Is Residential Real Estate Worth the Investment?

With the housing boom of the past recent years, real estate was the place to ensure a good return on your investment. With the birth of widespread consumer credit after World War II, more families could afford to buy a home with the assistance of long-term financing. According to the U.S. Census Bureau, real estate has consistently increased in value from 1940 to 2006, then proceeded to dip and rebound from 2008 to 2010. Of course, the rebound hasn’t been consistent across the nation.

Not only have people been eager to buy a home rather than rent, but years later, people have turned “flipping” houses into lucrative money-making careers. Because the price of houses was continually on the rise, a purchase today meant an increase of profit tomorrow. The potential relationship components and property maintenance involved make this type of investment is more complicated than investing in stocks and bonds.

Because the price of homes and interest rates has been falling, it is a good time to invest in real estate if you are able to hang onto your investment.The hope is the property will appreciate in value over the course of the mortgage, leaving the landlord with a more valuable asset. This is the time to buy but not necessarily the time to sell.

However, the main determinant for a successful residential real estate resale is its location. In considering holding onto real estate for the long-term, take time to acquaint yourself with the area’s trends to help determine the direction of the investment. If you don’t have the makings of a landlord, consider hiring a property management agency to take your place. In considering an home to purchase to operate as a rental, a general rule of thumb is 11 months of rental income should be able to cover 100% of all your expenses, including taxes, maintenance and insurance.  This way, 1 month per year can then be received as income or be a cushion for vacancy. Ideally, have the rental property mortgage paid off before retirement so that the income is then available as passive income during those years.

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