Real Estate Wins
So you have $100K. What do you do with it?
You could put it in a money market savings account with an average return of 0.30% APY. After one year you will have earned $300.
You could put it on a CD with an average return of 0.50% APY. After one year you will have earned $500.
For an IRA, you are still looking at 0.50% APY. After one year you will have earned $500, but withdraw it early and you will be taxed heavily.
You could buy gold as the commercials will tell you, but gold has doubled in price over the last 2 years and this isn’t 2009.
You could give it to your broker to invest, but the stock market is turbulent and if you are getting a 4-5% return, you are doing better than 95% of investors. After a great year in the stock market, you will have earned $4,000 – $5,000.
But if you take your $100K and buy a bank owned property. Let’s say you find a 3 bedroom house in a decent neighborhood and negotiate with the bank for $90K. You spend another $10K on closing costs and fixing the place up. You can then rent it for $1200 per month. In this example, you don’t have a mortgage, since you had $100K to start with, so you only pay taxes and homeowner’s insurance. Say your taxes for the $90K home are $2000 per year and insurance is $1000 per year. Your monthly expenses are $250 per month. Your gross income is $1200. Your net income is $950. After one year you will have earned $11,400 for an 11% return on your $100K. Where else are you going to get that kind of return?
Real Estate also has the advantage of tax breaks through paying a mortgage or deducting expenses on the property. Appreciation is a thing of the past, but if you buy under market conditions and have the cash flow to hold it for 10 or more years, you will make money when you sell it.
Even in the Great Recession, Real Estate still wins.