Property in USA

The latest Knight Frank House Price Index shows that globally house price increases are slowing down and that the countries that boomed relatively early on in the last cycle are being hit hardest.  So what does this mean for property in USA where house prices in many states have increased substantially in a relatively short space of time and where interest rates are creeping up?

In locations such as Los Angeles, Miami and San Diego where median house prices are now up to in excess of ten times the average local income, home owners have to be prepared for a negative correction.  However in areas such as Albuquerque where house prices have been far slower to boom there may still be room for property price growth and the associated profit margins that investors can tap into.  But the overall advice for property investors thinking about property in USA right now is think long-term, consider income generating investments rather than short term capital appreciation and be prepared to negotiate hard because it’s turning into a buyer’s market.

As seasoned property investors will tell you, it’s always possible to make money from real estate in any market – you just have to know what you’re doing!  According to the Chief Economist at US based Fiserv, the world’s largest service provider to banks, credit unions, lending institutions, and investment advisors, since the Second World War the price of property in USA has tended to rise just ahead of inflation and in sync with the American economy…when you get to a situation like today where property prices in some parts of America have increased so far ahead of what the average buyer can afford you’re going to see a slow down, a negative correction and you’re going to witness negative equity and a short term depression in the housing market.  But over the long term property will tend to consistently rise and what’s more there tends to be a cyclical nature in property markets that see periods of boom and periods of stagnation and bust.

This means that an investor looking for short term capital appreciation from property in USA and who times a market correctly can profit well, and an investor seeking long term income from property and who prices his property purchases correctly can achieve his aim as well as capturing the gains that his real estate asset will naturally accrue over the long term…

All this information is great – but what does it mean for an investor keen to invest in property in America today?  Well, as stated, in areas where house prices have boomed well above the average income an investor would be unwise to attempt to profit from a rising market!  However there will always be buyers who have to move, have to sell, have to buy and have to expose themselves to an unfavourable marketplace.  To such buyers the advice is to look for properties that have been on the market for at least three months – vendors might be more willing to accept a reduced offer.  Be prepared to negotiate with the vendor for the inclusion or payment of extras such as closing costs, surveys, insurance etc., and take time making a decision because the longer you hold out the more likely a keen vendor will be to agree to the terms and conditions that you set.

For investors who don’t have to walk into an overheated market place consider areas neighbouring boom towns where those who cannot afford to buy the hottest of properties will look next for something almost as suitable!  This is why Reno boomed after Las Vegas and why Sante Fe boomed after Reno and why now Albuquerque is looking like a relatively attractive bet for those seeking capital appreciation.

Property investors aware that a market may be about to cool but who want to get the last out of it in terms of capital appreciation may be tempted to buy the cheapest property in a given neighbourhood to renovate and remodel it before putting it back onto the market quickly to cash into its additional worth and also any positive market movements that have occurred in the interim.  Remodelling works even in a slow market if an investor can buy at the right price and can avoid the temptation to overspend on the renovation project – all big ‘ifs’ mind you!  With renovation projects undertaken in a risky market its wise to make the transitions swift and get the property back on the market – therefore avoid large construction changes and instead stick to freshening up and modernising the existing structure.

Finally for property investors seeking sustainable income and long term capital appreciation property in USA could be one of the best investments they ever buy into if they buy well.  Think of where demand is greatest for rental property, think about the market you will be aiming to attract and buy for their tastes and not your own and make sure that the income you want and need to generate from the property to cover your outlay and ongoing costs can realistically be generated from any property you examine.  Finally remember that any property needs a certain amount of managing and that a house is an organic object that needs maintenance, furthermore even the most desirable rental property can have periods of vacancy and your income has to be sufficient to cover all of these factors.

In conclusion, there is still money to be made from property in USA despite the fact that in certain areas of the country homeowners are facing a period of bust and in other areas of America the housing market is stagnant in terms of movement and demand.  Property investors who make their full time income from real estate know that the fundamentals to profiting from property are market timing in terms of both entry and exit, affordability and pricing a property correctly as well as demand versus supply.  If you keep all of these factors in mind when examining any property market for its potential short, medium or long term profitability you will be on the road to making the right choices. 

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