Real estate has been a sour subject for the last five years. This country has gone through a real estate bust that people will never forget. Foreclosures have been at levels never seen before. Our current recession/depression was caused by an overinflated housing market.
However, things seem to be getting better. Prices have crashed and people are buying again. Like other markets, real estate moves in cycles. Some experts claim that it moves in a 5 or 7 year cycle. Sit with any old timer and they will tell you stories of all of the markets that they have been through. The United States housing market has been correcting for the last 5 years. We could be near the end of this downturn.
How Can You Profit Now?
There are several ways to make money in real estate. You can build, develop, flip or buy for the long road. People have made and lost massive amounts of money in all these areas. One way to make good money and at the same time plan for your retirement is buying rental properties and planning on owning them for many years.
The benefit of buying and holding is that you do not have to perfectly time the market. Right now, if you are flipping a property you have to buy it cheap, fix it up fast and sell it quickly before prices fall any farther. With flipping you also have to continue to find houses to buy cheap. Which can be difficult.
Long term investors don’t need to time the market like flippers do. Flippers need to buy, fix and sell within a short amount time before prices move. Investors buy, hold and hope for a rising real estate market. Since markets move in cycles if they hold long enough they will eventually be in an up market.
Time Value of Money
Money will grow over time with appreciation. Real estate will eventually start increasing in value again. Imagine if you purchased near the bottom of this real estate market and held on for 20 years. The house you buy will not only increase in value but your tenant will help pay off your mortgage.
Let’s assume that you bought a nice rental property for $75,000 and obtained a 15 year mortgage. In 15 years when the home was paid off the value of the home would be:
* 2% appreciation a year - $100,940
* 3% appreciation a year - $116,847
* 4% appreciation a year - $135,070
* 5% appreciation a year - $155,919
Now imagine if you purchased several of these houses. Within 15 years your net worth could increase millions. Not only that but you would have a nice portfolio of paid off homes generating a nice monthly income for you. If you purchased one house a year for the next 10 years and had them paid off within 25 years you would most likely be worth several million dollars. That is not a bad retirement plan.
Marc Rasmussen specializes in Sarasota homes for sale
Tags: finance, home, investing, property, real estate, rental properties, selling home, wealth