That’s a question we all ask ourselves today. Why? Because of the many stock market investors who speculated in real estate, the problems surrounding subprime lending with consequent foreclosures and bank failures, and falling home prices.
If the late Dr. David Schumacher, my mentor for the past 10 years and author of the now famous book, The Buy and Hold Strategies of Real Estate, was still here, I know what he would say because he said it during the last recession in 1990-1995. It would tell us not to worry. This is only temporary and part of the normal real estate cycle.
It creates bargains that can benefit you. This cycle has been going on since Montgomery Ward began offering homes for $1,500 through his catalogs. As sure as the sun rises and the seasons come and go, real estate will make those who own it rich for a period of time. He would add that now is the best time to get great deals on real estate.
The Real Estate Cycle
Real estate is still the best possible investment. It always has and it always will in the long run.
This is the fourth real estate cycle I’ve been through and none of the falls were fun. However, if you have patience and look long term, your real estate will go up in value more than any other investment. Don’t treat real estate as you would the stock market, worrying about the ups and downs.
Since 1929, real estate has risen an average of five percent a year; if you stay away from obvious unappreciated areas like Detroit, it’s more like seven percent a year. At that rate, property values will double in 10 years with capitalization. Add a federal tax benefit of 28% plus state tax deductions, depreciation amortization of rental property depreciation and eventual loan repayment, and you have a strategy that rich people have always used to accumulate wealth.
Over the last 30 years, I have seen many fins that buy, fix and sell. I don’t know many who have a lot of net worth or who are rich because of the exchange rate. It’s just a very risky way to make money.
Those who have prospered are those who are in it for the long-term and patiently watch their properties increase in value over time. This past recession was created by speculators who turned around at the same time, putting too many properties on the market for sale and rent. I guarantee you that in the long run, you will always regret having sold any property you owned.
Buying and Retaining
As time passes anyway, the buy-and-hold strategy is a great way to get rich. Dr. Schumacher experienced at least five real estate cycles and did extremely well, acquiring an eventual net worth of more than $50 million.
You can’t go wrong buying a cheap condo, a townhouse or a single-family home in a good place where there’s work. Make sure you have a fixed-rate loan, make sure cash flows, keep it for 10 to 20 years, and have a property that has doubled or even quadrupled in value. When you need to retire, simply refinance cash to live on or to supplement your retirement pension.
What are your options?
What are your options for creating wealth today? The options are to buy real estate and build wealth or not buy property at all, fight hard and have nothing to show for it.
1. You couldn’t do anything. Twenty-five percent of non-homeowners end up with no assets when they retire. They have an auto loan and owe an average of $9,000 on their credit cards. Those who do not buy rental property may be forced to work after age 65 to supplement their meager retirement income.
2. You may try to depend on your retirement. The table above shows that you should not rely solely on your retirement income to support yourself, because you will not. Those who are in Social Security or in most of the programs of