Real Estate Investments
Even today, real estate is a great investment when done for the right reasons. The problem in real estate occurs when one’s goal to trade a home versus buying a home to live in. Although many experienced real estate investors are able to find hidden values in properties, most individuals should focus on purchasing a home with the intent of holding it, even if for only a couple years. Real estate investments usually do not come to fruition over several months or weeks, but normally involve an extensive waiting period in order for values to increase.
Mortgages for homes come in all varieties, although the general premise is essentially the same. Each month, you pay off a little of the principle and, within 15-30 years, you will have paid off the entire amount, leaving you with ownership of a debt-free asset that should continue to appreciate in value over time. And when you borrow at a fixed rate, any future increases in interest rates means that you are paying off future debt with cheaper currency. Think of it like a bond: if you buy a house today at a fixed interest rate of 5% and five years later rates are 8%, your cost of debt is a lot cheaper than it is for the present day borrower.
Like land, home prices tend to increase in value on an average year-over-year basis. Real estate bubbles are usually followed by correctional periods, sometimes causing homes to lose over half of their value. But on average, housing prices tend to increase, counteracting the effects of inflation.
Rather than holding money in a saving account, which will cause a major loss in purchasing power by retirement, real estate investments have the opposite effect. Owning property isn’t always easy, but there are plenty of perks.