Thinking about real estate as part of your investment portfolio?

Acquiring investment rental property such as houses, condos or townhomes has historically been a great investment for the long term. The return over a 10 to 20 year period has been better than any other speculation, although owning real estate requires interest and attention to protect and enhance your investment.


Below is a scenario that may be helpful in deciding if an investment property is right for you:

Purchase price = $250,000
(plus closing costs)
Loan Amount (80%) = $200,000
Monthly payment at 5.5% = $1,136 (Principal and Interest)
Assume taxes/insurance/HOA = $200

Rounding up, the monthly payment is $1,350/mo.. A reasonable rule of thumb for a property in decent condition would be to project about 10-12 percent of monthly revenue for vacancy and maintenance.

The projection equates to a break even proposition on the surface. However, other factors working for you include:

• Tax benefits
• PITI essentially stays the same while...
• Rents gradually increase along with inflation
• Your tenant's rent is paying down your principle balance monthly

Other helpful hints:

Buy properties at or below the neighborhood's average sales price.

Preference should be given to three bedroom house and two bedroom/two bath condos for optimum returns.

The location word-meaningful for higher rents, as well as higher values. A desired location is also less susceptible to ups and downs of the market. Know your Landlord (and Tenant) Rights.. Use a good lease and security deposit forms, understand everything from move-in agreement, keys, number of tenants, pets, and eviction procedures.

In time, rental properties can provide a portfolio nest egg is appreciating values of properties continue to do what they have done in the past.

Are builders starting new homes in this market?

With interest rates for a 30 year fixed loan still hovering around 5% and first-time homebuyers scrambling to obtain the $8,000 tax credit before the November 30th deadline, there is less inventory and new homes being built.

New home building increased in August, a government report said Thursday, further signaling that home builders are regaining their confidence in the housing market recovery.
The Census Bureau reported Thursday that builders broke ground for 598,000 new homes during August, up 1.5% from a revised 589,000 in July. That was considerably higher than industry experts were predicting. Furthermore, building permits rose 2.7% to 579,000 from a revised 564,000 in July.

"Many builders have not only reduced excess inventory, but now are actually reporting such low inventory that they need to start more homes to replace those they've just sold," said Brad Hunter, chief economist for Metrostudy, a real estate analytics firm.
Both starts and permits are still well off from their levels of a year ago. The number of starts is down 29.6% from 849,000 last August, and permits dropped 32.4% from 857,000 last year.
The housing starts report was the latest in a series of releases that indicate that the market may have bottomed.
There are some clouds on the horizon. Foreclosures continue to trouble many markets; another 76,000 homes were repossessed in August. That was actually an improvement over recent months, but the expectation is that the rate of foreclosures will begin rising again.
That's because a great number of non-conventional mortgage loans, including interest-only mortgages and option ARMS, will reset over the next year or so, yielding substantial increases in the monthly mortgage payments for homeowners. Many people will not be able to afford the increases.
With interest-only loans, homeowners pay just the interest for a fixed number of months, usually 60, before they have to start paying off the mortgage at fully amortizing rates. There was an explosion of these mortgages issued in 2005, so many will reset in 2010.
Option ARMs are loans in which borrowers are permitted to make minimum payments every month, payments that are less than their monthly interest charges. Many borrowers use that option for as long as they can, but once the mortgage balance reaches between 110% and 125% of the original loan balance, the loans reset into a fully amortizing mortgage -- and payments rise steeply since the balances themselves have also gone up.
Real estate analysts predict a spike in these resetting loans, which might force another wave of homeowners into foreclosure. The fear is that all these foreclosed homes will flood the market and drive down prices even more for existing homes, making it harder for new-home builders to compete.

How are Denver home prices holding up?

As the Denver-area housing market moves toward the end of its prime selling season, August sales were down year over year, but selling prices were relatively stable.

Last month’s home sales, including both single-family homes and condominiums, dropped 14 percent to 3,905 from August 2008, according to a Wednesday report by real estate data provider Metrolist Inc. of Greenwood Village. Sales were down 12 percent from July of this year.
But the average selling price for both types of housing decreased only 3.87 percent year over year to $251,008, and was roughly flat from July with only a 0.68 percent drop.

