Rob's Rant

Foreclosures continue to rise.  The US Government is in obvious panic-mode about housing. People are selling at any price just to get out from under their properties, or are walking away from them.

Is this a good time to purchase real estate?  It seems like if you believe Baron Rothschild (who nobody would really call a "nice fellow" but who was immensely wealthy) you should consider this option for your investments.

There are 2 factors I believe are important to consider right now: people are dumping properties (dropping prices) and ultra-low interest rates (further dropping payments).  Even if prices go down further, rates can't drop and will certainly go up, if only because nothing stays at historic highs or lows forever.

Consider: a $200,000 loan at 5% has a Principal and Interest (PI) payment of $1073.  At 6%, that same $1073 results in a loan of $179,000.

So if rates rise only 1%, home prices would need to drop 10.5% to keep pace, over and above the drop that has already taken place.

On the flipside, when home prices do rebound, you have locked into this lower price and lower rate.  When Rents rise, your PI payment remains the same, and the overage is your profit.  Should values go up 10%, even if rates remain flat (which is highly unlikely), the loan at $220,000 at 5% interest is $1181.  This is $108 that another landlord would have to charge just to break even, putting you at a competitive advantage.

And if the home prices go up 10% and rates go to 6% the loan at $220,000 at 6% would be $1319 per month.  This is a $246 competitive advantage to you.

There is always risk of loss.  You MUST educate yourself about any investment before buying.  Enlist experts to advise and assist you.  But if you sit on the sidelines and just WAIT, you'll miss what seems to me like a party.

Remember the examples I give apply to Primary Residences as well.  If you know someone who is still Renting, this may be the ideal time to change that.  Fixed-Rate mortgages are better than Rent Control!