With the crazy roller coaster ride on the stock market, the impending stimulus bill, and the price drops in the housing market, people are unsure where to put their investment money. Now is an absolutely great time to buy some rental property in our local market. One of the greatest things about real estate is that it is always needed. With real estae you can create great wealth, help people out, and change your community.
First a disclaimer, I AM NOT A FINANCIAL ADVISER, for financial advice regarding your current situation please contact your adviser. If you don’t have one I can recommend several.
I am a Realtor and I love real estate. I believe that real estate should be a part (only a part, not all) of any long term investment plan. That’s right, a Long Term investment plan. Owning property is a long term commitment. The recent commoditization of real estate with quick flips and rehabbers coming out of the woodwork is a big portion of the housing bubble and it’s burst. Most of the foreclosures that have been happening were non-owner occupants. We had a massive case of prospectors gone wild. Yes you can make money by flipping real estate, but that is not an investment, it’s a job.
If you are thinking of real estate as investment you must think long term. When I worked as a loan analyst for large commercial bank I had the privilege of looking at hundreds of financial statements. I discovered two things in common amongst our financially successfully clients, (those with over $500,000 in net worth, not including retirement accounts), I saw little to no consumer debt and rental property.
Real estate has always been and until further notice will always be a source of great wealth in our country.
I think real estate is a great investment because:
- Monthly cash flow – With rental property you will receive monthly checks while the property is rented.
- Mortgage Paydown – Somebody else will be paying down your mortgage for you, which builds net worth, not to mention you get to write off the interest at tax time, not them.
- Appreciation – Although we have seen rocky times as late, real estate historically appreciates over the long term.
- Leverage – Real estate is one of the only investments where a bank will lend you money to invest.
- It’s Tangible – Unlike other investments you can see and touch real estate. The benefit of this is that you can help raise the value through improvements. With stock the only thing you can do is wish ‘em well or buy the product.
There are many more positives with tax and inheritance laws, but these can get complicated. I suggest having a good accountant on your team.
As with all investments there are risks. Real estate can be capital intense to purchase and to maintain. I tell all my clients to have at least 3 to 6 months of reserves to cover the mortgage if the property is vacant. For the first couple of years it is a good idea to set aside any income into a safety account to cover repairs and vacancy. After all this is a long term investment. People also don’t like to be landlords. There are great management companies out there that are well worth the expense.
My number one suggestion if you are thinking of buying real estate is to sit down with your Realtor, ME, and discuss your goals. In the words of Dave Ramsey, “Never invest in anything you don’t understand.” Real estate is awesome and can change your families financial tree forever. For real estate investing to be successful it requires a well thought out plan and a long term committment.
Have a great day,