It’s an interesting real estate market here in Portland and one that heavily favors Portland real estate investors.  Depending upon whose real estate study you’re looking at and where in the country it was generated you can expect somewhere between 5 – 7% annual appreciation.  Keep in mind that appreciation is not linear.  That is to say price does not necessarily go up 5+% each and every year.  15% appreciation one year, -5% the next…

Take a look at what’s happening now.  We’re experiencing a buyer’s market where prices of Portland real estate have dropped very little compared to just one year ago.  Being immersed in the field I can tell you that prices have declined more than statistics show.  In 2006 buyers were very hard pressed to find homes for sale in Beaverton anywere under $220k.  Now those same homes are running close to the $200,000 point.  About a 10% reduction in 2 years.

The great thing about being an investor is that you’re looking at the long term return.  Single family investments yield better returns on the lower end, such as a $200k home in Beaverton Oregon.  An average condition ranch style home will fetch an easy $1100/mo in today’s market.  Do a little remodel and $1200/mo is not a problem.  Try that 3 years ago and you’d be looking at big vacancies.

Rents are heading north.  They’ll continue to do so as long as our housing market remains in a slump.  Great time to be a landlord and invest in real estate.  Prices are down, inventory is up, mortgage rates are increadibly low today.  At 5.375% for a 30 year conventional loan money is cheap.  Add .5% roughly for an investment.  No one has a crystal ball but signs are very promissing that now is the time, buy low.

Capitalize on overall return, not cash flow.  Here’s a rule of thumb you possibly haven’t heard before; Buy entry level investment houses with 100% financing (or as close as possible to) where rent covers the mortgage payment (principle and interest only).  There will be negative cash flow because you’re paying taxes and insurance out of pocket each month.  It is possible to do this.

100% financing is still available through various sources but most easily structured through a home equity line of credit on primary residences plus 80% ltv on the purchase.  Very few houses qualify, in my opinion, as good candidates for this formula.  They’re usually fixers in need of about $10k worth of work (sweat equity).  So, with $10k invested in this property and the rest financed you’re only negative roughly $200/mo (taxes and insurance).  Pretty bad right?  Maybe not.

Cash flow can be a very short sided approach for some people.  There are 3 major factors to keep in mind; tax deduction, depreciation, and return on investment.  Overall, in today’s market, you’re probably not coming out ahead due to the direction of prices.  When our housing market turns around such an investment will return a very attractive number overall.  Prices have not gone backwards like this in approximately 40 years.  It’s not going to continue!

Like always, I encourage your comments and objections.  Is investing in this market right for you?

Feel free to check out Portland Real Estate for Sale and investments guides at www.MaxwellSinclair.com