Investing your cash: reality or vault?

The price of housing has almost doubled in the last ten years, but still, is the bank a safer bet for your savings? There are many articles written lately urging the public to ‘invest’ in real estate. These investments are suggested in a variety of ways: for example, as a second home, as housing for your out-of-town college student, or as a savvy opportunity for a first-time buyer.

The reasons given for the ‘invest now’ message are twofold. First, mortgage rates are still very low, and second, the cost of ownership has gone down. Certain. Or more accurately, the cost of ownership is falling, falling, falling. Is this well-known continuing drop a good buying climate?

A company called Global Insight recently released figures reporting that seventy-five percent of US housing markets have shown reduced prices for the third consecutive period. They based their research on 262 of 330 housing markets.

Thus, three-quarters of the known real estate markets in the US are experiencing continual price declines, and no one wants to buy a home that may fall further. Much of the business savvy in real estate investing is catching the market when it has finished dipping to its lowest point and is just beginning to rise. There is no guaranteed formula for knowing this!

As the market continues to fall, many savvy investors are holding off, for now. This means that there are even more properties on the market that will be snatched up in a heartbeat when the real estate climate changes course. If you are planning to buy a property at a good price, the first thing you should do is prepare your finances and choose your real estate agent.

If there are signs of a rally, experienced investors will come first with their cash trades. Obviously someone who hasn’t been approved yet won’t do well in this competition, so get approved. To get the ‘first pick’, choose your real estate agent carefully. An enthusiastic agent will review exactly what you’re looking for and have access to each listing before you do.

Perhaps even before planning the “how” of buying an investment property, you should review the “why.” Would you be investing for a quick profit or is it to build your financial portfolio?

If it’s a quick profit, you may want to discuss some figures with an accountant or tax professional. Costs to consider could include: the sale price and approximately 5% of the closing costs. When you resell, you must deduct approximately 8% of legal and sales fees and the cost of mortgage interest from the markup. You may also have to pay a penalty to the lender for early loan release and renewal costs.

There are plenty of other numbers to throw into the equation, including capital gains tax and mortgage interest rates, etc. However, an experienced professional can also advise you on ways to avoid some of these losses (giving the property away before selling it, some mortgages offer tax breaks, etc.).

If the property is for long-term acquisition, it is easier to make a profit; time is always on the side of real estate investors. During the last ten years, house prices have almost doubled, despite the current situation. There is no bank that gives such good returns on your savings account.