Real Estate

People who are part of the “baby boom” were originally those that were born straight after the Second World War. However, when we talk about baby boomers now, we mean those born between 1946 and 1964. These people are a very important group. Not only have they all started retiring (they will all have reached retirement age within the next decade), they are also the wealthiest population group in terms of property and other assets. Because of this, they will invest the real estate market over the next decade. The question is, however, how they will affect the market.

The Theory of Scarcity

The first theory is that the behavior of the baby boomers will lead to a situation of real scarcity.

“Boomers in many areas are sitting on real estate worth a fortune, but they don’t have a lot of cash; the “golden handcuffs” of real estate riches they can’t afford to sell. If they sit on their homes, inventories available for buyers will be reduced and home prices will improve with this scarcity of supply.”

According to this theory, there will be an increased demand in rental properties. Because demand will be up, but supply will remain stagnant, rental prices will be driven upwards. This is good news for investors, although perhaps less welcome news for regular people who are looking for a property to rent.

The Theory of Demand

The other theory is that baby boomers will not sit on their properties. Instead, market analysts believe the boomers will soon sell up. They will want to move to more rural areas where they can relax and enjoy their retirement. Or perhaps they want to stay in their current neighborhood, but downsize now that the children have moved out and they generally don’t need as much space anymore. In this theory, there will be an increased supply in certain types of houses, and an increased demand in a different type or property. This will be a real estate market of buy and sell, in other words.

“The vast majority of these folks still want to own property rather than renting so they are looking at condominiums. It is expected that condominiums in urban areas will continue to be a popular choice for many retirees.”

The Link to the Federal Reserve

One last thing to bare in mind is that it is not all about the behavior of the baby boomers. The reality is that both theories are probably correct. There will be some baby boomers that will continue to sit on their property, and some others that want to sell and downsize to something more posh and upmarket. However, it isn’t just about their behavior, it is also about the Federal Reserve and the license to print money they have given themselves.

“The Fed has unlimited digital printing power and they are now the backbone of over 90 percent of all mortgages. They are willing to keep rates as low as possible until the entire government loses credibility (which sadly, seems to get more and more real every year). It is clear that this has been a gift to banks, not the middle class in this country.”

Those who believe that this governmental drive is a poor economic decision also believe that it means the theory of scarcity is the more accurate one. They believe that there is no way baby boomers will be able to sell their property for sufficient money to see them through retirement. On the other hand, evidence demonstrates that house prices are once again on the rise, which would throw this theory out of the water. Perhaps the reality is that nobody knows.

Stock investing certainly has the potential for return, but investing in real estate can offer you much more. Most people don’t realize just how great of a return you can get when it comes to real estate investments. There is a lot of money to be made with this method, but why is that? Why are so many investors hyping this up?

Gain More Leverage

It is extremely easy to get a loan. Mark J. Kohler said it best on entrepreneur.com,

“Gain more leverage. Real estate is one of the few investment vehicles where using the bank’s money couldn’t be easier. The ability to make a down payment, leverage your capital, and thus increase your overall return on investment is incredible.”

Getting a loan on a stock investment isn’t so easy because it is simply a guess on whether you will get a return or not. When it comes to real estate it is completely different. The value isn’t going to drastically drop and it is likely to even increase. While you could still get a loan for about 50 percent of the stock if it is low risk and you find the right investor it just isn’t as simple. With a property you are looking at only 10% down. There is a drastic difference in return amount and the investment amount. The property investment wins in both departments.

Less Volatile

It is not difficult or confusing to invest in property. According to lerablog.org,

“Successful business owners are known to invest their profits in rental property. After all, properties are tangible and less volatile than stocks and other investment vehicles. Renting out property is also a favorable way to invest because houses and real estate are easy to comprehend.”

If fact, if you know what to avoid, it can be one of the simplest methods out there. It is a stable investment that can bring you a great deal of money in a short period of time. While using your own cash is acceptable here, it is also smart to take out a loan and use your money as the down payments. This will allow you to buy even more properties and see and even greater return on the money you are using.

