Why Build Wealth through Real Estate
Watching the true crime show, "American Greed," too many times probably ruins people when it comes to investing money much beyond the basic 401(k) type of thing. It makes people not trust themselves to lose their life savings to some con. And besides, even sure things can tank in the blink of an eye.
The almighty Google is in trouble. Google makes money when people do "Google searches" to find stuff to buy. But people are performing fewer Google searches as they increasingly rely on their mobile devices instead of their desktops. Folks just don't surf the Web nearly as much on their devices as they do on their desktops. And to make matters worse, when mobile surfers want to buy online, they tend to go directly to Amazon, which cuts Google out of the equation completely.
And that's just the big change from Google. Who can keep up with all the new developments out there? If you're a simple kind of person who likes to invest in something that, overall, stays put, consider investing in real estate. Plus, if the zombie apocalypse does happen (or if the government decides to seize your bank account), you'll have tangible assets.
Gas Isn't the Only Thing Getting Cheaper: Mortgages are Cheaper Too
CNNMoney reported on December 18 that the average rate for a 30-year-fixed-rate loan is 3.8 percent. Americans haven't seen figures that low since May 2013. Fifteen-year loans are 3.1 percent. So with those bargain rates, it's a good time to consider buying a house.
When it comes to investing, be wary of buying practically condemned fixer-uppers. That method can bring a high return, but it's also high risk. Too much of gamble for conservative investors. Only a fraction of people make any money flipping houses, and they are typically builders or people who work with contractors. You really have to put in sweat equity to make money in the flipping game. You might want to just say, "no thank you."
Peace of Mind
What could bring you peace of mind is owning decent properties to rent to long-term tenants. It's no get-rich-quick scheme, but if done right, it brings in positive cash flow for the long haul.
And, real estate makes a nice gift to pass to your kids. Just knowing they'll own a house someday should brings you great happiness.
You might not be worried about inflation now, but you never know what the central banks will do. And really, if Donald Trump says that real estate, not gold, is the best hedge against inflation, why argue?
It's a basic concept, really. As home prices go up from inflation, so do rents. If you own a house or hold a mortgage, you aren't harmed by inflation, and you get to collect more rent money. Sa-weet. Yes, you do need to probably pay more in property taxes and insurance, but you'll still come out ahead most times.
What if You Want to Sell?
No problem. You can keep up to $250,000 if you are single (or up to $500,000 if you are a couple) in tax-free profit. You just need to live in the home for two of the five years before you sell. That probably sounds pretty good to you, especially if you are in a high tax bracket.
Building wealth through real estate is not exactly easy street. You need to put some effort into doing it right. If you don't know what you're doing, you can lose money in any number of ways:
- The eviction process
- Tenants who damage the property
- Picking the wrong property that doesn't bring in enough rent
- Picking a property that needs too much maintenance
- The wrong location
- Missing out on tax deductions
But don't worry. You can mitigate your risks enough to make real estate investing a practically risk-free endeavor.
Most of the learning process comes at the beginning. After you find the right property and screen possible tenants, the rest of the business is usually less time-consuming. If you want to spend the least amount of time possible, you can always hire a property manager, but be real with yourself here: you will typically need to stay on top of your property manager. Make sure yours is worth the cost.
There are more ins and outs to investing in real estate, but that's material for another post you might want to read once you decide investing in real estate is for you. In the meantime, here are some more general things to know.
What to Look For
If you're becoming interested in investing in real estate, here's the biggies of what to consider:
- High-population areas
- Low unemployment regions
- Reasonably-priced homes
That's the magic trifecta to look for.
Know what the No. 1 place to invest in real estate in 2014 was, according to Forbes? It's Fort-Worth-Arlington, Texas. The population is upward of 2 million, the actual home price is $168,383, the equilibrium home price is $210,296 (what homes should probably sell for if they weren't underpriced), and the three-year growth forecast is 25 percent.
The No. 2 place was also in Texas — Dallas-Plano-Irving. And here's a hint for all you flyover state folks: no areas in California or New York made the cut.
Slow and Steady
Many people who want to build wealth through real estate start with one house at a time. You'll learn from that experience and will be on your way to earning consistent income once you cross all your Ts and dot all your Is.
Remember that your goal is to build wealth through real estate. If you pick investment property that appreciates, has a positive cash flow and offers tax benefits, you should do well. Buying real estate could be just the pension plan you need.