The median, or middle, selling price for single-family homes alone — standard houses — was basically flat year over year at $227,000, down 0.89 percent from August 2008. Last month’s median price was down 1.26 percent from July of this year.
Median price is the midpoint between highest and lowest prices, and is considered a truer measure of price by many real estate experts because it’s not skewed by extremes.
Both houses and condos also sold faster in August, with fewer days on the market for sale year over year and from July of this year.
Other Denver-area housing market data for August, according to Metrolist, includes:
• Single-family home sales — Down 14.38 percent to 3,066 from August 2008, and down 12 percent from July of this year.
• Single-family home average selling price — Down 3.71 percent to $273,972 year over year, and roughly flat from July with a 0.97 percent drop.
• Single-family home days on market (DOM) — Houses are selling faster, with an August DOM of 94. That’s down 3 percent year over year, and down 4 percent from July.
• Condo sales — Dropped 12.7 percent to 839 last month compared to August 2008, and were down 12.24 percent from this July.
• Condo average selling price — Fell 3.87 percent to $167,090 from August 2008, but relatively flat from July of this year with a 0.94 percent dip.
• Condo average days on market — Condos are also selling faster, with 98 DOM for August. That’s down 5.77 percent year over year, and down 10 percent from July.
• Year-to-date total home sales — Dropped 16.38 percent to 27,708 from same period of ’08.
• Year-to-date total average selling price — Decreased 6.67 percent to $240,746 from first eight months of last year.
• Year-to-date average days on market — 102, down 1.92 percent year over year.

What is a good Denver neighborhood with many shops and restaurants within walking distance?

These days citizens in the United States are trying to be more earth friendly. Many cities offer recycling and Denver also allows for composting. If you are looking for a neighborhood in which you can be "green" and still be close enough to walk to shops and restaurants or bike downtown, be sure and check out the Lower Highlands area.

The Lower Highlands area is just north of downtown and offers many bungalow, ranch and Victorian style homes, as well as many new build condominiums. Besides shopping, entertainment, coffee houses, and restaurants within walking distance, the neighborhood has developed a sense of community it didn't possess five years ago. Also, Men's Journal named the Lower Highland neighborhood one of the 30 coolest in America.

The average sales price in this neighborhood hit its peak of $330,993 during the first quarter of this year and has settled at $257,254 during the second quarter, according to Metrolist data analysis, making this area attractive to first time buyers and anyone looking for an area with many walking destinations.

Thinking about retiring in Colorado?

If there were not enough reasons to move to Colorado, this article talks about another one.

Colorado is a " tax-friendly destination for retirees" because of a low income-tax rate and various exemptions available to seniors, Kiplinger.com says.
In its state-by-state "Guide to Taxes on Retirees" by the personal-finance and business website, Kiplinger says Colorado's income tax rate is 4.64 percent of federal taxable income, lower than most states.
It also said Colorado taxpayers ages 55 to 64 can exclude up to $20,000 of Social Security and qualified retirement income from state income taxes, while those 65 and older can exclude up to $24,000.
As for property taxes, it said full-time Coloradans age 65 and older can qualify for a homestead exemption of up to 50 percent of their property value, up to a maximum reduction of $200,000.
There also are property-tax rebate and deferral programs for Colorado residents age 65 or older or disabled, or a surviving spouse age 58 or older, Kiplinger said.
There is no state inheritance tax, and the state estate tax does not apply to those who died after Jan. 1, 2005, the report said.
On the other hand, Kiplinger noted that in Colorado, seniors must add back the portion of Social Security benefits not taxed by the federal government to calculate their eligibility for certain state tax breaks.
Nationwide, Kiplinger said seven states — Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming — have no state income tax at all, but that many states with an income tax have compensating incentives for retirees that could make them an even better deal for seniors.
At the other extreme, Kiplinger cited five states — California, Connecticut, Nebraska, Rhode Island and Vermont — that fully tax most pensions and other retirement income.