Bob O'Brien
Head Instructor
bobrien@mywealth.com
There are a lot of people out there that purchased homes at very elevated prices at the peak and near peak of the real estate bubble and are now walking away from these homes simply because the values have dropped so much. It is one thing to foreclose when, you have lost your job or suffer a severe financial hardship beyond your control, but I think walking away just because the value dropped is a big mistake!
First of all, you may totally destroy your credit score for years and may not be able to buy a home or get credit of any kind for a long time. In addition, you may not be able to take advantage of some of the opportunities that may be just around the corner in the real estate market.
Let’s say for example, you purchased a home for $300k in one of these areas like South Florida, Las Vegas, California or Salt Lake City where prices really went crazy. Let’s also assume the market value of the home is now about $100k and may even keep going down for a year or two. If the area is still a quality area that attracts people and the industries are still solid for the long term you can then go buy one those properties assuming you have the credit and your financial house is in good order.
This may make a lot of sense, and it will reduce your total average cost in the overall real estate investment. From the numbers above: You purchase one property for $300k, and another for $100k and your total average cost is $200k. The market gets back to $200k and you are even! ($300k + $100k / 2 = $200k)
Great stock investors have used this strategy for years. They buy a stock, it goes down a little then they buy a little more at a discount. It can work with real estate too, but you have to do your homework and feel confident that your area will continue to attract new people.
There may be some nice appreciation in Real Estate over the next 10 years, after we get through this economic mess. Ninety-five percent of the financial experts and economists are not debating whether there will be heavy inflation, but when there will be heavy inflation. Real Estate historically has been a good hedge against inflation. Sean had a great blog last week on the wave of inflation that we will most likely be hit with, and other ways to invest as well. http://www.mywealth.com/blog/post/get-ready-%E2%80%9Cfed-induced%E2%80%9D-period-inflation
It is also very likely that we will see legislation out of Washington that helps the Real Estate market, such as credits and rebates. We will probably also see an immigration bill which will have a positive effect on Real Estate as well.
Finally, Real Estate investments have incredible tax benefits. This is a major reason why people love Real Estate as an investment. Your net losses on rental property can be used to offset ordinary income, and you can have net losses while the property is appreciating!
Remember this article is intended for educational and informational purposes only and not to make investment recommendations. Each Real Estate market is different and there are many factors to research and consider. Every investment should be looked at very closely by the individual that bears the risk and reaps the rewards.
If you would like help getting your Financial House in order check out our Financial Planning course! Or the Investment course for even more in depth strategies!
I look forward to seeing you in the course!
Sincerely,
Bob O’Brien
Sr. Instructor