So when asking yourself whether or not you should spend your cash, you should really be considering how you are going to spend it. You know that real estate investment has a lot to offer you but you have to know where to begin. You need to invest in advertising and marketing. This helps you to reach as many people as possible, and just like with everything else, this is a numbers game. When you use as little of your own money as possible it leaves you open for being able to find that one really great investment property that is hidden with those that look pretty but aren’t the big deal. Keep this in mind as you decide on real estate investing and how to smartly invest.

The housing market is still unstable. There are highly positive movements, but at the same time, this does not mean that the time to breathe a collective sigh of relief is here. It is very important to continue to be cautious and to understand just what housing market movements actually mean.

“Home prices posted the largest annual gain since housing bubble days in August, although the month-over-month gain slowed for the fourth straight month.”

This demonstrates that there is some light at the end of the tunnel, but since gain has also been slowing down for four consecutive months, it means a lot of caution should still be observed. So what do these figures tell us? Should we start buying again, or is it still too soon to tell?

Economics and Real People Are Not Aligned

It seems one of the main issues is that economics are not aligned to the actual behavior of people. Economics are based on figures and statistics. So, they will tell us that the spending power of the average American is on the rise, which should mean they are able to buy more.

However, it doesn’t consider that, on a psychological level, the average American is still very worried about finances and prefers to hold on to whatever money they have. This is demonstrated very clearly in Las Vegas, where house prices are rising, but nobody is actually buying, even if they can.

“Property prices in Las Vegas are rapidly traveling upwards, but it seems investors in US real estate aren’t interested. The Global Property Guide claims that strengthening values are actually sending buyers elsewhere. What’s more, the rental market is also cooling, as an increase in inventory tempers demand levels.”

The Economy Is Still Hurting

There is further evidence that economists are not getting things right. Evidence that people are still worried and that crunching numbers in a positive manner, working on historic figures, is actually damaging the economy, rather than helping it.

The recent recession is unprecedented, which means that we do not know what happens in a time of recovery. The last recession that could be compared to the one we have just been through was followed by World War II. After this, most countries were bankrupt, but governments were willing to get into huge debt to rebuild their country.

This is very different from how things are today. The government is still holding on to its money, as are everyday people. Hence, presuming that things are looking up, and pushing the economy in that way could potentially damage and reverse the situation once again.

“Contracts to purchase previously owned U.S. homes fell by the most in more than three years in September, a sign that a softer economy and a rise in mortgage rates are hurting the country’s housing market.”

A Positive Point

We know now that prices are on the rise, but that perhaps they shouldn’t be. We know that the push towards higher interest rates is potentially damaging what little recovery we have been able to achieve. We also know growth seems to be slowing down.

However, there is some light at the end of the tunnel as well. There is reason to believe that we are once again entering a seller’s market. “While the inventory of homes for sale remains tight, potential home buyers will get a bit of extra time to find the home they want without the pressure of watching home prices shoot up.”

The market always slows down after the summer, when people prefer staying cozy in their existing homes rather than going out looking for a new one. Real prediction can hence not be made until spring.

Now that the economy is showing real signs of improvement, a lot of people and businesses alike are looking for ways to invest the profits they are making. Investing in real estate is something that may be worth considering alongside the various standard items such as the 401K and the IRA. Real estate investing is something that hasn’t yet returned to popularity since the massive crash of the housing market, but perhaps the time has come to turn this around. In fact, there are many reasons as to why investing in real estate is actually a very good idea.

A Tax Free Cash Flow and Growth

Owning property has two main benefits. Firstly, it allows you to grow your profits tax free. “Appreciation over the long-run is certainly realistic and at the least you should be considering a tax-deferred strategy. In the future, you may even consider a 1031 exchange, charitable trust, or an installment sale to lesson your tax liability further.”

Besides this, it also allows you to earn a tax free income. The cash flow that will come in is generally tax deductible, meaning it will cost you absolutely nothing. The only tax you may have to pay in the future is capital gains tax, but this is nothing compared to the tax you would pay if you had to pay income tax on the rental income.

