Real Estate Opportunities Look Better

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There is an old adage that I think is pretty true:  Opportunities always look bigger going than coming.  A lot of us are a little shell shocked and reluctant to start looking for opportunity in real estate instead of ducking for cover, but we don’t want to be wishing we had opened our eyes sooner.  Believe it or not, Central Oregon is beginning to provide some real estate opportunity again.  The misfortune of many of us as the local real estate market crashed has created opportunity for those with positive bank balances and a tolerance for a little risk.

Let us journey back to the wondrous days of yore, when all aspects of the Central Oregon Real Estate industry were booming.  Come with me to August 2006, and let us examine a basic small dollar investment vehicle, the duplex.  Looking back in time from there, over the prior 12 months ending in August 2006, MLS records show that 46 duplexes sold in the northeast part of Bend, at an average price of $331,472.  It seemed at the time that everyone was moving to or investing in Bend and the sky was the limit.  Those that owned rental properties mostly complained that the incredibly easy credit available at the time was robbing us of our good tenants, and that rents were not keeping up with prices such that we could not make new purchases “pencil” at those prices unless you looked only at future re-sales at anticipated higher prices (and we now know how that worked out).

Unfortunately Chicken Little turned out to be right, and that sky fell, and fell hard.  And it landed on many of us.

Fast forward (please) to today.  Over the prior 12 months, MLS records show that 20 duplexes sold in the northeast part of Bend, at an average price of $175,000.  That represents a 47 percent drop from 2006.  (Note: I am using northeast Bend duplexes as a reference point as there tends to be somewhat more homogeneity as to age, size, and rents for that part of town than in
some others.)

Of those 20 sales, three were for less than $100,000.  Now those three represent 1970’s vintage structures, and one might anticipate they are not in the most desirable of neighborhoods.  All three were lender-owned properties.  But my goodness, one ought to be able to make money on those deals, even with some fix up costs.  And yes rents did adjust down from August 2006 to today, but not 47 percent.

For the careful investor, even small income properties are starting to make sense again.  And rents are starting to solidify.  The market for single family rental homes is very tight.  Small plexes have experienced some similar strengthening.

Oh, and if you are willing to take a look outside of Bend, hold onto your socks.  In Jefferson County in the last year three older duplexes sold from between $39,595 and $51,950.  In Redmond, six duplexes built before 2000 sold for an average of $143,917.  In Crook County, a duplex built in 2006 sold for $142,000.

The Central Oregon Rental Owners Association (COROA) recently published their 2010 rent survey, a snapshot in time of average rents throughout the area.  Owners and property managers throughout the area reported on over 8800 rental units in the area.  I worked on the survey and reported on the results to the COROA Annual Meeting April 1.  The results are interesting.  In Bend, the average rent for a two-bedroom duplex was $730 per month per unit (or $1,460 per duplex).  In Redmond the average rent for a two bedroom duplex was $685 per side, and in Prineville the average rent was $585 a side.

Certainly there are expenses involved; taxes, insurance, maintenance, repairs, and probably a mortgage (plan on some realistic down payment but a very attractive mortgage rate).   But the math is getting to the point where investing may pay off on a cash flow basis.   For example, at a $175,000 purchase price, with 30 percent down, a loan of $122,500 results in principal and interest only payments of $734 per month at 6 percent interest.  The interest rate available to you will vary depending on many factors, including down payment, your credit score, your relationship with your lender, and others.  If rents come anywhere close to $1,400 per month, an investor should be able to make that deal work.  Some programs are available that would allow a purchase with a lower down payment, but a smaller down results in a larger loan, which can be a problem down the road.
The point is that at these prices, it can work.  It takes work, research, and some cash.

Here comes the “shameless plug” part, and it is double-barreled.  First, if these sorts of properties interest you, contact a Central Oregon Realtor experienced in representing buyers and sellers of rental properties.   And second, consider joining the Central Oregon Rental Owners Association (www.centraloregonrental owners.org).  They provide an incredible value for advice, networking, education, and lease documents.

And remember, “experience” is a wonderful thing. It enables you to recognize a mistake when you make it again.

Dan Steelhammer is a commercial broker with Windermere Central Oregon Real Estate, working with properties throughout the Central Oregon area, and is a past president of the Central Oregon Rental
Owners Association.

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