Before I get into any "meat", I'd like to apologize for my complete lack of posts in the second half of 2011. I promise to make much stronger efforts to continue writing through 2012!! Hope you all come back to read!
My thoughts today are aligned with the many homebuyers out there who are looking to take advantage of the current market conditions and get into property for a STEAL..... often less than the home cost to build! My advice for you is this:
Betting on appreciation by "buying low" is, in the end, still betting. Nobody can guess where real estate prices are heading or we would all be millionaires. Yes, prices are incredibly low relative to historical statistics and it seems like a very good time to buy. Yes, interest rates are low and it's a fantastic time to borrow. However, history has taught us to expect the unexpected. Things can go from bad to worse and, yes, it's foreseeable that real estate prices could go down even further than we've already experienced. Foreseeable, not likely (in my opinion).
That being said, I would still encourage my own family and friends to buy NOW. In order to hedge some of the risk, I think the best move for current homebuyers is to purchase a well-maintained, newer duplex. I understand that duplexes have their downsides; you share a wall with your neighbor and you inherit the role of landlord by being an owner/tenant, to name just a couple. However, you have a tenant paying a large portion of your mortgage payment, all the while holding onto a valuable asset that has potential to experience appreciation. In this market, you can likely find a short sale duplex that you can buy for less than it would cost to replace..... this basically eliminates the chance for any significant depreciation in value. The great part about appreciation in a multi-family property is that, as owner, you experience the rewards immediately through increased rents! No need to refinance or sell the property to capture some equity! As rents increase, so does the value of the property.... This is inherent in "Cap Rate" calculations that investors use in valuing income property.
This is also a smart move for current renters. Why give away your money to a landlord when you can become your own (and somebody else's), for close to or even less than you're currently paying in rent? Further, you get to experience the tax advantages of home ownership! However, it's important for anybody making the move from tenant to landlord to fully understand the hidden costs of home ownership and make sure they have the financial resources available in order to do so comfortably.
If you are looking to buy a personal residence, and your financial situation allows, don't let the American "dream" of big yards, big cars, privacy, and all the other "benefits" of single family ownership deter you from a fantastic investment opportunity in multifamily living! You and your family can sacrifice a little bit of privacy & comfort now, for the benefits of financial freedom down the road. In the words of Dave Ramsey, “If you will live like no one else now, later you can live like no one else.”
