• Lisa Allen

Will real estate save me? Yes and no

My hairdresser was asking me about investing for retirement. I said, simply, "stocks and bonds."

"Really? What about real estate?"

The answer has a few parts to it, thus the 'yes and no' to real estate.

Yes, own the home you live in

First, the best investment is to buy a house and live in it. Buy a house you love in an area that you love. In that case, location doesn't matter as much.

Next, keep your home maintained and fresh over the years. After all, who wants to live in a dump? You deserve to live in a nice place, whether that's a 700-square-foot cabin or a 4,000-square-foot manse. I'm always flummoxed by people who spend thousands to fix up their homes in order to sell them. Why did they wait? I haven't the foggiest.

So, you have your home that you own. Excellent. That's a real estate investment EVERYONE should make. Own what you live in. You have to pay to live somewhere, so make yourself your own landlord.

Here's why:

If you want to move into a bigger, better home with good schools as your family expands, that starter house you have built up the down payment you need for your next house.

I've owned four homes. The first one I bought for the ridiculous price of $28,000 in an industrial Midwest city. Four years later, I made $4000 on it, which I used to put 10% down on a $40,000 home. I sold that three years later for $50,000. Nice windfall. Now I have about $15,000 to put on a $100,000 house. Even after nine years, I sold it for only $115,000, but the mortgage was paid down to $68,000. Now I have $40,000 to put in a $200,000 house.

See? The cash comes out of the sales while I'm making mortgage payments I can afford.

Read the last part of that sentence. Mortgage payments I can afford, not what the bank says I can afford. Truthfully, they don't care if you have to eat tuna and ramen to make your payments. You chose to do that. They didn't make you.

Also, when you're in the last house of your life (grim, but with life comes death), your heirs will reap the windfall of that property sale. That's generational wealth. It's a big leg up for your children.

No, don't buy investment property

That's my opinion and it's only gotten firmer over the years. As I've told clients, the problem with real estate (even the home you live in) is that in order to get your money out, and hopefully a profit, three things have to come together: The right buyer at the right time willing to pay the right price. That's a lot of things that have to align at the same time.

In the meantime, you have to maintain the property, insure it, and pay taxes on it. If it's rental property, you also have to find tenants over and over again. If it's vacant land, it ain't generating any income.

Conversely, if you have a diversified portfolio of stocks and bonds and you need cash, chances are good that something in there has made a profit and you can sell it right then to a willing buyer. It's easier to find the right buyer at the right time at the right price if you have a lot of assets from which to choose.

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