Today, I had a client who came to me for advice on buying real estate. He was young professoinal working for one of the world's largest software companies. He is a PhD candidate, had the income, but didn't have the down payment to purchase a house. His parents (who are overseas) would be willing to gift him a significant down payment towards the purchase of real estate, but the parents wanted a "business proposal" justifying the merits of buying real estate. And being international, the parents were already biased from the media's report of US Real Estate market crash. Here were my bullet points in support of a purchase:
• The cash flow for rent is an outflow that decreases wealth, while the cash flow towards a house is building wealth.
• Rent rates are increasing, cost of renting a condo will only be higher in the future.
• Interest rates are still at historical lows, so borrowing money to buy a house is cheap.
• Local economy is strong and job growth is high, which drives up long term real estate value and appreciation.
• Construction in the downtown Bellevue (both commercial and residential) is at an all time high. Luxury condos will drive up prices and appreciation. Commercial development will create jobs, which creates more demand for real estate, driving up value.
• Real estate ownership has tax advantages in the form of itemized deductions for interest and real estate taxes.
• You are leveraging on the bank (loan) to purchase a large asset (as opposed to cash-on-cash investments, such as the stock market). Your paying only 10-20% of the value of real estate for the down payment and leveraging the other 80% in the form of a bank loan. However, 100% of the appreciation is yours.
• Pride of ownership and personal enjoyment in living a place of your own (living in your own places vs. living in someone elses).
• For international investors, the US dollar is weak, so you are buying more for less money.
• Inflation - cheaper to buy now vs. later (present value of money).
• Slow real estate market equates to a buyer's market. "Buy low, sell high".
Some supporting articles:
Rising rents - landlords finally are recovering from a downturn in the market
http://archives.seattletimes.nwsource.com/cgi-bin/texis.cgi/web/vortex/display?slug=rentals03&date=20080203&query=rent+rates
MONEY Magazine: Best places to live 2006: Bellevue, WA snapshot
http://money.cnn.com/magazines/moneymag/bplive/2006/snapshots/PL5305210.html
Downtown Bellevue condos beckon to younger crowd
http://seattletimes.nwsource.com/html/eastsidenews/2004273774_condos11e.html
Seattle home values hottest in U.S.
http://seattlepi.nwsource.com/local/333067_housing26.html
Best Places To Flip A Home
http://www.forbes.com/realestate/2007/07/26/home-seller-flip-forbeslife-cx_mw_0726realestate.html"However, those looking to make a quick buck may do so in a number of markets ripe for a well-spotted flip. Best among them is Seattle. It landed atop our list based on a number of measures. "
MONEY Magazine: Best places to live 2006: Bellevue, WA snapshot
http://money.cnn.com/magazines/moneymag/bplive/2006/snapshots/PL5305210.html
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Timothy F. Lee,
BRIO Realty | MTG Finance
Office: 206.774.8639
Cell: 206.696.2664
Fax: 425.427.1734
TimothyFLee@gmail.com
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