| Why invest in real estate now? Some first time investors are concerned about getting into the real estate
market late in the game. We've seen 50%+ appreciation rates in some
markets, but the future expectations are 6%-10%. It is true that real estate
sales have slowed down in many markets, but some markets have not been
significantly influenced by investors and will continue accelerate because of
business and population growth.
Even in markets that have slowed, we would argue that real estate
investments make more sense than many stock investments.
Example:
If you invest $300,000 in the stock market in 2006 and received a 10% annual
return, you would earn $30,000 and have an investment of $330,000.
If you put down $300,000 on $1,500,000 on real estate (20% down), and
assume a conservative 6% annual appreciation rate and a 10%
cash-on-cash return, you would earn $90,000 in appreciation and $30,000 in
cash flow for a total earnings of $120,000. That's a 40% return on your cash
investment. And this does not include tax benefits from depreciation
write-offs!
This example shows that real estate is a very lucrative investment, even in a
conservative stable market. |