Tag: where to buy real estate

My top three picks for home ownership in the USA

Why you shouldn’t believe everything you read on the internet when it comes to real estate.

Indeed.com did a survey of the job opportunities offered in the most populous areas of the country and several publications used the survey information to write articles, based on this survey.  However, the most populous cities in the country tell a very small part of the story and the caveat here is that by the very virtue of these areas being the “most populous” it suggests that no matter how many job postings per 1,000 people there are, there will be much more competition for those jobs both within that metro area and from outside of it.

One such article, written by AOL.com, used the information to make suggestions regarding which the ten best towns were for working toward home ownership.  http://realestate.aol.com/blog/gallery/10-towns-for-working-towards-home-ownership/

However, I suggest that there are smaller, less populous towns that provide better opportunities for employment, lower median home prices and a lot of the things that people look for in a neighborhood.  I will let the big media companies tell you the large metropolitan areas where they believe you can get a job and afford to own a home, even though the one on the top of the list at aol.com has a median home price of $369,999, with a 20% down (in this very difficult mortgage market, most buyers are required to have at least 20% down) of just about $74,000.  This target down payment is tough, especially since the mortgage repayment, plus taxes, insurance, etc. may end up costing the homeowner around $3,000 a month.  Given that many lenders require that a mortgage be no more than 33 to 36 percent of one’s income, the income a prospective homeowner (or homeowner couple) needs to earn each month is in the range of $10,000.  This cuts most of middle America out of the ability to own homes in these so-called desirable work areas as one must clearly one possess advanced degrees, extraordinary experience and unusual skills  in order to compete for these $120,000 (or more) a year jobs.

So where can the rest of us hope to get jobs, purchase homes and live in safe and desirable neighborhoods?  I believe that the best way to evaluate these are to look at various factors, including: the cost of housing, the property tax rate, the cost of living, the crime rate; and, educational statistics, such as, the school expenditures per pupil and the teacher to pupil ratio.  Using these criteria, here are my top three picks for areas where home ownership is still possible for middle America and where there is a quality of life that is desirable:

Sioux Falls, SD: With a median home price of $137,200, a low unemployment rate of 5.70%, which is lower than the national average, and a property tax rate of just $15.92 per $1,000, Sioux Falls makes sense.  Here it is possible to have a lower paying job and still afford to own the home you live in.  Salaries paid range between $60,000 and $300,000, but owning a home is still possible if you are in that lower than $60,000 a year range.  Heck you could probably save enough for the 20% down payment on a home and still meet the earnings criteria for a mortgage if you earn $30,000 a year.  Of course, you will be giving up great weather in exchange for a job and a home, which for some is not negotiable, but for the practical, well it’s definitely worth another look.

State College, PA: State College is in the center of the state.  It has a median home cost of $215,000 with a low per $1,000 tax rate of 12.65% and an unemployment rate of 5.4%.  Earnings are lower, spread pretty well between $15,000 per year and $150, 000 at the top end.  Expenditures are $7,046 per student, higher than the national average and a pupil to teacher ratio of 13.5.  As a bonus, the air quality and water quality are good.  45 inches of average snowfall each Winter, balanced against an average July temperature of 82 degrees.

Centerton, AR:  A small city of just over 6,000 people, located in the county of Benton, Arkansas, right next door to Bentonville, home of Walmart.  With a really low crime rate and a low cost of living, a property tax rate of $7.85 per $1,000 and a median home price of $147,000, Centerton is a great place to call home.  The unemployment rate is 6.2% and being located near Walmart headquarters contributes not only to available jobs, but also a low cost of living, especially in food and clothing.  21.11% of people earn between $50,000 and $75,000 a year, making this the mode salary range.  The balance of salaries are fairly evenly distributed between $15,000 and $150,000.  Houses in the $110,000 range are abundant, so qualifying for that mortgage and saving for the downpayment is still realistically viable.  Being so close to the larger city of Fayetteville and the ever-growing Rogers, as well as a short distance from the Oklahoma and Missouri borders, means opportunities for employment and fun traveling are readily available nearby, if not actually in the city of Centerton.

