Buying a home is never a bad investment decision. Despite the struggling and soft U.S. economy that sprouted up because of the housing bubble burst in 2007, real estate remains a solid investment for 3 primary reasons.
1) The market is cyclical
The real estate market has always been cyclical. If you look back to years past, the bubble burst in 2007 is not the first foreclosure crisis that has occurred in the U.S., and it will not be the last. The real estate market has proven that it will recover with solid numbers despite poor national economic conditions. In fact, is one of the driving forces in economic recovery, second only to national employment levels.
Take the dot com bubble burst in 2001. Everything about it had the recipe for disaster written all over it when it came to an impending recession. The only reason the economy survived and thrived after that 2001 speed bump was thanks to the real estate market. All of the investors and shareholders that put Silicon Valley on the map were (you guessed it) homeowners, and they were homeowners with quite a bit of equity. The real estate market was the single barrier between a light financial downturn and recession for the country. Because the real estate market was stable, there was money available in equity to secure new investments and keep the U.S. far from financial collapse in private industry.
Even in the wake of the housing bubble burst, it has taken only a small blip on the radar of time before we have seen the real estate market inch toward recovery, but those inches often turn into feet almost overnight.
2) You will net a profit…if
The goal when purchasing your own home as an investment is to sell for a profit when the time comes. The amount of profit you will net will be greatly dependent upon the location of the property, the amount of money you have placed into the property in repairs and upgrades and the ability of your neighbors to maintain in repairing and upgrading properties nearby.
Buying the nicest home in the most economically depressed area, for example, will rarely return a solid investment, as dilapidated shacks surrounding it will detract from its value. The best advice I can provide (having worked as a real estate agent) is to purchase the smallest, nicest home in the nicest area, and allow the larger homes to enhance its value over time. If you buy less of a home than what you are told you can “afford” by a lender or real estate agent, you will have freed up money in your budget to complete maintenance, repairs, and upgrades on the home, thus enhancing the value and increasing your return on your investment.
3) You buy at the right time
Just like stocks, with real estate you want to buy low and sell high. Of course, this does not mean just buying a home at a low price. The lower interest rate you have, the more equity you build in a shorter period. Spending additional money or receiving incentives to further lower the rate, puts you in an even better position financially and to receive a good return on investment when you sell a few years down the line. Buy when prices and rates and low, and sell when prices and rates are higher.
Remember, in real estate, one should expect to live in a home for at least 5 – 7 years before they can expect to receive a profit from the sale. Having patience with real estate, pays off with solid rates of return on your investment when markets are stable.