How to determine and keep track the real estate bubble in an area
Last week, I wrote an article about real estate bubble and some tips to protect you from it. If you read the article you will find out that the first tip I give is Learn how to determine if there is real estate bubble in an area.
I did not provide much more information about this first tip in that article. I know it will be a long explanation on the theories and skills that needed for this tip. So I decided to write another article specially targeted on the topic on how to determine and keep track the real estate bubble in an area.
Without further ado, below are the tips that I want to share with you:
- Keep tracks the real estate news. Real estate news such as real estate sales, house prices, mortgages lending, foreclosure rate, homebuilders and housing stocks, REITs and other relevant global news are very important for real estate investors. All of this will let you know what really happens in the real estate market and hence know the trend of real estate. Local newspaper and internet will be the good sources for you on this.
- Calculate the price to income ratio. This is the most basic calculation that many economic experts use to calculate the local affordability to own a house. If the ratio is too high, meaning that local people cannot afford a house and this is a phenomenon that real estate bubble might happen in that area. In this case, you must pay attention on that market before you put any money in it.
- Build a investment team. Real estate agent is the man who always keeps in touch with the market. So he/she might provide some valuable insights into the market condition. Besides that, your accountants, bankers and financial planners might also be able to help you on this. This is why you need a team to assists you become a good investor.
- Learn and use the following formulas. I collect the following formulas from Wikipedia. This is some of the formula that we can use to measure the housing market for an area.
PS: Expenses here are including the maintenance and also property taxes. This is a common metrics used to analyze other uses of the money tied up in a home.
PS: This formula is used to measure how much the buyer is paying for each dollar of received rent income. If you found that there is a rapid increase of home prices combined with a flat renting market, real estate bubble might happen in the area.
So far, there don’t have any accurate facts that real estate bubble is really happening. This is why there are always some arguments between financial experts about real estate bubble. Anyway, it is good for us to learn how to detect a market. This will be a skill that going to help us to make money and at the same time prevent us to loss any money in real estate bubble. Kill 2 birds with one stone.
The Real Estate Bubble and Tips to Protect you from it
This is an article about real estate bubble and what is the relationship between it with your journey to financial freedom.
What is Real Estate Bubble?
Real estate bubble is an economic condition where the value of property is increasing at a very high speed until a high level that not match with the growth of local average income and other economic elements. Real estate bubble is also called property bubble or housing bubble for residential market and is one of the hot discussions around the world.
Many people believe that historically low interest rate, poor lending standards and mania for purchasing property are the main reasons that caused this real estate bubble.
Real Estate Bubble or Boom?
I always hear a theory about real estate that the value of property is always up and never go down. But there is heated argument between experts that we are currently in real estate bubble and the price of the property is too high and will burst in future. At that time, the price of real estate property will go down tremendously and parties such as investors, property owners have to endure the losses.
There are no 100% facts and evidences to prove that we are either in real estate bubble or booming market. However, as an investor or property owner, we must learn and protect ourselves from the every possible risk. At least we must do something to reduce the risk.
Steps to protect you from the risks
No matter what kind of market we are in, bubble or boom, it is good for us to learn the skills to help and protect us from any possible risks that we will have in real estate investment. Without further ado, here are the tips:
- Learn how to determine if there is a housing bubble in an area.
- Buy or invest within your means. Stick to the property costing that not more than 3 times of your gross household income.
- Research the market and do not pay more than 200 times what a comparable property is renting for.
- Look for rental instead of flipping. Buying a new property in a hot market and flip it for a quick profit can be risky. So concentrate on rental income and build up your equity.
- Equity is more important. Concentrate on building equity instead of buying luxury items for your property.
- Always spend time to look for good deal. Spend time to research and look for property that below market value and have the investment potential.
- Study properly and not hurry. You are not racing with anyone. So take time and study properly to search for a good deal.
- Keep your overall debt load as low as possible. This will help you manage an unplanned move.
Do you have any ideas about real estate bubble? Why not share it over here? We are glad and happy to read your ideas.
How to build wealth from Real Estate in any market trends
Did you hear any news about an investor goes bankrupt because of real estate? I didn’t hear any, how about you?
I frequently hear people made their fortune from stock market, but I also hear about investor lost their shirt playing in the same game. However, I don’t hear about any real estate investors go bankrupt. This is because it doesn’t happen often. But on the other hand, I always hear investors are building assets empire that worth millions of dollar from real estate.
So today, I want to share with you some of the “how to” that I learnt from successful real estate investors.
How to Build Wealth from Real estate in any market Trends
- When properties prices appreciate fast, you can “fix and flip” for a quick profits.
- Doing cash-out refinance when your properties prices appreciate which will let your having another capital to get more properties. The good news is this money is tax-free.
- When interest rate falls, you can refinance your rental property and get a lower monthly payment and increase your cash return.
- There are a lot of foreclosures, motivated sellers and bargain-priced properties on the depressed markets. You will have a lot of chances to get below market value properties at this time. You have plenty of good deal to look for!
- High rates of inflation will drive up market interest rates and cut down the short-term demand. This will be the perfect time to look for seller financing lease options, and low interest rate mortgages that you can take over from the sellers.
Yes you can really make money from real estate if you do the right things. However, there are no shortcuts or quick ways to invest in real estate and start making money. Everything in this world needs your hard works, time and efforts to make it success. You have to deal with a lot of people such as your tenants, real estate brokers, bankers and others. Just like a business, you also need to handle all the operation expenses such as maintenance fees, fixing expenses and also renovation costs. Besides that you also need to train your brain to accept and read about the market trend, information and figures which will help you plan your strategy accordingly.
Don’t worry, if you pay the enough hard works, you will be success. It only time matter. But if you don’t take any actions today, it is just a dream for you to make money from real estate.
Good luck,
Harrison
