Has real estate been a good investment over the last decade? Many people would be quick to answer ‘no’ to that question. However, they would be wrong. Real estate prices in this past decade have appreciated nicely despite the challenges over the last four years.

Forbes.com reported on this issue two days ago:

With all the teeth-gnashing over the real estate bubble, the bust and the mortgage mess, you can be forgiven for failing to notice this little tidbit: Housing had a superb decade.

According to Radar Logic, the value of a square foot of housing in the U.S. is up 58% from its January 2000 level. That represents an average annual gain of 4.3% in the value of one square foot of housing. According to the Case Shiller Pricing Index, home values are still up 34.9% over 2000 prices.

How did real estate compare to the stock market? Forbes answered this question:

The growth in average U.S. housing values looks pretty impressive compared with that of other assets, especially stocks. The S&P 500 is lower now than it was in January 2000. So is the Nasdaq. Even factoring in inflation, which ran between 2.5% and 3.5% for most of the decade, a home purchase really did produce wealth for anybody who opted to sell some stocks and buy at around the time the dot-com crash got rolling.

Bottom Line: Even in what many consider a sub-par decade for the housing industry, real estate proved to be an excellent investment.

 

The Bottom Line: Rents Now Cover Mortgage Costs!

Posted on 02. Feb, 2010 by Marc Courtenay in Real Estate

 Few investors have noticed that rents are finally covering mortgage payments again in residential real estate. In many regions for the first time in years, rental income can pay the mortgage on smaller residential properties. We’ve waited a long time for this opportunity. We have several friends who steadily became “high net worth investors” while creating significant income for their families. How did they do it? They did one thing right multiple times. They bought rental properties over the years whenever the rent exceeded the mortgage payments. They started during times like these.

Then with the help of inflation and leverage their money grew exponentially. Here’s how that works. If you believe the government is willing to devalue the dollar, then buying a rental property where the rent exceeds the mortgage payment is very sensible.You see if inflation arrives and the dollar’s purchasing power keeps crashing, that little $100,000 rental property might someday be worth $175,000. It happened in the 1970s and it will happen again.

As the value of the house goes up with inflation you can keep increasing what you charge in rent. And if you buy it with a fixed-rate mortgage, then your cost in dollars will stay the same. Yes, your mortgage costs are fixed and your rent can go up while the value of the property rises. By buying a rental property with borrowed money (a fixed-rate mortgage), you’re doing what my wealthy friends did… using inflation and leverage to create great wealth.

As Dr. Steve Sjuggerud recently wrote for The Daily Wealth (www.DailyWealth.com) “Your total return on the small amount you put up for this deal could be extraordinary.”

 “Your downside risk is simply that you tread water… since your rent covers your costs. (Of course, there are rental property maintenance issues to watch out for, too.) Your upside potential is huge – in both price appreciation and future rent increases.”

 The facts are:

• Housing prices have fallen at least by a 30-50%
• Mortgage rates are the lowest in many decades.
• The government is doing all they can to support home prices.
• The government is printing money generously which can cause inflation.

We can take benefit from inflation and leverage. When we see the numbers and how much we can make on our investment, it’s exhilarating.