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Real Estate Investing & The Market

Is now the time to invest in real estate?

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As long as people have wanted to live indoors there has been a need for rental real estate. Today, according to the Census Bureau, we have 114.2 million occupied housing units in the US, including 39.3 million rentals.

Rental housing is necessary to the American economy and so it follows that the government has tried to encourage investing through a series of tax preferences and other advantages. Invest in real estate and you can typically deduct such expenses as mortgage interest, property taxes, insurance, management, association fees, repairs and depreciation.

But is now the time to invest in rental real estate?

There are several reasons to suggest that in many markets the answer is yes. Here's why:

Prices are low. The federal government said that in May home prices nationwide were 17 percent below the peak seen in April 2007. At the same time the National Association of Realtors reported that home values rose in 110 out of 147 major metro areas during the second quarter.

A big catch is that large numbers of distressed homes remain available at discount, homes which in many cases are suitable for residential or investment use. There is a pricing hierarchy in the marketplace with non-distressed homes as a base, short sales (also called pre-foreclosures) priced below and homes held by lenders at the bottom.

"Our first quarter foreclosure sales report showed that the average price of a pre-foreclosure home was more than $27,000 higher than the average price of a bank-owned home," said Brandon Moore, the CEO of RealtyTrac. He added that during the past five years there have been an average of 1.6 million foreclosure starts annually.

Although home values have generally fallen the story with rental rates is different. The cost to rent has gone up. Figures from Reis.com show that effective rental rates for apartments nationwide were up 3.4 percent when compared with the second quarter of 2011.

Why are rental rates increasing? Several reasons: The population is growing, many people who have lost their homes to foreclosure now need rentals and single-family new home construction is down 50 percent from five years ago.

The Reality of Risk

For all the great stories of investment success, which have been broadcast on late-night television the fact is that perspective is required. In the same way that stocks and bonds are not a sure thing the same is true with real estate. It's important to investigate local options and check rental trends in your area. For additional information contact an Carrington Real Estate Services real estate professional.

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