Investing in Real Estate
Are you thinking of investing in Real Estate. As a Certified Investor Agent Specialist (CIAS), I am trained in all the intricacies of the process. Real Estate has been a prized commodity throughout history.
Traditionally, Americans have chosen to deal in the stock market for investment income and retirement savings. However, real estate provides comparable rates of return, more cash flow, and better tax incentives than stocks. Over the last 40 years homes have been appreciating annually at an average rate of 5.32%. In addition to possible appreciation, investors in real estate benefit from regular cash flow through leasing, greater ability to leverage their investments for increased returns, and tax benefits unique to real estate, such as depreciation, expense deductions and 1031 exchanges.
Frequently Asked Questions:
How does residential real estate compare with stocks, bonds, and mutual funds in terms of return on investment?
Real estate offers numerous benefits that stocks, bonds, and mutual funds do not, including cash flow, leverage and tax benefits such as depreciation and the 1031 exchange. When properly managed, leveraged equity in real estate can far outpace stock appreciation over time.
Isn’t real estate a more volatile market than stocks and bonds?
Real estate has proven to be far less volatile over time than the stock market. Over the past ten years, the S&P 500 has lost value while the average home price has appreciated, and this includes the housing crisis of the past couple of years. In 2008, during the recent crisis, the S&P 500 lost nearly 40 percent of its value, while during that same year median home prices dropped less than 10 percent.
I’ve heard that real estate isn’t a good investment anymore. Is that true?
Headlines are often created to attract attention, and recent reports on the state of the housing market are no exception. It is true that home prices aren’t appreciating at the abnormal rates of the mid-2000s; however, residential real estate still provides numerous benefits and opportunities to investors. While countless speculators won and lost during the meteoric rise of housing prices in the mid-2000s, the savvy investor buys the right property for the right reasons, and doesn’t count on appreciation alone. Real estate offers cash flow, leverage, and tax benefits in addition to appreciation.
When is a good time to buy?
It’s always a good time to buy real estate, but that holds especially true today. Interest rates are at historic lows, and prices remain low in many areas. Many investors are buying at bargain basement prices and reaping the benefits of cash flow.
How do I find the right property?
Knowing what you want from a property is the first step. Finding the right investment property requires not only knowledge of the local market, but the ability to estimate the earning power of a property. Whether you intend to buy and hold a property for your retirement or rehabilitate and resell a property for quicker profit, the Certified Investor Agent Specialist is trained to find and close on the right property for your specific investment needs.
What if my property doesn’t appreciate?
Many who own real estate today have similar concerns. Even if your property isn’t appreciating, you have other benefits, such as cash flow and tax benefits, to help make up for any lack of appreciation. Appreciation of any asset is never a sure thing, as the stock market the past 10 years has shown us. When you invest in real estate, you have more options of how to earn with your asset. If your stock depreciates, it simply depreciates.
Can I use retirement funds to purchase an investment property?
Yes. You can use a self-directed IRA to purchase and sell real estate, earning tax-free appreciation. Contact a knowledgeable accountant or tax advisor for details.
What is leverage?
Essentially, leverage is the ability to earn a return with borrowed money. Leveraging means borrowing a certain amount to purchase an asset, but earning a return on the entire asset, not just the money you’ve personally invested. Real estate is the only asset class that uses leverage to earn significant returns for investors.
What is cap rate?
Cap rate is a measure of how well an investment property earns a return. It is the ratio of net income earned by a property and the value of that property. Cap rate, among other criteria, is used to determine whether or not a property is a good investment.
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