The properties that make the best rentals generally fall just below the typical median priced home. There are several reasons for this. For starters, this is a home in which the typical renter can afford. By simply being available to a bigger group of people, this will keep vacancy loss costs lower. In addition, most renters will be able to afford their payments and remain in the home longer.

The bigger the home, the more attractive it is to another buyer rather than a renter. Despite having better resale value, more expensive homes don’t necessarily make a good income property. Since most people who live in these home prefer being home owners, they are less likely to renew their lease.

Another big problem with more expensive homes is that there are more costs involved. They tend to be larger and contain more fixtures. They tend to consist of more repairs and maintenance. This is especially the case each time a tenant moves out. If you get an irresponsible tenant, they can do considerable damage. It’s not unheard of to have to pump thousands of dollars into the property after evicting a bad tenant.

It can often be a challenge to balance rental value with resale value. Cheaper homes do not appreciate as much and don’t sell as fast. This is partly because it appeals more to other investors than other home owners. Obviously, another investor is likely to be bargain hunting. Many investors will pass until they find the perfect deal. Since they will not be living in the property themselves, an investor will treat a property as a commodity.

Condos and townhouses are at the opposite end of the spectrum from expensive homes. They typically offer good cash flow. However, being able to sell a property in a weak market is very difficult. Banks and lenders don’t want to finance them. Also, the price is so low that the fixed costs of financing (if you can get it) are so high in relation to the property that is generally isn’t worth it. For an investor who has cash and is just looking for cash flow, condos can be a great investment. Despite the obvious drawbacks, they have far less costs regarding repairs and maintenance between tenants.

That being said, the type of property you choose to invest in matters greatly. Most investors should seek a balance by choosing properties that are good quality that still make good rentals. This is where you stand to make money on rental income as well as long term price appreciation.

When you narrow your focus, you are better equipped on finding yourself the best possible deal. When buying a home, you can use this strategy by focusing on a specific neighborhood.

If you’re new to a city, it’s wise to take some time to know what area you want to live in. Once you’ve done this, you can narrow your focus to a specific area. This has several benefits. First, you become an expert quickly. You become more aware of trends that affect the area. You also have a good understanding of what type of home you like. You also know approximately how much each house is worth. When you establish a degree of familiarity, you are better able to make an informed decision.

A home in a good location will always be worth more than a home in a mediocre area. This isn’t solely dependent on the neighborhood. It also depends on the street and the property that surrounds it. Generally, you should trust your intuition when selecting a location. If a property is available for an attractive price, but it doesn’t feel right, you should pass on it. Even if it’s available for a great price, it’s probably not something you would be happy with. This is why narrowing your criteria is critical. It can save you from making a mistake and settling for less than what you originally wanted.

As mentioned earlier, specific streets and lots do matter. Very few people like being on a busy street. In addition, it’s preferable to have trees and good landscaping. This is especially important in a desert environment.

Zoning is another important element of finding the right location. It can make a huge difference in the future of that location and neighborhood. School zoning is another factor that can add or subtract value from a location. Be sure to do your homework by researching the reputation of the schools your neighborhood is zoned for. These are all factors that matter and will make an enormous difference in the long run. If you have strict criteria and never bend on your requirements, you will find a home that you’ll be happy with.

Real estate allows an investor to control a valuable asset with only a small commitment. For investment purposes, an initial investment consists of a 20% down payment plus some closing costs. If you are buying a fixer, then your investment will be higher. That said, your initial investment is much smaller in relation to the value of the asset you are purchasing. Few investments allow this kind of leverage.

Indeed, leverage can be a double edged sword. It can magnify your investment results when things go well. It can work in reverse as well. That is why a margin of safety is vital. A margin of safety is a principle typically associated with investing in securities. It can also be applied to real estate.

