Questions and Answers Part 2
This week I’m addressing a very important subject, Real Estate as an investment.
The first question:
1. Should I make real estate a part of my investment portfolio?
The answer-absolutely Yes. Real estate, especially in rental properties, has some huge advantages over nearly all other investments:
- Leverage-when you buy $500,000.00 worth of stocks, you have to pay $500,000.00 in cash. However, if you buy a $500,000.00 property, you may only have to come up with $100,000.00 cash or less. If both assets appreciate 5%, the stocks get you a 5% gain. If the real estate appreciates 5%, you realize a 25% gain on your cost.
- Excellent tax treatment: all of your expenses, plus depreciation of the property, may be applied to your income tax while you own the property
- Most valuable, and mostly unappreciated, someone else is contributing to the increase in value of your property. That person is your tenant, who is reducing the amount you owe on the property. At some point, you will own the property “free and clear”, further increasing your gain.
2. It’s such a crazy market. Is this really a good time to buy real estate as an investment?
Again, the answer is yes: You can buy in this market with new financing as low as 3.0% or less, and the loan can be amortized and paid over the next 30 years. Your cost of ownership will stay at this low level forever, but rents tend to go up. Over the last few years, rents have increased at about a 5.0% or higher rate. So, not only will the rent cover your mortgage payment, but at some point, you may also have an income from this asset.
This may well be the best market for buying investment real estate that I have ever seen!
Call us 949-500-6365, email Frank@FrankDiLauro.com, or access our website www.FrankDiLauro.com , to discuss these or any other real estate issues.
