Low rates create opportunities in real estate

story by Kim Souza
ksouza@thecitywire.com

Rock bottom interest rates and one of the lowest inventory levels in five years has investors snatching up properties across Northwest Arkansas from new homes in Fayetteville to fixer-up abodes across Benton County.

Mortgage banker J.P. Sexton of Liberty Bank says today’s rates are life-altering for those who can qualify. He said one particular investor who refinanced three properties at these low rates was able to increase his cash flow by $1,000 per month because of lower payments.

Linda Marquess, a Crye-Leike agent in Fayetteville, said she recently sold five brand new homes to the same local investor. This investment was made in the Sunbridge Subdivision which is near Washington Regional Medical Center.

“He bought them before they were finished. These homes are 1,349 square-feet and feature 3 bedrooms, 2 baths and a double-car garage. They have granite countertops and other topline features all for a turnkey price of $140,000,” Marquess said.

That price is inline with the median home sales price across Northwest Arkansas in 2012, according to Paul Bynum at MountData.com

Marquess said these homes are renting for $1,250 per month and generating substantial cash flow for the investor. So much so, that he has since purchased three more.

Sexton said an investor with pristine credit can own that $140,000 home for about $720 per month, after he’s put down 20%.

“That is great cash flow,” Sexton said.

On the flip side of that equation, a consumer wanting to purchase that new home would need about $4,900 down with an FHA loan at 3.25%. Sexton said adding taxes and insurance would make the mortgage payment about $920 per month. That is a savings of $330 a month over renting the very same property.

Demand for rentals remains good across Northwest Arkansas as more young adults are forming households after bunking with parents for the past few years.

The National Association of Realtors estimates between 500,000 and 1 million new households will be created this year as the economy and job markets continue improving.

“Fayetteville has always been a competitive rental market because of the University of Arkansas and the younger families who reside there. The homes in Sunbridge are located on the UA bus route and I have also sold a couple to parents who have children enrolled in college. They take on two roommates and basically cover the mortgage,” Marquess said.

Jim Laudell, an agent with Sanderson & Associates in Rogers, says investors are shopping for low cost fixer-up deals, multifamily homes and new construction as vacancy rates are extremely low right now.

“In Bentonville and Siloam Springs our single family rented occupancy rate is pushing 97% and that rental demand is not going anywhere,” Laudell said.

He agreed the pent-up demand from young adults is a factor but also said Fayetteville and Bentonville have a growing number of professionals who are choosing to rent as they pay down student loan debt.

Laudell said he’s owned single family rentals for 20 years and the demand is as good as he can ever remember, which is pushing rental rates higher.

“Even in a smaller market like Siloam Springs our rental properties are doing very well and there are investors wanting more.” Laudell said.

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All of these real estate professionals agreed the opportunities are there for both buyers and investors. Marquess says those who can buy, should, otherwise they will pay higher rents and make someone’s else’s mortgage in the process.

Mortgage lenders say buyers need a minimum 640 credit score and 3.5% down payment with stable employment. In the coming months buyers will also have to meet lower debt-to-income ratios for government backed loans.

Total monthly debt payments can’t exceed 43% of a buyer's gross pay, under the new terms crafted by the Consumer Financial Protection Agency as part of the 2008 Dodd-Frank Act.

Laudell said investors are finding the low interest rates coupled with fairly low prices per square foot and heightened demand for rentals are the perfect combination needed to for them to pull the trigger on more purchases they can lease out for a profit.

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