Margins of safety for real estate can include the spread between your income and expenses. This is where you only settle for properties offering good, consistent cash flows. For example, a residential property in a distressed market is likely to be underpriced. Your mortgage payments are low in relation to what you’re getting for rent. Being a residential property, there are also plenty of people to rent the property to. Compare this with a commercial property with a greater return on investment but is attractive for only certain types of businesses. You have a much higher risk of vacancy loss. This simply means the property is sitting empty while you are paying the mortgage, taxes, and upkeep. This is why the residential property is the better investment choice despite having a lower ROI.

Another metric that is useful is the market’s price to medium income ratio. This is an important metric to avoid getting caught up in manias and bubbles. When the price for a median home is much more that three times the median income, the overall market is overpriced. As Warren Buffet has said, there are times in which it’s best to do nothing. Opportunities will eventually come.

In addition to getting positive cash flow, real estate is a good inflation hedge over long periods of time. There will be bubbles and panics again in the future. However, real estate will always revert back to its intrinsic value. Investors are best off when they don’t get caught up in the highs and lows. Instead, only buy properties that offer positive cash flow while you wait for price appreciation to accumulate.

Many homeowners are in a rush to pay off their home loans. This is not always a wise decision. First, you lose liquidity and put your home equity at a higher risk. This is especially the case if you have little cash set aside and if you have few liquid investments. You should always strive to have at least six months of savings set aside.

Consider the following two situations. The first is a homeowner who routinely pays extra on her mortgage with the intent of the home being paid off early. Yes, it is true that if you pay a little extra each month, you will pay the home off substantially faster. Now, the second homeowner only makes the minimum payment each month.

Let’s imagine that a few years go by and both homeowners lose their jobs. And can no longer make their mortgage payments. Who is better off? The first homeowner has more equity than the second owner. However, the real estate market is slow and she may not be able to sell the home before it goes into foreclosure. And, yes, the second owner is in the same situation.

That being said, the second homeowner, who had been just making the minimum payment, has more options. She knows that the bank has little incentive to foreclose on the property. This is because the mortgage balance is high. That is, the bank isn’t in a position to gain hardly anything by foreclosing. The firs homeowner is a better target for the bank because they can sell the property and recover their losses.

Let’s also pretend that the second homeowner either saved or invested the money in which she was considering paying extra on the mortgage. She now has multiple options. She can keep current on her mortgage from these savings. This is the case whether she kept the money in a savings account or invested the money in liquid investments like stocks. Or, if she stops making the payments, the bank would be in no rush to foreclose.

Banks are incentivized to foreclose on properties with low loan balances first. This is because they can recover their losses easily. A home that is underwater or has a high balance will cause the lender to incur a loss, which is why lenders are seldom in a rush to foreclose on an underwater home. This is especially the case in a weak market because it would only add to the inventory of homes for sale, which is one more thing driving down prices.

Markets correct themselves over time. After periods in which too much supply was dumped on the market, depressed prices lead to an increase in demand. This has been reflected from the fact that foreign buyers are buying properties with cash in the most distressed markets. And population growth has help absorb the excess inventory. Real estate is now in line with historical prices in many localities. This will help create a bottom in the market going forward.

In most US markets, the excess inventory has slowly been getting soaked up over the last five years. If you were a homeowner during this span, you realize how painful it has been. On a more positive note, buying a home is very affordable. In the most distressed areas, it’s considerably cheaper than renting. This situation usually only occurs in distressed markets and the opportunity will not last forever.

This good news does not imply that housing will immediately rebound and prices will start going up. They likely will go up in price over a long period of time. And real estate is a good long term inflation hedge. However, we are still in a period of deleveraging. This means that many consumers have too much debt and are slowly paying it down. This will be a drag on our economy for a while yet. Deleveraging is a process that takes years to complete. Deleveraging is the main reason why it takes such a long time to recover from a major financial crisis.

The one thing that can speed up the deleveraging process is liquidation. Bankruptcies and foreclosures can clean up a person’s balance sheet quickly. Obviously, there is a huge drawback to this. If too many people liquidate at the same time, bankers and creditors will also suffer and perhaps go bankrupt. This creates a downward spiral and leads to financial crises and panics. Although liquidation gets us through the debt problems more quickly, the pain is much sharper.

