Written by ADAM BROWN
Thursday, April 28, 2011
GUAM – Single family homes at prices of below $350,000 represent one of the safest options for real estate investors seeking to take advantage of the military buildup on the island, according to The Real Estate Professionals.
"From a developer standpoint, my focus would be on single-family homes in the price range of $250,000 to $350,000," Chris Murphy, owner of The Real Estate Professionals brokerage on Guam, told GuamBuildupNews.com. "From an owner-occupant standpoint, the average two-income family can afford the standard mortgage payments on a home selling within this range.
"From an investor standpoint, rental received from military tenants provides a positive cash flow covering the mortgage and related expenses," Murphy said. "Once property prices start to climb above this range, cash flow, rates of return, and the potential for additional appreciation are greatly reduced."
Plans to transfer at least 8,600 U.S. Marines and their families and dependants to Guam from Okinawa no earlier than 2016 can impact the island's real estate market through the expected changes brought on through buildup-related construction and by new renters with military housing allowances expected to arrive and add to the pool of military renters already on the island.
"The overall market continues to be fueled primarily by military off-base housing," Murphy said. The soldier's "housing provides a huge incentive for landlords to focus on rentals to military personnel."
Current housing allowances for military personnel on Guam are $1,918 for an unmarried E1, or private-ranked soldier, and $2,132 for E1 with dependants. The rates rise steadily with rank to as high as $2,700 a month for Lieutenant Colonels or Navy Commanders with dependants. Besides the basic allowance, the military provides for a utility and recurring maintenance allowance of $755 a month and a miscellaneous monthly allowance of $482.
A Guam housing study carried out in 2009 showed that, among the current population on Guam, 86 percent of prospective buyers were seeking single-family homes and 64 percent of renters wanted a single-family home, mostly three- or four-bedroom units.
Still, the high-end real estate market supply, Murphy says, has "sharply" increased over the past five years and "we have seen these properties languish on the market for extended periods of time, often resulting in developers opting to either drop prices significantly, sell off units on a reduced bulk basis, or offer them as rentals, hoping the market will eventually support the higher asking prices."
If an investor seeks cash flow from the rental market, the higher price property "does not make sense," Murphy said. "But there are investors who have goals other than cash flow -- i.e., the investor intends to be the owner-occupant and puts a premium on the lifestyle and the home ownership experience, or the investor is looking for an asset that will appreciate over the long term."
These properties, priced at between $500,000 and $1 million, aren't well-suited to take advantage of the military buildup rental increase "as rental rates are not sufficient to provide a reasonable rate of return for investors."
GuamBuildupNews.com monitors the marketplace for real estate insights and opportunities related to the military buildup. In the coming weeks, the site will debut a new Guam Real Estate section dedicated to news and information that will help property owners, buyers, renters, investors, developers and realtors make better, more timely decisions.
Image used in this article courtesy Renjith Krishnan / FreeDigitalPhotos.net
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