Buying real estate is a great investment in 2012, especially if you are living in the US.
The interest rates are low
The prices are low
Stock prices and gold prices are high, especially relative to real estate
The other assets can be sold to raise money to buy real estate
Houses face a lot of foreclosures
Banks have to unload the properties eventually so they will sell
More sellers than buyers but that gap is closing in
Mass institutional buying may take place as guys like Buffett may be allowed to buy million dollar homes and millions of homes.
Bank of America among others are forgiving equity people own on a house.
There are many other reasons I will update this post.
With such low interest rates rental income can provide positive cash flow. If interest rates rise dramatically after you have fixed in a low rate, interest rates on a 10 year bond perhaps will eventually exceed the interest rate of paying down your house. As such you can gain profit simply from using the money you would otherwise use to paydown your house to put in a bond. There are many dividend stocks that yield more than the 4% interest and over time may appreciate in value if you can select the right company.
If the economy goes south and interest rates go lower, you can refinance. If the economy takes off and inflation is strong, you likely can raise rents at some point, and the dollar losing value will both inflate the price and rental income of the property and deflate the costs of the monthly payments.
Since 2010 real estate has been a good buy for cashflow investors, but now it is beginning to look so attractive that there are deals to be had that can provide good capital gains in the future on top of whatever rental income you choose to collect.
If you are starting small, consider buying a house and having a friend as a roomate pay you rent. It’s a good way to get started without all the headaches of being a landlord. If you want to continue from there, the next move would be to consider buying a duplex, living in one, and renting out the other to someone you know and trust. At some point, if you want to consider getting into the field of real estate, there is a lot of information to take in from incorporating a business, understanding tax loopholes, understanding assessment of property value and costs of repair, how to manage the property and so on.
You can develop a team of individuals who co-own the business with you that are an expert in individual areas like this. Pool the money, share your expertise (finding the properties, providing more of the money, and leading the team and raising the money is a good area to learn if you are not a mechanic or contractor or banker or accountant,etc), and reap the benefits and reduce the costs.
1)Find an accountant who specializes in real estate who wants to invest or who does invest
2)Find a real estate broker in a similar situation
3)Banker who wants to invest
4)Property manager or management company who wants to invest
5)Lawyer who wants to invest.
6)Contractor and repair company
7)etc (businessman who can provide management experience and potentially sources of capital and may be familiar with it? home builders? mechanics? plumbers? marketers/advertisers? hard money lenders and financiers, etc)
8)Form a company with them,having the accountant and lawyer do the paper work and allow each area of expertise to do their thing when needed. accumulate properties while they are cheap and raise money to get financing. Get tennants to provide rental income. Consider selling properties if they have appreciated significantly and you have maxed out their potential, particularly if the price to rent ratio (sort of like the PE of real estate) is high. make sure everyone is on the same page. Selling a property because it went up in value should not be your goal, however if you can reinvest the money somewhere else to produce better cashflow on your money, it may be worth it…. Another option is cashing out the equity to refinance, so make sure to run the numbers for each and determine which one gets more bang for your buck. Also consider the time involved and the difficulties with working on the next place and getting another tennent, and the problems you may run into. Certainly there is nothing wrong with not selling at all, but you should have an exit plan before you get involved.
By finding such members, which may be a lot of work, emailing, calling, asking around, looking for references, joining real estate clubs and meet up groups, attending seminars and networking,etc you can shorten your learning curve and also reduce your costs. The individuals that you would normally pay lots of expenses for to keep everything in order, would volunteer their expertise in exchange for gaining the expertise of others and investing while reducing the costs.
The banker and real estate broker can work to find you great deals and actually potentially collect a brokerage fee from the bank, rather than charge both sides, you actually collect the amount you would normally pay. The lawyer produces the legal documents and is very nice to have should any tenant want to sue. Repairs will be needed,construction may be done, taxes will have to be paid and someone will have to run the legal documents.
This may be a bit too overwhelming for most people, and most people who invest in stocks may do so because it can be done at a very small scale without requiring management and entrepreneurship. For these people, the advise of buying a place and getting a roomate to pay down your mortgage is probably a good idea, or considering a duplex and living in one and renting the other. If you wish to go beyond that, you will have to make a much larger commitment, and you probably will have a lot to learn.
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