Investing in North Shore Real Estate

Warren Buffet said earlier this year on CNBC that buying homes was better than buying stocks and that if it were practical he would buy up a couple hundred thousand homes.

Is buying properties to rent a good investment on the North Shore?  There is a lot a data to suggest it is. 

Let’s look at 2-4 unit properties which are the preferred choice of small real estate investors.  They are small enough for an investor to manage on his or her own, they get better interest rates than commercial properties or large apartment complexes, and are readily available on the North Shore especially in the suburbs of Evanston and Skokie.

In 2007, the median price of a 2-4 unit property on the North Shore was around $500,000.  They saw a sharp price decline over the next two years bottoming out in 2009 in the low 200’s.  Since then the median price has bounced along the bottom and in 2012 it is virtually the same as it was in 2009 at about $230,000.  

In addition to prices being at their low point for many years, interest rates are hitting all times lows so that if a buyer has good credit and can put 25% down, he can get a 30 year fixed rate below 4% on an investment property.  Rates for investment properties are higher than homeowner occupied properties so being able to get a rate below 4% is truly exceptional and something that will pay off for many years to come.

Prices are low and interest rates are rock bottom.  So what else do you need to look at to analyze a real estate investment--rents.  Rents are the most important piece of the puzzle.  If you could not get reasonable rents or it was hard to find tenants, then regardless of anything else, it would not make sense to buy a rental property.  However, the rental market is strong for landlords.  In the past few years rental rates have been on the rise and occupancy has been tight.  As anyone who has been on the apartment hunt knows, it is hard to find a good place to rent. 

Moreover, it is nearly a perfect environment for a real estate investor:  low prices, great interest rates and a strong rental market.  However, to take advantage of it you must be able to get the financing needed to complete the purchase and that is not easy.  If you are thinking about buying a rental property first meet with a good mortgage broker to run the numbers and see what type of loan you can qualify for.  If the mortgage professional gives you the green light to buy, then you are in good shape to take advantage of today’s favorable market for real estate investors.