7 Rational Reasons to Invest in Real Estate Today
I believe it was J. Paul Getty who famously said, "Buy when everyone else is selling and hold when everyone else is buying." Many people believe, including myself, that the current real estate market conditions provide an unprecedented buying opportunity to lock in significant investment returns. Whether the result of the media's constant gloom and doom reporting of the real estate market or simply lack of knowledge, many "would be" investors remain on the fence. While each person must carefully consider their own investment objectives and risk tolerance before jumping into the market, I've listed my top 7 reasons investors should consider in assessing today's real estate investment opportunities:
1) Ridiculously Low Interest Rates - In fact, just yesterday the average 30 year fixed rate loan hit 4.12%. The lowest mortgage interest rate on record. If you can qualify (and I do mean "if"), this is super cheap money that can create incredible long term returns on your investment. Lower interest rates will allow you to lock-in generationally low debt service payments and bolster your bottom-line positive cashflow.
2) Attractive Purchase Prices - Many distressed sellers (and a few banks) are selling properties (residential and commercial) at steep discounts and accepting offers that are below current replacement costs (i.e. construction costs). Recent reports indicate that banks are selling foreclosed properties (typically called "REO" properties) at an average discount of 28% below prices being paid for comparable non-distressed properties in the same market. In the markets where we are getting our Turnkey REO properties, we are getting much deeper discounts allowing our clients to buy rented and rehabbed income properties for 75 cents on the dollar for only around $4k out of pocket.
3) A Powerful Hedge Against Inflation - With many economists predicting that inflation will increase in the future, hard assets, like investment real estate, can provide a hedge against the declining value of the dollar in an inflationary environment. In addition, ownership of rental real estate can provide a savvy investor with increased income as rental rates go up in lock step with the price of goods and services during an inflationary period.
4) Where else can I put my money? - With banks paying 1% or less on savings accounts and CD's and money market accounts paying yields below 1%, investors are not able to even keep-up with the pace with inflation. In contrast, many very conservative investment properties are generating returns in the 7-9% range, providing considerably better yields. And with a little work and applied knowledge, investors can easily exceed these returns.
5) Less Competition - Foreign ownership of U.S. investment real estate is continuing to grow as markets overseas like Europe continue to look very unstable. Foreign investors see U.S. real estate as a solid investment in a stable economy, and the lower value of the dollar makes U.S. real estate an even more attractive bargain. These 2 trends will continue to increase demand, that will drive up prices on certain types of investment property. In buying income property now, the smart investors can stay ahead of the competition.
6) Growing Demand - Some types of investment property like residential rental properties are experiencing considerably more demand than supply. With the construction of new homes and apartments at close to a standsill, demand for rentals has increased as foreclosures have mounted. As a result, rents in many parts of the country are actually increasing and many experts project this trend to accelerate as homeownership becomes more and more difficult to attain in this rough economy for the average American.
7) What if the prices go down? - Overall, property values across the country have declined an average of 30% or more since the market peaked in 2006. Many economists believe we are at an important pivot point where prices will stabilize and begin to increase (albeit at lower appreciation rates than in the past). Of course, real estate is local and there will be a few markets that may see additional downside. If investors wait too long, they may find they are facing competing bids and higher prices to close. Personally, I believe if you buy right with strong positive cashflow the short term fluctuations of the market are irrelevant as you will be collecting a nice return on your investment and will enjoy the tax benefits of owning the property (depreciation, and mortgage intrrest deductions).
Like just about any investment, it is almost impossible to time the acquisition of an income property at the very lowest point in a market and later sell it at near market peaks. The truth is when investing in real estate, you don't need to perfectly time the market to be successful and achieve solid returns. By focusing your strategy on strong cashfowing properties that you can buy at a decent discount and (if you can get it) finance with historically cheap capital, you can conservatively beat most other investment classes. Don't let the media naysayers scare you to the point that you wait to long to invest. Go out and take action! There are an abundance of opportunties waiting for you.
Comments(4)