Saturday, September 5, 2009
Real Estate CAN Be A Good Investment
Tip #183 - Real Estate Can Be A Good Investment. The party line these days seems to be, “Don’t invest in Real Estate.” “Real estate is not a good investment.” “Your home is not an investment.” I want to put myself out there and say I disagree. Yes, if you bought your home three years ago and sold it last month, it probably was not a good investment. With that I agree. If you bought an investment property in Florida in 2004 and tried to sell it today, you probably will have lost a fair amount of money. With that I agree as well (from personal experience, I might add).
Does that mean that real estate is always a bad investment? No. Does it mean that real estate has always been or will always be a bad investment? No. Does it mean that no one has ever made money on real estate? No. Therefore, can real estate be a good investment? Yes. So when we hear the talking heads and the media and most of the general public say that real estate is a bad investment, I think we are hearing them speak based on being “reactive” to what has happened in the real estate market in the past few years. However, what has happened over the past few years isn’t typical of the real estate market over the long term or other shorter-term periods.
Let’s look at other scenarios – when real estate has been a very good investment for some. According to City Data, the median house value in Sea Isle City, NJ in 2000 was $257,200. In 2007 it was $633,681. Do you think the person who bought a house in Sea Isle in 2000 and sold it in 20007 thinks real estate was a bad investment? Probably not. How about the person who bought a house in suburban Philadelphia in 1972 for $40,000 and sold it for over $250,000 20 years later? Does that person think he made a bad investment by buying a house rather than renting? Probably not. So why does everyone say that real estate is a bad investment? Because if you bought two years ago and tried to sell today, you probably lost money. That’s all.
But like every other investment, we need to look long-term. Has real estate gone up over the past 50 years? How about over the past 20 years? Are there certain areas where real estate is still a good buy? If the answer to any or all three of these questions is yes, which I believe it is, then real estate can be a good investment. Yes, it helps to know what you are doing. Yes, you need to know where the good places to buy are. Yes, you may need luck on your side. But it can and is a good investment in many circumstances. For example, real estate can bring balance to a person’s portfolio that may lean heavily toward a certain type of investment. It also can provide a place to live or can offer rental income. Which brings me back to the main points of this post – look long-term with real estate. Don’t come to general conclusions just based on what has happened in the real estate market in the past two years. Because what has happened is atypical, just like the huge increases a few short years earlier were also atypical. However, consider that real estate can still be a good investment in the long-term.
In Real Life (IRL) – I have been interested in real estate as an investment since I was a young teenager. Or perhaps a better way to say it is I’ve been exposed to real estate as an investment (on an almost daily basis) since I was a teenager because my dad was passionate about it. Nearly every day in our house and in the car we would listen to a local real estate show on the radio about real estate. And even though I tried to drown it out with my Bruce Springsteen cassettes on my Walkman (yes, I was cool), I sometimes had to suffer through endless talk radio about real estate. Fortunately, in the process I picked up a few things and actually did become interested in it later in life. What I learned was real estate at the Jersey Shore and other places can be a very good investment. And my dad should have bought a condo in Cape May when he first considered it in 1980 not only because I’m pretty sure he would have at least quintupled his money by now, but because I would have had a nice place to go every summer. :-)
Seriously, though, real estate in the long-run has often been a good investment. That may not be true in every little town in the middle of nowhere, USA. But it was certainly true on coastal towns and big cities in the mid-Atlantic and many other places. And lately every time I hear or read on blogs that real estate is not a good investment, I cringe because it’s simply not true any more than when someone says stocks are not a good investment. Some people do well in each of these types of investments, and some do poorly. Lately, in real estate, a lot of people have done poorly. But many people over the years have also done very, very well in real estate. And I venture to bet, many more will do very well with it in the future, too.
Now to give you a real life example, my neighbor sold his house last month. I was watching it closely because it’s not too different than ours. The lot size is a little smaller. And there’s one less bedroom, but one more garage. So when I looked at his selling price I had to do a double-take: $599,000! And this is for a 1960’s, 3-bedroom split level on slightly more than a quarter-acre. “They’re crazy!” I told my husband. “They will never get what they are asking for. In this market! Ha! What are they thinking? Don't they know that the real estate bubble has burst?” After all, that’s all I hear about day in and day out is how bad real estate is and how much money everyone is losing. And while I did think he could have gotten something close to his asking price at the height of the housing market a few years ago, I was positive he was asking way too much in this market. In fact I thought he was asking about $100,000 too much. Guess what? I thought wrong. Today I finally found out what his house sold for: $575,000! I never in a million years thought he would get anywhere near that. And you know what? According to the housing records, he bought his house exactly 11 years ago for $237,000. I’m pretty confident, he thinks real estate can be a good investment, even in today's down market.
So when you are considering buying a home or purchasing some real estate for investment, take everything into consideration, not just the news on the media today. How long you plan to hold on to a place; when you buy; location, location, location; and of course a little bit of “luck” are all big factors on whether real estate will be a good investment for you. Consider it carefully.