If one can get their faces off the Election and look at how interest rates will affect Real Estate, there maybe a chance Buyers can manage their decision to buy a home or invest in real estate.
The frustrating event of a rate cut of 50 basis points, or one half of one percent has created, most buyers and investors with, a HUH? Moment. The mortgage rates dropped to 6.09% on the day of the interest rate cut by the FED. On the investor side, interest rates for commercial properties dropped, but the down payments remained at 35%. No big benefit there. The Yield Curve corrected further with the 2-year Treasury Bonds dropping below the 10-Year Treasury Bonds. A major improvement with the first time in years that the interest rate market was not forecasting a recession. That is really good news!
What happened after that was something I expected, the most market commentaries did not. The Ten Year US Treasury Bond yield increased!. This is normal for a growing economy, in our case a Goldilocks Economy. Long term rates should increase as demand for loans are reflected in higher yields. We still have a number of economic reports that will substantiate the FED's aim at lowering interest rates. Next week is the CPI figures. Along with that will be a number of economic reports that the FED will view as to determine if we are truly in a "soft landing". All hope is that the FED is successful. Still, Housing is the Bad Boy in the CPI figures. The jump in Mortgage Rates after the Employment Numbers indicate that Inflation may not simply die away. If that is the case, will the FED continue to cut rates or hold off? Big Question Mark!
Buying Real Estate on a long term basis is still the best way of investing for the future.. The Home buyer may find that the property that is affordable is the property that needs the most work. Investors will have the same decision. If a property is providing a Cap Rate that provides a good long term return. How much work is needed to make improvements that will allow for future rental increases.
The decision of improvements needs to be looked at with an accountants mind, not an emotional mind. Prudent decisions must be measured over time. Here are some suggestion for both Investors and Residential buyers to consider. Consider your budget in your purchase should also include your budget for improvements. The worst thing you want to do is put all your money into the purchase with nothing left for improvements. You will not be happy!
You’ve bought an older property that needs some work. How do you decide what needs improvement or repair, and how much money to spend? |
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| The first rule of thumb is: don’t improve more than the best properties in your immediate neighborhood. A starter home, or a lot-value home; as well as, investment properties with high Cap Rates, can be renovated to be attractive and functional, but keep in mind that if you future homebuyer/investor wants a finer home/property, they’ll look at more expensive neighborhoods where all the properties are equally upscale. |
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| If your target needs everything, tackle the changes that will make the most difference in your convenience, comfort, and utility, like the kitchen for single family and multi-family units. Will you need new cabinets, countertops and appliances, or a whole new floorplan? Is there room to borrow space from another room? If so, a kitchen designer can help you plan, manage costs and get more storage and workspace. |
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| Realtor.com advises that you also have a plan B and C, in case what you want is too expensive or becomes unavailable. You can price high-end appliances, then choose less expensive back-ups. Ask your designer/architect or contractor to provide a schematic with different price points. |
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| Budgetdumpster.com recommends, for single family units, that you spend no more than 10% to 15% of your property's value on any single room. If you also need to remodel baths, cut the total remodeling budget down to 10% per room, and set aside another 10% for unexpected expenses. |
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