Return of the Real Estate ROI

Return of the Real Estate ROI


They say home is where the heart is. Ask the experts and they’ll tell you that home is where the profit is, too.

Indeed, many are bullish today on real estate as an investment. Consider the results of a recent poll of American investors by Better Homes and Gardens Real Estate: 89 percent of those surveyed are interested in adding real estate to their investment strategies, 96 percent who have real estate investments feel this strategy has helped them realize some form of financial success, 82 percent believe investing in real estate is the best approach for diversifying an investment portfolio and 80 percent are convinced that one of the greatest financial legacies they could pass on to their family is a real estate portfolio.

Bruce Bronster, partner with Windels Mark, a New York City-based law firm that specializes in real estate, says putting your investment money into housing can be prudent nowadays.

“For the past 100 years or more, real estate has been the most stable investment you can have because it is consistent and it historically has appreciated over this time period,” Bronster says. “While real estate is affected by market conditions, it usually only results in the property appreciating at a lower rate – but it still remains a stable, consistent investment.”

While it’s true that real estate took a hit for many years after the market collapsed in 2008, conditions are now generally favorable for many folks interested in investing in real estate.

“Housing is hot right now because it is cyclical,” says Crystal Stranger, a real estate investor and president of 1st Tax Inc., a Las Cruces, New Mexico-headquartered tax planning firm. “After the 2008 crash, investor sentiment was bearish about real estate but now it seems everyone has overcome their fears and are ready to dive in. This will fuel market gain that will encourage others to get into the market, too.”

Jim Turner, CEO of Pro Agent Solutions in Denver, agrees that interest is high in real estate investing currently due to several factors, including increased home appreciation/values.

“Also, there are a lot of foreign buyers in the market driven by the strength of the dollar, including Chinese citizens wanting to get money out of their country into a hard asset,” Turner says.

Also motivating investors are continued low interest rates.

“Due to the increasing availability of credit in the stable low rate environment, investors have much more access to attractive financing, which allows them to purchase an investment property with a lower down payment and lower carrying costs,” says Alan Rosenbaum, CEO/founder of Guardhill Financial Corp. in New York City.

Interested in adding real estate to your investment portfolio? You can go the conservative route and put your money into a REIT (real estate investment trust), which works like a mutual fund wherein you can invest in diversified portfolios of various properties. Or, you can purchase actual property, like an apartment building, vacation home, condo unit, etc., and hold it for the long- or short-term, depending on your strategy and tolerance for risk. Many recommend buying a small rental building in which you live in one of the units and rent out the others to tenants.

“I’d say the best way to start for most people would be to buy a duplex of some sort, like a house with a granny unit attached or a second cottage on the same property,” Stranger says. “This way, you are nearby, have control, and financing is still possible at low down payments with FHA or commercial loans.”

Turner suggests starting small and making sure you purchase at a favorable price, which can be difficult in the current seller’s market.

“You may have to consider buying and fixing up distressed properties,” Turner says. “I recommend being prepared to hold onto anything you buy for at least seven years, which is how long the market was down in the last downturn. You will also need a healthy cash flow that will cover you over that period.”

Before dabbling in real estate investing, consult closely with experts like a financial planner, tax professional, attorney, and realtor.

“It’s useful to work with real estate agents and brokers in particular neighborhoods that you are interested in,” Bronster adds. “Ask to see rental income properties on the market that can quickly generate revenue, distressed properties you can fix up and flip, or properties right for further development.”

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