I received a question last week on the MET Group. The question was titled “Was My Mother Wrong?” Then today I was reading an article on the Wall Street Journal website titled “Is Your Home A Good Investment?”
They both seem to be about the same topic and come back to an age old truth: no one can predict the future. Real estate just like other investments, are cyclic. It will go through periods of great run as well as declines. Unfortunately, now we are in a tough time to be owning and investing in real estate. Will it get better? Yes. Will we have a run up similar to the past decade or so? Yes. When will this happen? Who knows.
Real estate is an interesting investment because we are all taught that a huge step in life is buying your own home. A lot of people believe the next step is paying it off to become debt free (if that’s what you believe debt free is). So how do you judge this as an investment? I’ll leave rates of return to the Wall Street article above.
The trouble is today all the bad information is in your face. People have to deal with it. It was easy when there wasn’t a record number of foreclosures because people could say ‘oh that won’t happen to me’. Now just about anyone knows that they could lose their jobs, something could happen and they would be one of the people you are reading about. How can you truly prevent becoming a statistic?
Planning. Your house is a financial product. It needs to be integrated into your velocity of money. If the way in which you spend money on your house and invest in it is not coordinated with the rest of your financial affairs you could be setting yourself up for failure. One of the best books I’ve read on managing the investment of real estate is “The Last Chance Millionaire” by Douglas Andrews. This book is a little over the top and I should put the disclaimer of don’t try this at home on it. However, it is a must read for so many reasons.
Now to take a step back. A house, as with many investments nowadays, is not the perfect, best investment for everyone. When managed properly though, it can give you great opporunity. How are you going to figure out how to manage your investment properly?
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Your house really is an investment property, no matter how you look at it, and it needs to be maintained as such. A property management company can be a great way to accomplish this, but if you don’t have the money then it’s important to keep up with maintenance on your own.
Nice article, CJ. It helps add a much needed perspective on looking at your house (and, your mortgage debt, in particular) as part of your overall portfolio.
I have known too many people who are more concerned with applying extra money toward their principle than with maintaining adequate cash reserves.
John Scott Smith
http://twitter.com/johnscottsmith
Here’s a direct link from the above comment…
http://real-estate-investing.explainedonline.net/2009/05/28/parents-know-best/
Good blog post on real estate taxes. Makes you think.
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