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With foreclosures on the increase (read: Rampant) right now, people who are losing their homes also have to find a place to live and are turning to rental properties to move their families. This opens a great opportunity for potential buyers with good credit and down payment money to create wealth through residential real estate investment. Whether you’re looking to have wake-up money in your retirement years or starting a college fund for your children or grandchildren, real estate in the long run is one of the best investments there is.
I shared this list with my friend Kathy who has published it on Banks.com. We’re telling a national audience about the Benefits of Residential Real Estate Investments, and I wanted you to hear about it too.
- Cash Flow. The rent provides income. A wise real estate investment will pay for itself on a monthly and annual basis, while paying the note. Your ultimate goal is to own property “free and clear,” which creates maximum cash flow.
- Leverage. You can own $150,000 worth of real estate with only 15-20% cash. You can borrow cash from one property to buy another. Your short-term goal is to use leverage to acquire a portfolio of real estate. Your long-term goal is to pay the loans off and own your properties “free and clear”
- Debt Reducation. Real estate is one of the few investments where someone else will make your payments. In essence, the tenant makes the payments and reduces your debt.
- Tax Savings. You are allowed to depreciate the house and write off your expenses in order to reduce your taxes*.
- Appreciation. Over time the value of houses and condos have risen. The average value of home has traditionally doubled in value every 15 years**.
*Consult your accountant or tax attorney to specifics related to the tax benefits of investing in real estate.
** The government Office of Federal Housing Enterprise and Oversight figures appreication rates for Metropolitan Statistical Areas around the county. Check this site to see what appreciation rates have been in your area. Using their figures, the following data shows appreciation of a $100,000 home purchased in 1982:
1982 – $100,000
5 years – $135,800
10 years – $150,100
15 years – $196,000
20 years – $243,600
25 years – $316,700
I will talk more in the future on the college saving aspect.
I received an email earlier today from a colleague at Bob Parks Realty, LLC. He gave an example of the long-term value of real estate that made a lot of sense.
In Middle Tennessee in the past 10 years, the average value of a 2000 square foot, 3-bedroom, 2-bath, 2-car garage home built in 1990 has appreciated as follows:
- 1997, $142,130
- 2002, $155,440
- 2004, $168,178
- 2006, $195,218
- 2007, $200,688
- 2008 (1st quarter), $198,300
You can see that from 2007 to 2008, home values on average depreciated about 1 percent, BUT in 10 years the home has gone up 41 percent. Clearly, real estate when you look at the long term can be one of the best investments you can make.
In a related topic, this is the first time in more than 25 years that interest rates are at a historic low at the same time the supply of homes is up. Typically if rates are low, inventory is also low and when rates are high, there are plenty of homes on the market.
I believe we are at the bottom of curve for home values and we will see home prices coming back up in the near future. If you’re sitting on the fence, in my opinion this is the perfect time to buy.
Like the rest of the nation, we saw a dip in Rutherford County’s housing market last year, but the feel among Realtors is that the market is coming back. An article in today’s Daily News Journal, a daily newspaper based in Murfreesboro, confirms the perception of agents.
Across the nation, existing home prices have declined more than 10 percent, according to Standard and Poor’s/Case-Shiller Home Price Indices. The drop represents the steepest decline since the organization’s 1988 data.
However, prices are up in Rutherford County, according to Roberts. Numbers from MTAR show the average sale price was $183,511 in February of this year compared to $180,564 in February 2007.
The national market is hinting at a recovery… our local market is already in one!
Reprinted with permission:
I’ve been reading my latest edition of U.S. News & World Report and besides politics, crime, the war, etc., I found an interview with Bill Gross, the founder of one of America’s largest bond funds management companies. His answers to questions about the housing industry were very interesting and make me even more curious about what is being discussed in the backrooms of Washington, D.C.
Mr. Gross addresses how to stop the decline in home prices and said monitory policy can help homeowners with ARM mortgages, but says it doesn’t really help people trying to sell – just those trying to buy. This is because lowering interest rates may have a short-term impact, but 30-year mortgages haven’t come down like the fed funds rate.
Mr. Gross believes it necessary for the goverment to essentially subsidize mortgages, not in a ridiculous way, but for people who have demonstrated good credit and are willing to pay on time. As far as the expense of such a program, it wouldn’t be nearly as expensive as the $150 billion stimulus package that has just passed.
“We need the FHA to provide mortgages with, as least in my opinion, a subsidized interest rate. … [for] a government agency is overseeing the list of buyers as opposed to “greedy loan originators that just ran it for a fee.”
Mr. Gross also said,
“If your house is down 20 percent, you’re not in a rosy disposition to spend money anywhere. You think you’re getting poorer by the secodn. We have to avoid that.”
Read the entire Q&A article in U.S. News and World Report here.
