Should I Still Buy Real Estate?

The stock market is at the same level it was in 1997.
DJIA was 14,066 10/07.
DJIA was 11,220 9/08.
DJIA was 7,350. 2/09. (decline of 48%)

My biggest fear of investing in the stock market is that I have no control over what happens to my money? Do investors really know what is happening? All we hear is CEO Greed, Million Dollar Corporate Bonuses, Poor Accounting, and requests for Government Bail Out Money.

I’m just a small real estate investor and I still like real estate.

I Have Control

I can see it…use it…touch it…. make changes ranging from painting a room in my rental house a different color to changing the entire use of that outdated motel I bought in the Midwest into an executive office suite. These decisions are mine to make. I am not at the mercy of some unknown investment vehicles created by hedge funds and exotic financial vehicles. I had one stock broker tell me was selling financial products in 2006 that he had never heard of and people were clamoring to purchase them.

I’m a small investor. I have always put 20 to 25% down, using the bank’s money for the balance. Real Estate has declined somewhere between 25 and 50% in the last three years depending on the area.

Rents have declined approximately 10% due to rising unemployment.

Quickly do the math above and you will see real estate is still a good opportunity.

Real Estate owners worst case scenario would be to put down 25% of the purchase price, obtain a loan for 75% from the bank and the rent does no more than cover the mortgage and expenses. Assuming that the rent never increases and the house never goes up in value, I own it free and clear 30 years from now, I have saved on income taxes because of “paper depreciation” and I have made no additional cash contributions because my tenants have made the payments for me.

This is my worst case??????? If I start at age 25, and buy a house every couple of years ‘til I’m 35, think how much I’ll be worth by the time I retire. I’ll be doing great! And with no more mortgage payments to make, I should have a pretty tidy monthly income to boot.

I am currently renegotiating some of my rental units to a lower rental price in order to keep my tenants. A Vacancy costs money!

With my houses…I will keep renting them to folks like you and me…they want a place to live that is clean, comfortable, and a reasonable value for their rent. Entry level housing…3 bedrooms, 2 baths, nice back yard for a bar-b-q…Middle Class America…not a bad thing to invest in. I’m talking about single family homes, maybe a duplex or fourplex, rented to working families with a couple of kids. I also have gotten some great tenants that have lost their home to foreclosure. Many landlords shy away from those tenants, but they have been homeowners and more likely to take good care of your property.

I don’t feel someone that has lost their home in the current economic situation is a bad person. It’s one of the consequences of the times.

So what are the choices for retirement funding? IRA? 401K? Company Pension? Each is based primarily on the stock market, and I think that by now we’ve all heard enough to shake our faith in those retirement vehicles. How about Social Security? Is it more than just a play on words that many now refer to it as “Social Insecurity” and speculate, not on whether, but on when, it will be bankrupt?

Now, don’t get me wrong. I know real estate investment isn’t perfect. Nothing is. There can be vacancies; there is maintenance (tax deductible of course); a troublesome tenant once in a while (Check out my other article “Horror Stories in Real Estate”). But even here, you have control, unlike with stock where all you can do is buy or sell. And don’t forget, you are in it for the long haul.

It’s a great time to purchase real estate. Interest rates are at an all time low. There is almost no new construction being planned due to poor economic conditions. Once we get some of the economic problems solved, there should be a lot of pent up demand for real property.

People have to live somewhere. It might as well be in one of my (or your) houses.