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The risks of renting are much higher in my opinion (obviously so are the rewards…).]]>
The first group are flippers that buy distressed property for $90 a square foot at foreclosure sales and $100 a square foot for REOs. They fix and then sell the property for a profit anywhere from $110 to $130 a square foot. This amounts to about 30% of the sales in Antioch.
The second group are investors that buy property with the intention of renting it out. Presently they can purchase and achieve positive cash flow. These investors amount to about 30% of the market.
The third group are first time homebuyers. They round out the market.
The dynamic of sales to rent is changing as rents are trending downwoard and the profit for the flippers is being squeezed as the spread between the distressed sales and the regular sales closes.
Once the spread for the flippers closes then 30% of Antioch sales will disappear. As rents trend lower and house prices inch upward then the investors will stop purchasing. If that happens another 30% of the sales would disappear. Worst case senario the investors could be net sellers as they flee the market. This is happening in Detroit, Las Vegas and Phoenix.
Once the first time home buyer tax credit expires the first time home sales will slow.
The housing market in Antioch is in a very delicate balance. This balance will be disrupted by the recession in 2011. I don’t think the market has factored that into the equation. Interest rates are going up in the future. If they trend upward to quickly that will be another big shock to the housing market.
Presently it pays to be a flipper but I think it might be wise to wait untill after 2011 to purchase a property with the intention of renting it out. We are in for some very interesting times in the next couple of years. I think I will watch from the sidelines.]]>