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The housing market may have slowed, but being a real estate investor can
still be profitable — if you
readjust your strategies. High
prices, rising inventories, and skittish buyers have driven several
speculators from the marketplace. Nevertheless, some investors are not going
anywhere. Only if you
have been listening to policymakers such as Federal
Reserve Chief Ben Bernanke and David Berson, chief economist for Fannie Mae,
you might be hearing otherwise. They predict that investor
involvement in
housing will continue to recede, causing the housing market to soften
further.
True, it is no longer possible in most of today’s markets to flip a home to
another buyer at a substantial premium, but investors can still make money
in real estate. For investors who love the challenge, you
are in luck — it
can still be a good time to buy a home, improve it, and sell it at a profit.
The reasons for my optimism?
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Investors can target
their investments in burgeoning, up-and-coming markets such as Austin,
Texas, which could be the next Silicon Valley.
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While the outlook
for existing-home sales, new-home sales, and housing starts will likely
fall slightly this year, a gradual rebound is expected and the market
looks promising in 2008, according to NAR statistics.
Investor
Market Conditions
Investors, as defined by the NATIONAL ASSOCIATION OF REALTORS®, are
non-occupying homebuyers; they represented as much as 20 percent of
homebuyers in 2005, the biggest sales year on record. In fact, in 2005,
investor demand for housing was at a premium, largely because rising home
values in many parts of the country all but guaranteed a return on
investment. In some areas, investors purchased as many as 40 percent of the
homes for sale. A sobering one-third of homes nationwide were purchased by
non-occupying homeowners, either as second homes or as investment
properties.
That alone almost guaranteed a recession in housing would be just around the
corner, as those properties came flooding onto the market for a cash-out.
However, sales in 2006 were still the third best on record. Sure, the
precipitous 17.3 percent drop in volume from the all-time high achieved in
2005 represented the largest decline since 1990. In addition, price gains in
2006 were anemic, rising 1.1 percent to $222,000, from a median price of
$219,600 in 2005, so investors no longer were looking for quick equity
gains.
However, investors evidently have not fled the market, since housing sales
are still in recent-record territory, although they may be changing to a
longer-term strategy.
Adjusting Strategies
As long as investors have financial staying power, they will be around. So
as the market rebounds over the next few months, investors can:
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Take advantage of
tax benefits.
A slowing market
allows investors to become occupying homeowners, so they can take
advantage of tax benefits themselves. The Tax Relief Act of 1997 allows
anyone to buy a home, occupy it for at least two years as a homestead,
rent it for three years, and sell it tax-free up to a ceiling of $500,000
gains for married couples and $250,000 for singles. Under those
provisions, investors can purchase with conforming loans, which have a
lower interest rate and more generous down payment terms than the stricter
investor-oriented loans. It is the slower route to wealth, but it will get
you there.
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Snatch up good
deals. In
fact, investors stand to gain in markets where other sellers are
panicking. They can pick up choice properties at better prices.
The only problem for statisticians is distinguishing which homebuyers are
investors in homesteaders clothing and which are not.
BY
BLANCHE EVANS
Realty Times.
Reprinted with permission.
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