While different financial analysts are arguing if real estate is still a good investment, and if people could get rich faster by renting homes vs. buying them, I would like to share my opinion here:
I think the question should be: WHAT TO BUY?
Aren't you concerned about protecting your savings from inflation? That's what I would worry about if I had a few hundred thousand dollars sitting in the bank, loosing its purchasing power and not bringing any interest!
- Do you wish you had some successful business with steady revenue, so you could afford more fun today, instead of diligently paying your mortgage and awaiting for your house value to starts growing again..?.
- Do you really need to live in a big house or condo if you don't have a big family and do not plan on having children?
- What is your income tax situation?
These and many other practical questions should be asked prior to making an investment decision or changing your current housing accommodation.
I strongly believe that real estate is the only REAL investment which can keep making money regardless of the market condition.
If you are looking for a short or long-term money-making opportunity, investing in income property could be a very wise step. Any type of property is an income property when it is rented out.
1. Condominiums.
Most of the times this is NOT a very good investment, regardless of whether you want to rent it out or to live there yourself. Unless it is a brand new construction, which won't require any significant repairs withing the next 10 years, and has a very reasonable (under $300/month) HOD (aka as maintenance fee), try to stay away from it. Keep in mind: when the market fluctuates - the prices of condos are the last to go up and the first to go down. You will also be extremely limited in the improvements you could make (nothing outside the door of your unit. Often some changes inside the unit may require the permission of the homeowners' association). In some cases you may not be allowed to use your condo as an income property. There is also another factor to consider: most of the condo complexes would not allow any pets. A huge number of renters, who are looking for a home outside of the traditional apartment buildings, do have pets!
2. Single Family House:
Excellent Investment opportunity under the following conditions:
- it is located in the area with strong demand for rental homes among the high-income professionals.
- the minimum projected rent should cover your mortgage, property tax, insurance, other expenses.
- you have enough reserve to pay all expenses if there is a vacancy for a couple of months.
- you need more tax deductions. Talk to you accountant about what deductions you would be able to have with income property (vs. owner-occupied home).
3. Owner-occupied income property. This could be any property with more than one unit. The most popular (especially among the first-time buyers) are duplexes.
Good choice! The main problem here: there is an extremely low supply of relatively new construction multiple-unit homes (2-4 units) in the good neighborhoods. The prices for this type of property are not that susceptible to different market condition. They do grow though, but over the longer period of time. The major factors in the re-sale would be the amount of rent paid by the tenants at the time of sale, and the physical condition of the property.
4. Commercial property. Not the best type of investment nowadays, unless you're going to use it for your own business needs. Keep in mind that many businesses are going on-line and do not need any space to rent any longer. There is a huge vacancy number in the commercial real estate throughout the entire country today as the market is clearly over-saturated.
So I would say: renting in addition to buying could be the best business decision you've ever made. Do not allow your savings to go down the drain by doing nothing these days.
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