When just starting out as an investor, everyone needs to choose where to begin.... This can be a daunting task, with all the types of investments available-from simple savings accounts to mutual funds to individual stocks to stock futures to hedge funds to gold!
With every investment, you want to look at potential return (which really should be evaluated on an after-tax basis) and the types of risk you will face. Any type of fixed return investment (savings accounts to bonds) usually has low rates of return and low risk in terms of loss of your monies invested, but has high risk that inflation and taxes will erode both any actual return and your principal. So these vehicles are good for extremely risk averse people and/or those who will need access to their funds in a short-term timeframe. This is best for those who will spend all their assets within ten years.
Real estate investors know that their investments are much more liquid than their stockbrokers would have them believe. They also know that the costs of purchase and sale of these assets are greater than stocks, so it makes sense to hold these investments for 10-30 years (with 5 years being the minimum anticipated hold). However, our government currently rewards people for investing-with depreciation to shelter monthly rental income from taxes and a very, very low capital gains tax rate for all gains which are held for the long-term, plus the 1031 tax exchange process which can defer taxes for your lifetime. The best benefit from these investments is long-term appreciation, especially as a hedge against inflation.
College Financing Strategy: Buy a three family home for each child by the time they are 3 years old. Finance with 20% down and pay off the mortgage over a 15-year timeframe. By the time your child is 18, you will either be able to make tuition payments from the rental income of the property (which at this point has no mortgage) or sell the property to finance the tuition costs!
Please note that if you expect less people to be able to buy a home in the current economy, demand for rental units will increase. Also, look at these national averages for real estate appreciation over time: Since 1948, real estate values are up 2,650%; since 1969, real estate values are up 685%; since 1977, real estate values are up 340%; and since 1996, real estate values are up 88%. How do these numbers compare to your personal experience in the stock market?
Fortunately, West Hartford, Hartford & New Britain, CT all have good 3-family properties available to put this plan into action! Some markets will yield more appreciation and others positive cashflow from year one!