With all the different investment choices available to an investor today, why would one choose real estate? Why not take the easier route of investing in mutual funds? We have seen how the stock market have performed in the last few years and why stocks and even mutual funds are no longer a safe investment. Real estate has not been immune to the recent downturn and we have seen the once “safe” real estate market taken a downturn in different parts of the United States. Foreclosures and short sales have littered the market along with mortgages that were written with no down payments which also contributed greatly to the recent economic downturn. Considering how the mortgage industry ad real estate have performed in the last few years, one may question whether real estate investment is a safe choice?
The answer to the above question is not that straightforward. We don’t know, neither can we predict, if real estate has hit rock bottom. However, we do know that some properties are much better priced from a buyer’s perspective than they were five years ago. We don’t know for sure what their upward price potential is but being at such low prices, upward potential is more probable than not. The goal is not to just buy real estate for appreciation, since we do not know when the market will turn around. If you buy smartly, take a reasonable amount of loan and are able to pay for the property by renting it out, over a long period of time you will make money. We are not preaching buying houses cheaply and flipping them for a huge profit overnight. We believe that mentality is what got the housing market into trouble.
Internet has revolutionized pretty much every industry. Information is easily available and sometimes we even have an overload of information. One industry where it has probably made the biggest difference is real estate.
In the pre-internet days, we had pretty much no access to real estate data. We would have to solely rely on the real estate agents. When we bought our house in the pre-internet days, our agent would run the comps, print it out, and fax it to us. If we wanted to look at a house with different criteria or in a different neighborhood we needed to go through the process all over again. Furthermore if a buyer would like to do some pre-analysis to better utilize both their own and their agent’s time effectively they could not do so. This is not the case today. There is plenty of information available for anyone who wants to enter the real estate market. This access to data and information properties helps both the investor and the real estate agent. Decisions are made faster and better. There are no regrets on either end and today’s investor is more happy and satisfied. This is another reason real estate investment is feasible and a more practical and safer choice than few years ago. A good real estate agent is still a critical piece of your team though.
A comprehensive website to start with is zillow.com. Anyone can figure out the expected value of a house, compare it with other properties, and look for the history of a property. Zillow is a comprehensive website for today’s investor, providing FAQs and the latest information on mortgages, rental properties and home. Zillow also provides summary information in the general area and price trends. You should use this information as a starting point since individual homes may vary in price depending upon the upgrades or lack there of.
Mortgages rates are quite low, in fact perhaps near an all time low. This makes real estate investment even more attractive since the carrying cost of the property becomes lower. Many people have had to foreclose their home and have had a dent in their credit history. It is hard for them to get new loans due to more strict rules around loan applications. These people are used to living in single family homes and therefore have increased the rental pool. Low mortgages rates and a stable rental market ensures that rental income will be stable as well for the real estate investor.
A typical investor is advised to diversity his portfolio. The saying goes, “Don’t put all your eggs in one basket”. Therefore, even if you have invested in stocks, bonds or mutual funds, keeping all your funds invested in a risky portfolio is not a wise choice. Real estate returns are perhaps not as high as potentially those of stocks but they are real and less risky. Balancing your portfolio between risky and not so risky investment is a wise choice.
From a more personal perspective, all of the above reasons provided us an incentive to enter the real estate market as well. The biggest advantage was the availability of information from the internet resources. If it were not for that, we would have probably hesitated or taken a longer time in making the move into this lucrative market. Besides being less risky and a more feasible investment choice, real estate investment has long term benefits as well. One obvious benefit is the cash flow that you receive on an ongoing basis from your rental income.
