Why invest in real estate?

Why invest in real estate?

To answering question one from our last blog entry you have to ask yourself what investment vehicle can I get into and what kind of a return can I earn?

Three of the most popular investment vehicle available to almost everyone are:

1. Invest by putting your money into a cd or moneymarket account

2. Stocks or mutual funds

3. Real estate

Lets say you have $10,000 to invest when you start for the sake of numbers. (Each of these investments has a much lower cost of entry if that is your situation.)

CDs and Money Market accounts - you may be able to earn 5% in these very safe and stable investments. Over 5 years that would equal a $2,762.82 return. Which you would then pay taxes on as this is earned income.

Stocks and Mutual Funds - A good mutual fund or stock fund might return 10-15% per year on average.(You could have 5 straight down years or 5 straight up years or maybe something in between.)

On $10,000 that would be a return of $9496.64 assuming a 12.5% return each of the 5 years with no up or down fluctuation. Which you would pay taxes on if you were to sell those investments. These taxes would be on the appropriate capital gains rate at the time you sell.

Real Estate - A $10,000 down payment in Real Estate should allow you to buy a $100,000 property. This would be with a 10% down payment. Yes, I know there are closing costs but you can usually have the seller pay those for you. Especially in todays market. The average annual rate of return on Real Estate in The US over the past 40 plus years is 6.65%. Since this is on the total value of the real estate, $100,000, not just the $10,000 that you put down your return over the 5 years would be $41,067.93. You will pay taxes on this capital gain at the time you sell unless this has been your primary residence for 2 of the last five years than this should be tax free income or if this is an investment property and you do a 1031 exchange. Please note that I am not a CPA and these numbers are only examples. You should consult your CPA for any tax information or questions you may have on your personal senerio.

Yes, I am partial to real estate. Not just because I am in the mortgage business but because the numbers make sense for me.  That is why we invest in real estate. You need to run your own numbers and see if it makes sense for you.

Don LaPlume