I began a conversation with a few of my Twitter friends regarding a recent post on how to recover losses in your 401k/IRA accounts. Using Twitter, you’re limited to only 140 characters, and my answer to where investments should be made, and why, is a lot longer than 140 characters!
From @tvanderwell: “devil’s advocate time – when prices are down, how do you persuade people that RE is the place to invest”
My answer: “have you LOOKED at your stock holdings recently? When should you buy those same stocks, when you did or now?”
So the question has been posed: As an agent, I know inherently that real estate is THE investment to make, but how do I educate my clients that it’s a GREAT investment option RIGHT NOW? Look at how many of the world’s richest people gained their wealth: through real estate. Look further at those that made their wealth via any kind of investing. They did not purchase stocks, commodities or real estate at market highs!
For clarification, we are talking about real estate as an investment, not necessarily as a residence, although there is some spill over of thought in that direction too. The added benefit in “investing” in real estate that is your primary residence, is that the utility factor of the property needs to come into play. The days of the home being an ATM are gone, for now. The days of seeing your home as a place to keep you warm and dry are back. If you have the ability to purchase now, live there for 7-10 years, your “investment” will keep you warm and dry and likely give you some price appreciation at the end.
Investing In Real Estate
The fun part about real estate, RIGHT NOW, in our country is that property is cheap! In the South East Michigan marketplace, we are staring at 1998-2000 year price points! In many cases, that’s translating into about $100 per square foot and great quality in a home.
Now stare at those time frames and price points again. They are only 8-10 years old! That means that this real estate cycle is/was 8-10 years long, from beginning of price appreciation to a return to that price point. What is wild, to me, about that cycle is that at this point in time we are looking at a HUGE amount of inventory (granted, it’s dwindling around Ann Arbor) and near historically low mortgage rates.
“Okay Todd, you’ve made the point that real estate is a great purchase at this point in history, but I’m still trying to recoup my losses from the stock market. Why would I throw any remainder into real estate? After all, it’s falling in price too.”
I ask myself a similar question as I invest money in the stock market these days. Especially when some of these stocks have hit multi-year lows! But we were always taught to buy low and sell high, right?
Buy when there’s blood in the streets, even if it’s your own. – Baron Rothschild
Real estate will never equal zero! It will trend lower, it will trend higher, but there will always be an inherent value to property. Buy low, sell high and buy twice as much when there’s blood in the streets!
There is a great section of the tax code that pertains to IRA’s and how you can utilize real estate as one of the “eggs” in your diversification strategy. The neat thing about this little utilized piece of tax code, is that you can direct your IRA funds to purchase a rental property, vacant land that you could farm, a Real Estate Investment Trust (REIT), or any other property type that you can imagine! The point is, you are in control of where your IRA real estate dollars go!
As one friend of mine explained to me about real estate in Roth-IRA’s: “It can appreciate without taxes till the sun explodes.” And a final quote from @BawldGuy:
If you have 10-20 years we can possibly add an extra few grand a month in retirement income. Oh!! Now yer payin’ attention. All kiddin’ aside, sometimes it takes a steel-toed kick in the pants to make people look at something better than Wall Street. Capital growth is the name of the retirement game. No capital growth = very little retirement cash flow.
Why do I invest and suggest others invest in real estate as a retirement/investment vehicle? The different kinds of real estate vehicles available (rentals, development, office space, etc) offer a real estate investor a bunch of options to accomplish their investment goals. I have some clients that started a while ago in acquiring rental properties for the sole purpose of equity accumulation. The rent they are able to collect more than covers my investor’s monthly mortgage payment.
With professionals to asisst you through the process of identifying and acquiring the correct property, you simply need to let us know what your investment goals are!
There is also a question of mindset underpinning this whole conversation about investing in real estate. Tom’s use of the word “persuade” is a strong word, but correctly chosen. As an industry, we are not exactly being overwhelmed with folks throwing money at us saying, “Invest it! Invest it!”
The mindset that real estate professionals and investors need to see and have is one of opportunity. When the bulk of your marketplace is thumb sucking and whining about the good ole days, that is a great time to strike! Those folks have taken themselves out of the marketplace by convincing themselves that nothing can be achieved in these conditions. A contrarian viewpoint now in our market cycle will take investors to great heights with just a little patience and foresight.