It’s becoming cliche to say “it’s been a big week!” in the financial markets. Let’s be honest, we’re getting so used to the highest highs and lowest lows that there is no normal. Conventional wisdom seems tone deaf when the world is watching Yellowstone collapse under the weight of water while here in California we are in an exceptional drought.
So perhaps a simple reminder is useful in times like these, to ground ourselves and remember which way is up. Ready for it?
Real estate is still a great investment.
Now, now. We can hear the protests already.
“Interest rates are rising faster than the banks of the Yellowstone River!”
“The California Bear has nothing on this week’s stock market!”
Okay, enough with the dark puns. Our world is complicated, but the fundamentals of our economy remain the same, and it’s important to remind ourselves what good financial planning looks like:
1. Diversify. If your retirement is solely in the stock market, consider investing in other markets (like the real estate market) to hedge the risk of a downturn when you need the money most.*
2. Be like Warren Buffett and utilize the thing that we all have…TIME. In an appreciating market, an early investment can pay off in short order. Better to buy the condo or starter home today, than to wait for the “perfect” house one day in the future. The early investment will act as a launching pad for future ventures, particularly in real estate.
3. On average, real estate appreciates 3-5% each year, on its own. This means, any improvements you make to a home will increase the value beyond the 3-5%, and there are few investment opportunities that allow this opportunity for relatively quick appreciation.
4. Real estate enjoys tax advantages that most investments can’t even touch. Whether it’s a primary home or an investment property, the opportunities here outweigh nearly anything in the stock market.**
5. And in California, Prop 13 allows a home owner to essentially lock-in the assessed value of a property upon purchase - no matter how long that asset is held.
6. If you own property, you can elect to rent it out in the future and cash flow, or leverage it for another purchase - it’s a remarkably utilitarian investment.
7. Last but not least, a house is more than an investment - it’s a home. A shelter, a place to create memories and community. A place where you can express yourself and rejuvenate. No other investment is like it.
At a time when rents are increasing nearly as fast as interest rates, it makes little sense to pad your landlord’s pockets if there is any way to scrounge up a modest down payment.
Instead, reach out to your advisors (tax, financial, and real estate - us!) to see what’s possible.
*We are not financial planners. Do your own research.
** We are not tax advisors. Do your own research.