Trends In Today’s Real Estate Investment
Although real estate has appreciated by 12.4% every year between 2001 and 2006, some people still believe that investing in real estate is a rather risky venture. Let’s take a look at the perils of real estate investment.
What are the risks of investing in real estate property? In a given year, housing accounts for approximately 15% of gross domestic product. In 2006, home ownership in the United States reached an all-time high of 68% with more than 70 million Americans who own their own home. If you want to be part of the statistic which shows the number of Americans that own their homes you must pay very close attention to the trends present in today’s real estate market.
Current Housing Trends
The current housing trends can be either good or bad. Such trends include foreclosures, flipping houses, purchasing a newly constructed home, and interest on housing loans. Let’s examine both sides of these trends.
Foreclosures are homes or properties that have been repossessed by the bank because the previous owners were not able to make their payments. Due to these reasons the home is often auctioned at a price much lower than the market value which means you could purchase the home at a great price. However, foreclosures are a rather slippery slope because foreclosures are often sold “site unseen.” So, as a prospective home buyer you have to take into account the costs of any repairs and renovations that would have to be made. If you purchase a foreclosure that had a lien for unpaid property taxes, as the new owner you may be held liable by the county or state to pay all taxes that are owed on the property.
Flipping houses is when an investor purchases a rundown or foreclosed home, renovates it, and sells the property for a substantial profit. Investors often walk away with about two to three times what they put into the property, which is a great return on their investment. The downfalls involve a lot of work and potential money that has to be put into the property. When trying to renovate older properties keep in mind that these homes may have major problems in the foundation as well as mold. Remember if you flip a house too quickly and don’t place the profit you gained from the sell into a similar investment your profit will incur a capital gains tax.
Purchasing a newly constructed home is everyone’s dream especially since everything is new and shiny with state-of-the-art amenities. These homes are much larger and will often appreciate much faster than existing homes on the market. However, newly constructed homes tend to cost drastically more than existing homes.
Interest only loans require you to pay the interest on your home for the first 5, 10, or 15 years of the loan. This is great because the payments are considerably lower and your payments are 100% tax deductible during this period. You can potentially get a great return on your investment if your home has appreciated and you decide to sell it within your interest period. Along with these benefits are major setbacks. Your house payment could double once you begin to pay the principal and you could owe more than what your property is actually worth if the market levels out.