Focus on "What-to-Buy-When" for Good Real Estate Strategy
Buying property is almost always a good idea-just make sure you know what
kind of real estate to buy, depending on the status of the market, and what
you will gain by owning the property. Looking into the past can provide
some valuable lessons as to when to purchase certain types of property.
Investment property was the real estate "purchase of choice" in the 1970's,
and produced a good profit for those who bought. High inflation meant a
prospective buyer could put as little as $5,000 to $10,000 down and realize
a $15,000 profit per year. A high inflation market provides the benefit of
"leverage." This means if you purchase a $100,000 home with as little as 5
percent to 10 percent down, and your home appreciates in value 10 to 15
percent per year (which was typical in the 1970's), your equity could easily
double or triple in one year.
When interest rates are high and inflation is low, as was true in the
1980's, most investors bought real estate for the tax benefits. A buyer
purchasing a rental property by putting $10,000 down, could realize the tax
benefits of a favorable depreciation schedule and interest write-offs to the
tune of $20,000 a year against taxes. In the '80's with tax brackets in the
50 percent range, it was easy for an investor to receive the down payment on
a property back in the first year from tax write-offs alone. By the late
1980s appreciation was back and investors were buying properties based on
In the early 1990s property values started to decline and there were no tax
benefits. This was often viewed as a bad time to purchase real estate, but
not if you knew what to look for. Distress sales and foreclosures appeared
on the market, allowing investors to purchase properties at prices well
below market value. The early '90s also saw the lowest interest rate in 25
years, which helped increased the benefits to real estate investing.
If you are looking to invest in real estate, don't contemplate the general
question "Is now a good time to buy?" Focus instead on the question "What
is the best kind of real estate investment to make now?" You have many
choices, depending on the economy at the time you buy. Talking with real
estate agents and financial planners, as well as conducting your own
research can better prepare you to make smart investment decisions.
Sources: Casey Samson and The Washington Times.