St. George Utah Real Estate Listings

A majority of Americans – both owners and renters – still believe in the importance of home ownership. That’s according to a study conducted by Fallon Research & Communications Inc., which reveals that 91 percent of owners and 72 percent of renters believe owning a home is a good financial investment.

As people age, their beliefs in the value of home ownership seem to be reinforced, according to the survey’s results. The study found that 69 percent of people ages 18-29, 76 percent of people ages 30- 44, 81 percent of people ages 45-59, and 86 percent of those over 60 believe home ownership is a good investment.  The study also revealed that 68 percent of renters agree that home owners experience a better quality of life due to more stable communities and greater pride in their neighborhoods.

A new bill introduced in the U.S. House of Representatives could bring relief to distressed home owners hoping to avoid foreclosure through short sales. The “Prompt Decision for Qualification for Short Sale Act of 2011” would impose a deadline of 45 days on lenders to respond to short sale requests.

The current short sale process can be time-consuming and inefficient, with some Realtors® reporting sales taking up to 10 months to complete. Many buyers walk away from a sale that could have saved a home owner from foreclosure. Ironically, short sales generally cost lenders less than homes that go into foreclosure.

While it was relatively quiet on the economic news front, rates inched lower as the 30 year fixed rate mortgage averaged 4.80% with .7% discount, down from 4.91% the week before. All the signs of inflationary pressure (which tends to push rates higher) are present yet, news that a major rating agency may downgrade the US debt seemed to be viewed favorably for bond market investors resulting in lower rates.

Tax season is just behind us and American home owners have once again enjoying the benefit of the mortgage interest deduction (MID). The ability to deduct the interest paid on a mortgage can mean significant savings for these home owners. For example, a family who bought a home last year with a $200,000, 30-year, fixed-rate mortgage, assuming an interest rate of 4.5 percent, could save nearly $3,500 in federal taxes when they filed this year.

A recent survey, American Attitudes About Homeownership, revealed that 74 percent of home owners and 62 percent of renters thought it was “extremely” or “very” important that the MID remain in place. Over half said that owning a home would be less attractive if mortgage interest was no longer tax deductible. For more survey results, visit www.realtor.org/statsanddata/homeownership/attitudes_homeown.

Most of the 1990's, The Standard & Poors Index posted earning yields of 5% to 6% on average. At the same time, the dividend yields of the S & P were only around 2% or less.

Since dividend paying stocks tend to be much less volatile, the gains on the appreciation side would not normally be a significant factor.

At the same time, bond yields taken as a composite, showed only around 5% returns. Better yields were riskier, while safer bonds returned lower yields.

During the same time period, real estate investors were realizing much more attractive returns due to the multiple income streams from real estate investment:

Rental Yield

This is the percentage yield from direct rental income, and can be calculated as either gross or net. Experienced investors prefer to calculate the Net Rental Yield (calculation detailed here), which takes the expenses, taxes and other costs into account, and divides by the property value/cost. It could be a negative cash flow, as it doesn't take mortgage payments into account. For this reason, many investors prefer to look at Cash-on-Cash rental yields. The example at the link shows a 6.4% example return on cash invested. Though the investor can purchase and manage for a yield on this single component that exceeds average stock or bond dividend yields, it is only one of the ways in which real estate returns on your investment.

Appreciation

Rental properties normally appreciate in value with inflation. Increased value can mean sale and reinvestment in higher value properties, or provide an equity line of credit to use for other investments. This is the second, and a historically proven value component of real estate investment return.

Inflation is Rent-Friendly

Rents usually increase with inflation, while mortgage payments on the property remain stable. This increases cash flow, with more rent income without increased expense for holding the property. When inflation is up, it can also mean more renters, as the affordability of homes can be negatively impacted by inflation. More renters increases demand, so rents can escalate.

Leverage

Using leverage, while being careful to buy properties with good rental yields, provides greater returns. Using $100,000 to purchase three properties with down payments, instead of one for $100,000 cash, can greatly increase returns. Of course, all leverage involves risk, so the successful investor must understand how leverage impacts their real estate investments.

Paying Down the Loan

Amortization, or paying down the loan, frees up more investment resources to increase leverage. Some investors use increased equity in one property to free up funds to invest in others.

Property Improvement for Equity

Many investors intentionally purchase properties at a value because they lack some feature or could use some improvements in condition or amenities. They have calculated that the value of the improvements will exceed the cost, resulting in an immediate increase in equity.