In the economic downturn of recent years, both the stock market and real estate have experienced unbelievable volatility; so much so that it’s difficult at best to know where to invest for long term financial wealth and security.
And the returns on more conservative investment vehicles like bonds and CDs haven’t fared much better.
In fact, according to the Certified Distressed Property Institute, over the last 10 years, bonds have experienced an average rate of return of 4.46 percent. Certificates of Deposit (CDs), on the other hand, have averaged just 3.32 percent.
What about stocks? At the start of the decade, the S & P 500 Index stood at 1469.25. By July of 2010, the Index had dropped to 1027.37; a decline of 30.08 percent.
So what’s been the best investment over the last 10 years?
And no, I haven’t been drinking.
According to the National Association of Realtors, the average sales price for a single family home in 2000 was $138,000. In the last decade, the average sales price for that same property rose to $179,600.
That’s an increase in value of $41,600 or 30.14 percent.
Yes, we’re experiencing what may well be the greatest downturn in real estate values in our lifetimes. But those numbers are based on appreciation and inflated, speculative values.
What if we valued real estate simply for its cash flow?
For example, let’s say you used your self-directed IRA to go out this week and buy a three bedroom house for $100,000. (Remember, you don’t need to buy a duplex or an apartment building to be a real estate investor.)
You are able to rent the house for $1200/month. After taxes, insurance, maintenance and vacancy rates, you net $700 a month in positive cash flow, or $8400/year.
Over ten years, you’ll have pocketed $84,000; even if rents never increase and property never appreciates.
Can you predict returns on stocks with equal confidence?
Historically low interest rates and a surplus of foreclosures and short sales on the market make this a terrific time to re-examine investing in real estate.
And, as we head into that long Minnesota winter when historically there have always been fewer people shopping for real estate investments; the deals are sure to be plentiful.