Posted on December 28th, 2007 by Florence Beaton
Posted on December 27th, 2007 by Florence Beaton
Posted on December 10th, 2007 by Florence Beaton
While home prices generally only increase at an average of 5-6% per year, the stock market generally sees returns of 10% or higher. Yet real estate is often still looked at as a better investment.
Why is this?
It all comes down to leverage. While a home may be valued at $100,000, the owners generally only start out with 20% equity ($20,000). When the market goes up 5%, the value increases by $5,000, which is 25% of the total that you actually have invested in the home.
So a $20,000 investment nets a 25% return (minus costs). This is much better than the stock market traditionally does, and so is considered a better investment.
But as your property value grows, and your mortgage shrinks, you’re actually getting a lower return on the money that you’ve invested.
As your leverage decreases, you may be better off selling your current investment and purchasing a different property that gives you a better return on the money that you’ve actually put into the place (not just the overall property value).
Click here for an article from EquityScout that explains this in much more detail, and includes graphs that further reinforce the point.
Via the Carnival of Real Estate #70
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Filed under: Investment Homes | No Comments »
Posted on November 23rd, 2007 by Tim Menk
Given the tsunami of bad news about the U.S. housing and mortgage markets, it is only natural that potential homebuyers are a nervous lot. The short-term market statistics have heightened concerns that perhaps real estate is no longer a good investment. While the question of how long the current downturn will extend and at what level home prices will bottom out, the fact remains that current conditions will not prevail in the long term. When looking at buying real estate, it’s important to take the long view, like successful investors in the stock market.
While current weakness in the housing market requires that real estate buyers be more cautious about the property they are purchasing and how they will finance the purchase, long-term trends support the proposition that homeownership is still the best investment on can make. To argue that the current market conditions are going to prevail out into a bleak future, one would have to presume that the cost of land, labor and building materials are going to remain static or fall in coming years. Simply put, this is not going to happen. And these rising costs over time continue to make owning a home a great investment. There are many other underlying factors that also support confidence in the security of real estate investments, called by economists the ‘fundamentals’. One of these factors is the increase in demand for housing spurred by a surge in immigrants in many markets. There are many others.
For more on why those who are fence-sitting about buying a home because of all the bad news in the housing market, click here for an article that forcefully argues that the current downturn and price drops will be counterbalanced by the long term growth in the value of real estate.
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Filed under: Buying, Investment Homes, Market | No Comments »
Posted on September 25th, 2007 by Tim Menk
Even though the investment portion of the vacation home market dropped steeply in 2006,for a variety of reasons, it is still a market niche worth a second look. As they say in economic reports about the overall U.S. economy, it is supported by solid ‘fundamentals’. In other words, the underlying economic data, including demographics, personal income, inflation, etc., support optimism about long term prospects for economic growth. So too, the demographics underlying the second home market support opportunities for long-term appreciation of such properties.
Among the huge number of baby boomers, (78 million in the U.S. and over 200 million worldwide), there is going to be an increasing demand in the next 15 years for vacation homes that may double as retirement destinations. The soon-to-retire boomers are part of what has been called by noted demographer Peter Francese “the richest generation in the history of the planet”. By some estimates, the earned and inherited wealth of U.S. boomers approaches 2 trillion dollars.
With these kind of underlying fundamentals, vacation homes sales in certain markets, while suffering now, is likely to pick up and return to positive territory in coming months.
If you are thinking about looking at a second home for family use and as an income property, you should take a few minutes to read the following article, featured recently in Realty Times. It offers some useful tips about how to choose the best market and property for investment and warns of some pitfalls. As always, every investment strategy has both pros and cons. The old adage ‘caveat emptor’ (let the buyer beware) applies in turbo for real estate investments during a market slowdown. But a correct pick and purchase made when prices are down can reap big rewards when the market stabilizes and begins to appreciate again, as many second home markets are predicted to do.
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Filed under: Buying, Investment Homes, Vacation Homes | No Comments »
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