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Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

U.S. Housing Market Improves as Rents Finally Cover Mortgage Payments Again

Housing-Market / US Housing Dec 05, 2009 - 06:47 PM GMT

By: DailyWealth

Housing-Market

Best Financial Markets Analysis ArticleDr. Steve Sjuggerud writes: Nobody has noticed... but an incredible thing has happened: Rents are finally covering mortgage payments again in residential real estate.


Earlier this week, I gave a speech to Jacksonville's business leaders on where to invest in 2010. After my talk, a local bank president gave me some great insights. The biggest was this... For the first time in years, rental income can pay for your mortgage in smaller residential properties.

It might not sound like much. But it actually led my family to amass much of its net worth...

My family didn't come from money. And my family members didn't have fancy jobs. But they did do one thing right... They bought rental properties over the years when the rent exceeded the mortgage payments.

Then the "miracles" of inflation and leverage made them a whole lot of money. Let me explain...

If you believe the government is willing to destroy the value of the dollar, then buying a rental property where the rent beats the mortgage payment is a no brainer now.

You see, if inflation arrives and the dollar's purchasing power keeps crashing, that little $100,000 rental property might someday cost $200,000 in weakened U.S. dollars.

As the value of the house goes up... as inflation goes up... you can keep increasing what you charge in rent. And if you buy it with a FIXED-RATE mortgage, then your COST in dollars stays the same.

Your cost stays flat. But your rent can go up. And the value of the property can go up. By buying a rental property with borrowed money (a fixed-rate mortgage), you're doing what my family did... using inflation and leverage to your advantage.

Your total return on the small amount you put up for this deal could be extraordinary.

Your downside risk is simply that you tread water... since your rent covers your costs. (Of course, there are maintenance issues with a rental property to watch out for, too.) Your upside potential is huge – in both price appreciation and future rent increases.

The facts are clear:
  • Housing prices have fallen by a third nationwide... even farther in many desirable places like my home state of Florida.
  • Mortgage rates are the lowest they've been in my lifetime.
  • The government is doing everything it can to prop up home prices.
  • The government is printing money at a rapid pace... which should lead to inflation.
You are setting yourself up to capitalize on inflation and leverage. When you compare your initial outlay to the money you could make, it's just silly.

The right thing to do is take advantage of all this silliness. Buy a rental property today where the rent more than covers the cost. It's a no brainer...

It worked for my family. It can definitely work for you, too... Between low home prices, low mortgage rates, and likely inflation, now is the best time I've ever seen to do this... Look into it!

Good investing,

Steve

http://www.dailywealth.com

The DailyWealth Investment Philosophy: In a nutshell, my investment philosophy is this: Buy things of extraordinary value at a time when nobody else wants them. Then sell when people are willing to pay any price. You see, at DailyWealth, we believe most investors take way too much risk. Our mission is to show you how to avoid risky investments, and how to avoid what the average investor is doing. I believe that you can make a lot of money – and do it safely – by simply doing the opposite of what is most popular.

Customer Service: 1-888-261-2693 – Copyright 2009 Stansberry & Associates Investment Research. All Rights Reserved. Protected by copyright laws of the United States and international treaties. This e-letter may only be used pursuant to the subscription agreement and any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), in whole or in part, is strictly prohibited without the express written permission of Stansberry & Associates Investment Research, LLC. 1217 Saint Paul Street, Baltimore MD 21202

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Daily Wealth Archive

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