That’s the big question on everyone’s mind right now. Why? Real estate speculation by stock market speculators, issues with subprime loans leading to foreclosures and bank failures, and a subsequent decline in property values are all contributing factors.
Since the previous slump occurred between 1990 and 1995, I know what my late mentor, Dr. David Schumacher, would say if he were still here. He wrote the now-famous book The Buy and Hold Strategies of Real Estate. Don’t worry, he’d reassure us. This is a short-term occurrence inherent to the real estate market.
It may lead to deals that work in your favor. Since Montgomery Ward’s catalogue sale of $1,500 houses, this pattern has repeatedly repeated itself. Real estate is an investment that, over time, will reliably provide financial rewards, just as the sun rises each morning and the seasons change. To that, he would say that the current period is ideal for finding cheap properties.
Read More: Christian Hayes Danvers
The Real Estate Market Trends
There is no better long-term investment than property. As usual, its long-term prospects are bright.
I’ve already lived through four real estate downturns, and not one of them was enjoyable. But if you can hold out for the long haul, real estate is the best investment you can make. Do not worry as much about the ups and downs in real estate as you would in the stock market.
Since 1929, real estate prices have increased by five percent annually on average, and by as much as seven percent annually if you avoid obviously depreciating places like Detroit. In a decade, a property’s worth would double at that pace due to compounding. When you take into account the 28 percent federal tax advantage, state tax deductions, the depreciation write-off for rental property, and the ultimate pay-down of the loan, you have a technique that the wealthy have always utilised to amass wealth.
I have seen a lot of buy-fix-and-flippers during the last 30 years. Flipping houses is not a source of riches for most people I know. Making money in this manner is just very dangerous.
Those who have done well in real estate are the ones who have stayed in it for the long haul and seen the value of their investments rise steadily. Too many homes were placed up for sale or rent all at once, which contributed to the recent decline caused by speculators. In the long run, you will always be sorry that you sold any of your property.
To Invest in and Maintain for the Long Term
The buy-and-hold method is a fantastic way to amass wealth as time flies by regardless. Dr. Schumacher has made it through at least five real estate booms and busts, each time emerging with a fortune of at least $50 million.
When looking for a place to live, it’s hard to go wrong with a cheap condo, townhouse, or single-family home in a desirable area with access to decent employment opportunities. A home that is held for ten to twenty years with a fixed-rate loan and positive cash flow is likely to increase in value by a factor of four or more. Refinancing your mortgage for cash out might help you retire with more comfort or help augment your pension.
My first investment property was a townhouse in Lake Arrowhead, California, which I bought for $75,000 and which is now worth $650,000. The Long Beach, California, beachfront apartment I bought in 1982 for $112,000 and lived in has since appreciated in value to the point that I may retire comfortably on its current $500,000. My $80,000 condo in Maui, Hawaii from the late 1990s is now worth $400,000. Similarly located Phoenix, Arizona properties that I purchased at the same time for $75,000 are now worth $150,000. And I could go on and on.
Which Choices Do You Have?
Which paths may you choose now to increase your wealth? You may either invest in property and see your money grow over time, or you can do nothing and endure considerable hardship with nothing to show for it.
Nothing could be done.
When they reach retirement age, the 25% who do not own a property have nothing to their name. They owe an average of $9,000 in credit card debt and have a vehicle loan. Those who do not invest in rental property may have to continue working beyond the traditional retirement age of 65.
Depending on Your Retirement Savings is an Option.
As the above graph demonstrates, you cannot rely on your retirement savings alone to ensure your financial security in old age. Those who rely on Social Security or other retirement programmed often fall below the poverty level and are compelled to work until they die; this is not an option. The performance of other investing choices is similarly dismal.
Participate in the Stock Market
The stock market won’t perform well for a while since we’re in a slowdown (I refuse to think we’ll have a recession).
Speculate on Precious Metals
They have made their first push, and it seems unlikely that they will do much better going forward. As a hedge against inflation and a weak currency, gold and silver are becoming popular investments. Oil prices seem to be declining, while the currency is gaining strength.
Buy Some Property.
Investors who put their money into property nearly always come out ahead. The income distribution graph below illustrates how the top one percent have amassed their fortunes. One can see that the great majority have put money into property.
Keep the long view in mind.
Investment property is not intended for temporary use. At the moment, real estate values are falling in certain areas and rising in others. Selling now and cashing out would be a horrible idea. About 5% of the homes are now on the market. The vast majority of real estate owners and financiers are now doing nothing more than sitting on their assets till the next upward appreciation cycle.
Also Read More: Beginning Your Career as an Investor in Residential Real Estate
The Big Four Mistakes Buyers and Sellers Make
Properly invested capital into real estate can never go wrong. Human free will and, at times, avarice, are what ruin otherwise promising investments.
Spending beyond one’s means on a piece of real estate
People often fall in love with and acquire a property that is out of their price range. They have a constant uphill battle ahead of them in order to meet the monthly payments. Then they’re in deep danger if they become sick, lose their job, or get a divorce.
Investing in Non-Profitable Real Estate
People tend to buy rental homes that don’t cash flow when the rental market is rising fast because everything appears appealing. When the market drops, this strategy generally ends in failure because of the resulting big negative cash flows. Cash-flowing real estate is a no-brainer investment. They’re terrific regardless of the situation. It’s best to invest in them and keep them in the long run. They will be repaid in due time.
Maintaining an Insufficiently Limited Opening
It’s tempting to undertake a cash-out refinance on a rental property or max out your home equity line while prices are rising. That’s risky if you can’t afford the payments or keep up with the negative balance. It’s the equivalent of becoming bankrupt due to excessive credit card use.
When property prices fall below the loan amount, as is happening to many homeowners right now, it may be quite distressing. Do not lose hope; in 2 1/2 to 4 years, at the latest, they will recoup their investment and then some.
Making Bad Loan Decisions
We are all aware of the issues that come with subprime loans. These loans were used by a wide range of people, not only those with modest means. People were willing to spend over a million dollars on houses in the hope that their value would rise. Five-year Option ARMs became in popularity as well, although their resets were problematic for investors. It’s in everyone’s best interest to refinance loans like this as soon as feasible. This is also true for mortgages with variable interest rates. For those who want to keep their homes for the foreseeable future, a fixed-rate mortgage is the best option.
There is encouraging data from the second quarter of 2008.
An improvement in sales in 13 states, including the four most impacted (California +25.8%, Nevada +25%, Arizona +20.50%, and Florida +10%), is indicative of a market that has bottomed and is returning to normal.
In addition, prices rose from the first to the second quarter in 35 U.S. locations. The cost of living increased by 9.9% in Yakima, WA, 8.9% in Binghamton, NY, and 7.2% in Amarillo, TX compared to the previous year.
During a downturn, seeing the value of your house and investment properties decrease is never enjoyable. Don’t let that get you down, however; it’s a normal element of the real estate market’s cyclical nature. The best time to buy is during a recession since costs are at their lowest, but you should always have some money set aside in case of need. Invest in strong job-growth areas by purchasing quality homes in