Record low interest rates make buying a home a great bargain for new homeowners. This is a big part of why buying is so much cheaper than renting in many markets. Low interest rates aren’t likely to last forever. They could be around for a while as it’s impossible to predict when they will rise. The Federal Reserve has announced that they will keep interest rates low through 2014. When inflation inevitably rises, they will have no choice but to raise them. Inflation will likely rise once we get to the end of the deleveraging cycle.

The real estate market in Las Vegas continues its extended slump. S & P has reported yet another 8.5% drop in prices, this time covering a period that spans form October 2010 to October 2011. The Vegas area also has an unemployment rate of 12.5% with tons of underwater mortgages.

On a more positive note, those who have a mortgage owned by Fannie Mae or Freddie Mac may be able to refinance even with an underwater mortgage. You may not get the principal reduced, but you may be able to reduce your monthly payments considerably. See our video below.

Because the current market prices haven’t been seen since the 1990′s, home prices are now cheap from a valuation standpoint. Prices are now in sync with people’s incomes. Record low interest rates allow you to get into a home for a very low monthly payment. Because of low prices and cheap borrowing costs, buying has become attractive. It’s also important to note that this is one of those rare periods in which renting is more expensive.

Going forward, the economy appears to be merely muddling along. There is no strong recovery in sight for the Las Vegas economy. Vegas is still far too dependent on gaming and tourism. It will take years for new businesses to ultimately absorb the excess capacity of workers and grow the economy.

We’re simply not going back to 2007. Other state and local governments are struggling financially also. Many of them will attempt to boost revenues through more lotteries and gaming. This makes them a direct competitor to Las Vegas casinos. We have already seen that gambling revenue is an increasingly smaller share of casino profits. Casinos are forced to offer more in the way of shows, shopping, and dining to keep luring people to travel to Las Vegas.

In the long run, the Las Vegas economy needs diversification. The era of being dependent on a single thing are long over. On a positive note, Nevada is a very business friendly state. Barring any drastic change to the state’s tax system, Nevada should be able to attract many new businesses to the area.

If you are underwater with your mortgage (doesn’t matter how much), you may be able to qualify for a refi. This is for loans that are owned by Fannie Mae or Freddie Mac. Even if you make a payment to your bank. The loan had to have been put in place before June 1, 2009. You must also be current on your payments.

If your bank still services your loan, it may NOT own it. In fact, banks often collect the payments and service the loans long after they sell the loan to Fannie Mae, Freddie Mac, or another investor. Don’t assume the company in which you make your payments to owns your loan. In addition, you’re better off not calling your bank directly because the customer service rep may be clueless about whether or not your loan is still in the original lender’s portfolio. Not to mention the fact that you’ll be on hold for a long time. This is why you need to look into who actually owns your loan to see if you can qualify. You can do this by checking the Fannie Mae and Freddie Mac websites.

Here are the links to the Fannie & Freddie websites:

• Fannie Mae Lookup
• Freddie Mac Lookup

Once you have done that, you can go on to the next step. If your loan is indeed owned by Freddie or Fannie, you can look at what your refinance options are. That is, you can calculate how much it would cost to do the refi and how much money you would save each month. If your loan is small (under $100k), you may not stand to save a whole lot as the fixed costs of refinancing would not make it worth it. The higher the loan balance, the more money you can potentially save.

HARP II could result in less foreclosures in distressed real estate markets such as Las Vegas. This will keep housing inventories lower in the short run as homeowners will be able to make lower monthly payments, which will keep them in their homes longer.

This doesn’t mean that the market will turn around in the near future, however. There are many foreclosures in the pipeline as many conventional loans will not qualify for refinancing. This program is set to begin in March and will have some impact on the market.

Although it won’t be a miracle cure, it will have an impact on keeping the shadow inventory lower for a period of time. Many of the homeowners that were on borderline as to whether or not they would walk away from their home will now lean towards staying in the home. This will be good news for the most distressed markets.