American Homeowners Association Membership  
American Homeowners Association


 

 

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 that.

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 tok 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.

Copyright © 2001, AHA, the American Homeowners Association, Stamford, Connecticut, USA All Rights Reserved.