Buy a House or rent? Things to consider.

Real Estate-Is it still a good investment?

Tom: I am nervous about buying a house. Is real estate still a good investment?

Steve: If you want to buy a place and try to sell it in 3 years and expect to make bunches of money after your sales expenses….then the answer is no…you should not buy a place and attempt to do that. That was easily done during the go-go years of 2002-2005 where prices went up 20-25% per year. That is much tougher to do today…there are special circumstances where distressed properties can be purchased, repaired and re-sold for a profit…however that is a business…not a hands off investment and it cannot be done without a huge investment of your time.

My wife and I are counseling our buyer clients to make a 5 year commitment to the home they purchase…recent history shows that to be the best way to reduce investment risk….and have a nice place to live at same time. If your question is “Should I buy or should I rent over the long haul?”….. the numbers below add perspective:

Average net worth of Homeowners vs. Renters

Annual income         Owners      Renters

$80,000 and up        $451,200    $87,400
$50,000 to $79,999    $194,610    $25,000
$30,000 to $49,999    $126,500    $10,600
$16,000 to $29,999    $112,600    $4,240
Under $16,000         $73,000     $500

Source: VIP Forum, Federal Reserve Board

Aren’t THINGS REALLY BAD?

Gina: But aren’t things really bad?

Steve: Gina, if you watch the news, there is no reason to continue living….things are that bad. If you are older than 25, hopefully you have a better perspective on reality and spend minimal mental energy worrying about the messages of  doom and things beyond your control. If you do not like the area, if you do not like your job or feel secure in it, if you do not like your current romantic situation, if you want to be able to have a very flexible life and pick up and go at a moments notice, then you should not buy.

The nations economy is not good, no question…however your PERSONAL economy could be great, secure, solid and improving. If so buying a house should be considered. Are we at the bottom? Don’t know. What we do know is that housing inventory is incredibly low right now and homes under 300k appear to have bottomed if they are in good condition and not in the boonies.

Home prices in many areas are at levels that were seen 6 years ago. There is may be more down side in homes over $600k since they are out of range of first time home buyers with no equity to harvest from a previous home …..under $400k home are flying of the shelf and have been since March….that price range is solidly in the strike zone for a couple with 2 good incomes or one excellent one Unemployment in NOVA is half the national average.

All Money Comes Through Here!

All federal tax dollars pass through our area and many stick on the way back out. People come here from all over the world and it is one of the most educated places in the US…we will be the last area to have total financial disaster and rampant unemployment because of the government and all its supporting mechanisms (re: lots of well paid people who need shelter)
Although real estate is not all of life…it certainly is a large part of the American dream….  In what other investment is it likely that you would have achieved that return? Plus you had a roof over your head at the same time. Try living inside your stock portfolio. Do your home work and make a decision based on your personal economy, situation and wants and needs….renting is not going to kill you and it may be just what you should be doing. Prices are not going to soar out of your reach for the foreseeable future.