It Is Safer Than Stocks and Bonds

You have the opportunity to play the markets and buy and sell stocks, bonds, commodities, precious metals and so on. This is something you could consider, but it carries huge risks with it. Not just that, statistical data tells us that the profit at the point of sale of a property is generally higher than the profit would have been on stocks and bonds.

“Thanks to leverage, a person who buys a house and rents it out will come out ahead of someone who invests the same amount of money in the stock market-especially at the point when the incoming rent covers maintenance outlays and helps pay off the mortgage.”

Indeed, there is also less chance of the property actually losing all of its value. Stocks and bonds can quite literally be worthless if the company that you invested in goes bust. A house can lose some of its value, but if you are able to hold on to it, it will regain its value at some point.

It Is a Forced Way of Saving Money

Whether you are a business owner or a private investor, we all have to consider saving money. However, saving is not very easy and too many of us make the mistake of dipping into our savings whenever the going gets a little bit tough. By investing in properties, your savings are quite literally tied up, meaning you are unable to spend them.

“A house is an automatic savings account. You accumulate savings in two ways. Every month, a portion of your payment goes toward the principal. Admittedly, in the early years of the mortgage, this is not much. Over time, however, it accelerates.”

Besides this, it is likely that the value of your investment will appreciate. Historical data tells us appreciation is around 5% per year, although the last few years have demonstrated that properties can depreciate in value as well. This is rare, however, and we know that historically, properties have always appreciated overall.

Be Realistic

It is very important to be realistic. The last few years and the recent recession have shown us that no investment is safe. If you do want to invest in property, you have to make sure that you are able to keep up your repayments and you also have to be aware that you may have to hold on to your property for longer than you had intended if the value does depreciate. Financial experts warn that the only real way for a home to actually be an investment is if you treat it as you would any other financial investment.

“There are opportunities to generate favorable returns in real estate, including the real estate that happens to be your home. Whether this comes out to be a favorable investment or not, though, depends on whether you’re willing to wait and only buy when the price is right, and whether you’re prepared to sell if the prices rise too far too fast.”

This is where the problem lies for some people, particularly if they also want to live in their homes. Selling somewhere that is home can be very difficult.

When investing in real estate you need to know what to steer clear of in order to ensure that you are making a smart decision on your investment properties. While it can be easy to see a property and jump the gun thinking it will be a great purchase, you first need to look into the details and not just the looks or location. If you take the following into consideration before investing, you are sure to find that you make better decisions on all your real estate investments.

Efficiency Is Critical

Efficiency is extremely important when it comes to the properties that you look at. The experts from wisegeek.com stated the following, “Choosing the best investment property is a process that involves knowing what you want to get out of the purchase and finding real estate that will allow you to reach those goals in the most efficient manner.”

You want to make sure that you are avoiding places that are going to need an excess amount of time or managing. This helps to cut down your costs as well as your headaches. You will want to disregard places that need a lot of landscape up-keeping as well. You want to choose something that will allow you to be as removed as possible and incur fewer expenses to get the most out of it. Stay away from vacation and college rentals as these certainly fall into the category of properties that require a great deal of time and managing.

Steer Away From Investments That Are Risky

You also need to avoid investments that are considered risky. According to Meg Handley on usnews.com, “The riskiest markets for real estate investors tend to be where there’s been the most overbuilding and where local job prospects haven’t seen much recovery.”

Consider all the factors such as the location, condition, and type of renters you will have. It is important to look at the whole picture as this will help you to see where there may be problems with the property you are looking at. You should never make a snap judgment decision. It should always be one that is well thought out with all factors and aspects of the situation considered. When you don’t look at the whole picture, you end up missing something that could cost you your profit.

Choosing the best investment properties is not as difficult as you may think. It just means that you have to take a little extra time to ensure that your money is being spent wisely. You need to know exactly what to avoid and what to look for in order to profit. These are two of the most important factors to consider and ones that you should not take lightly. After all you are in the business to make money and see a return not to end up losing your profit and potentially even the money that you initially invested. Take your time and make informed, researched decisions for the best outcome.