As the past three years have painfully demonstrated, buying properties while losing money or breaking even hoping for price appreciation leads to financial loss. The direction of prices cannot be predicted. The length of time until a return to a “Normal” market, if one exists, cannot be predicted. The most important thing in real estate investing is current cash flow. Which leads us to reason number two.

2. Currently there are properties in the Inland Empire yielding strong positive cash flows.

Fifty percent drops in values combined with large numbers of former homeowners that are now renters have combined to create a landlord’s market in pockets of the Inland Empire. We are finding properties for investors that yield cash-on-cash returns of at least 8%. But getting these returns is highly dependant on interest rates. Which leads us to reason number three.

3. Interests rates are at historic and unsustainable lows.

At 5%, interest rates are at their lowest in a generation. In 2007 rates were at 6%, in 2002, 7% and in 2000, rates were at 8%. Why does this matter for real estate investing? Just a 1% increase in rates will decrease your cash-on-cash return by 3% and a 2% increase in rates will decrease returns by 6%. Many are predicting inflation to return to 1970’s levels. If Paul Volker did what he did thirty years ago to tame inflation, interest rates could return to 16%.

To learn more about investing or to attend one of our Investment Seminars, contact us at ragnar@timsmithgroup.com or call 949-717-4702 to help you seize this opportunity.

-Ragnar Ahman
President of Residential Investments