, and that could require little work in order for them to be turned around for rent, but particularly with a foreclosure, you should understand that work may be needed. Last is dealing with renters. I do not think that renters are being anymore difficult to please than in the past, but they may be taking a closer look at which home do they want to rent. The real problem here is how involved do you want to be. You have to look at this as a business, and realize that you may have to devote more time to overseeing the rental property than what you may have expected. There are methods of making this easier; you have to research them.
One trend that the real estate investor may need to consider is the green home. Buyers are becoming more aware of this trend, and they may factor “green home” ideas into their expectations. Does the home have energy efficient features? They may be looking for ways to keep their utility bills down, so they will look for double paned windows or insulation, just as if they were considering buying the home. I guess that what this boils down to is quality. When I talked to renters last year, many acted as if they were buying a home, or that they may wish to buy the home that they were renting. I know that one renter did. I do not think that most renters will end up buying their rental home, but you should be aware that they may be thinking along these lines, so home trends may play a bigger part in their decision making process.
I mentioned the areas near downtown and the Medical Center as great for renting, but is that it? I live in the Westchase area, and I have encountered quite a few renters in this neighborhood. People are looking for places to live which give them some convenience. Many people now work in Katy or Sugar Land, so they want homes there. (I had quite a few people working at the hospital in Sugar Land). For others, they are looking at schools or quality of life for their family, and again the western side of the greater Houston area proves to be popular. Younger professionals are the ones looking at the areas closer to the heart of our area.
That is the outlook in brief. The real sticking point I feel will be obtaining the mortgage. Other issues can be worked out by working with a knowledgeable real estate agent. If you do the work right at the start, this may be a simple, reliable stream of income for you.