Should You be Investing in Westchester Real Estate now?

The marked decrease in home prices and a slowing down of the purchase market causing a shift in the residential real estate market has many of my clients and colleagues wondering if lower home prices present an opportunity for investing in real estate. Not all areas in Westchester or all types of housing stock present the same level of opportunity, of course. According to Westchester-Putnam MLS during the last quarter of 2008 the median price for condominiums declined by on 7%; single-family homes declined by almost 11% while the median price for 2-4 family homes declined by over 22%.

During the recent hey day of low down payments many speculators purchased rental properties. These would-be landlords, enabled by meager capital requirements, overpaid for properties and had neither the cash reserves nor the business skills to maintain these homes. The result has been foreclosure, short sales and tenants in jeopardy of being underserved or displaced.

The lenders, in belated response to this situation, increased the required size of down payments and pegged interest rates for investment properties higher than for the same amount borrowed to purchase a primary (owner occupied) residence. For example: the rate on a loan (under $417,000) with a 35% down-payment might be 5.5%; the rate with 25% down payment would be 6.75%; and it rockets to 8% with a down payment of only 20%. The rational is simple. The mortgage upheaval and up-tick in the rate of foreclosures has reinforced the fact that a landlord is more likely to retreat from a troublesome financial situation involving an investment property than he or she would as if it meant leaving or losing his or her own home.

Owning real estate is a business proposition. Although we often interweave emotions and personal preference with the acquisition of our own homes it is essential to understand that purchasing investment properties is a business transaction. J. Philip Faranda, Broker-Owner J. Philip Real Estate LLC in Briarcliff Manor http://jphilip.com/ emphasizes that "diminishing the cost of acquisition as much as possible is key to making the process successful." The recent correction in prices has further helped to decrease the price of distressed properties increasing the potential for good investments. "Whether buying of a single-family property that you intend to rehabilitate and sell or maintaining a multi-family dwelling you must have a business plan." explained Feranda.

Peter Nikic a Real Estate Broker and professional property manager with Broad & Bailey in Pleasantville http://www.broadnbailey.com suggests that an investor must have a very clear sense of what they want to accomplish from property ownership. "When it comes to single-family homes this area is good for equity growth, for long-term investors, rather than cash flow." said Nikic. "I don't recommend that people buy a single-family home in this area with a high cost of acquisition and substantial taxes as a vehicle for positive cash flow" he continued. The cost to maintain a single-family home cannot often be justified by the rental income that it can command. This is particularly true in the current market which includes a disproportionately high number of homes that are available for sale and/or rent simultaneously by owners who have been unable to find buyers, and who have themselves become accidental landlords. Multi-family dwellings can provide several sets of rent paying tenants creating an economy of scale for certain utilities and services that is not the case in one-family home.

It is essential to calculate the totality of expenses including the mortgage, insurance, taxes, utilities, allowance for vacancies, and for refreshing the property when there is tenant turnover. This has to be compared to a realistic estimate of the income derived from rent to determine the capitalization rate. The "cap" rate is calculated by dividing a property's annual net operating income by its purchase price. It is also essential to consider that as a landlord you have taken on a job that includes being accountable for all of the situations that arise within the building.

If you are intrigued by the potential opportunities created by the correction in the real estate market be sure to solicit the advice of a real estate broker with experience in the residential investment market, your accountant and a mortgage professional. Also, you will find a wealth of information at http://reiclub.com/real-estate-articles.php.