Is this a good time to invest in Real Estate?

Many people are feeling skittish when it comes to buying real estate, as an investment or to live in. Prices have been falling in many areas. Foreclosures are high. The economy is uncertain. We will be electing a new President soon. And mortgage guidelines are much more restrictive. Maybe you should wait until things are a little more certain.
Well as one great American once said: “The only things that are certain are death and taxes.”

But something almost as certain is the fact that real estate values will rise again. And overall, more people have obtained wealth through real estate than any other business or investment. And you don’t need to be a rocket scientist to understand it. A minimal amount of study and a little due diligence is all you need.

Let’s compare today’s real estate market to the market of 2004. In our area, you could buy a brand new home in a development and 6 months later; sell it for a 20% gain. Some people did this over and over again and made a lot of money. This is called speculating, and in my opinion is not the best way to profit in real estate. It’s very risky as many people found out in 2006 when the market slowed down and they had bought homes they couldn't resell and wouldn’t rent for enough to cover their payments. Many of the foreclosures and “short sales” occurring now are due to this type of investing.

I have become a firm believer in the “Long Term Hold” strategy. Buying real estate to rent out and hold it for several years, reaping the appreciation gains and the tax benefits. Over the last several decades, appreciation has averaged over 5% per year. If you buy a $200,000 property with $20,000 down and have a 5% appreciation gain, what is the return on your investment? Many inexperienced people would naturally say 5%. But your return should be based on your cash investment of $20,000, making it a 50% return (5% of $200,000 = $10,000). That return grows every year due to compounding. You also have many tax advantages that you don’t get with other investments and someone else (your tenants) are making your payments for you.

With that said, NOW is a great time to invest. Buyers are offering discounts that are hard to find in a sellers market. Short sales and foreclosures are bringing more opportunities to buyers. While most people are waiting for the market to get better, they are actually risking missing out on the best buyers market we’ve seen for a long time. If you wait 6 months to buy, you might get a lower price, but you might also pay a higher interest rate. Just as sure as housing prices will rise again, so will interest rates!