Source: Bestplaces.net

Perhaps Not the Best Places to Buy Rental Income Property

By: Eveline Brownstein (c)

A recent online article by CNN Money lists their pick for the 10 best cities to buy a rental income property. As I read through the list I was astounded by the cities listed.  I, personally, would not even consider purchasing rental income properties in most of the listed cities.  I wondered if I was alone in my very strong reaction to the article, so I read the comments and found myself agreeing with the many who had taken the time to comment.  I believe that the cities listed pose glaring risks for me.

Reconsidering what I said in an earlier article about what is possibly the single most important driving factor for my own purchases of rental income property, I stated: “Buy in neighborhoods where there are opportunities for jobs.”  Astoundingly, CNN Money lists several cities with rampant unemployment and few near-term  job growth prospects for those who are unemployed.  In the article, CNN Money also shows the projected home price for 2014, and in most of the areas listed there is also an expected projected further decline in property values.

I want the properties I buy to increase in value, over time.  I want my rentals to rise with inflation.  I want people to have the ability to rent my homes.  I want renters to choose my homes because of the neighborhoods in which they are located.  The availability of jobs is more likely to drive people to move into an area; whereas the lack of jobs is likely to drive people to move out in droves. Growth areas, even if the growth is positive but small, yet constantly rising, are preferable to me than depressed areas that are stagnating or on the decline.  Though properties in declining areas are attractive for their lower prices, they are unattractive to me for a host of other reasons besides that the rents are generally lower too.

And what does it mean for a landlord or a property manager who is hired to manage properties in distressed areas?

1.  Difficulty collecting rents.  Sometimes.  It has been my experience that even tenants with less than stellar credit pay their rent first.  Most people desperately desire a roof over their heads and do not want to be homeless.  Despite a tenant being very motivated to pay the rent, rents are more likely to be late or partial when the tenant falls on hard times. A tenant who pays the rent, even if it is received a few days or even a week late is often preferable to a vacant house in a depressed area.  Sometimes, this leads to tenants availing themselves of the opportunity to stay just inside the law, which can be an administrative headache for a landlord or manager.  Owners would prefer occupied properties without vacancies of any time at all and a paying (even late paying) tenant is usually better than even a single month’s vacancy. This can lead to some extended hand holding of a tenant and a lot of  frustration for the property manager.

2.  Difficulty attracting good tenants to the area. Depressed areas are more likely to have longer vacancies and extended vacant homes pending foreclosure. Many banks who own vacant foreclosed properties, fail to maintain them as a result of the additional costs involved and they are often easy to spot in a neighborhood by the fact that the lawn has not been mowed in a while, the trash has not been removed, exterior repairs have not been made, etc.  For managers who are managing in a depressed area, showing people an available rental home becomes challenging.  Even if the home itself is impeccable, if the properties around it are unattractive, good tenants will simply not want to move there.  In areas where unemployment is rising and there are continued job losses, tenants may struggle to pay rents.

3.  Difficulty collecting sufficient rent to cover the property expenses. With depressed areas usually come reduced rents, at least for the near term while things begin to stabilize, even if they stabilize at the bottom of a downtrend.  This can sometimes mean that the amount of rent a property manager is able to collect may be lower than what is needed for upkeep and repairs to the rental property and to cover other expenses, such as insurance (please tell me you insure your rental income properties), taxes and utilities. This will mean an out of pocket expense for the owner. Managers who are working diligently to meet their owners’ needs may find themselves caught between the frustration of the owner and a general market rent that is unsatisfying to the owner’s investment goals.

Professional and experienced property managers are able to overcome the obstacles presented by managing properties in distressed areas and are honest and forthright with their property owner clients when explaining the challenges and setting realistic expectations for what is is possible to collect in rents.  Great property managers also remember that economic circumstances beyond their control can make for stressed tenants and stressed owners, both of whom may need their sound advice with respect to what is possible, over what might be unrealistically expected.