We all know what has happened to real estate values ​​in the last five years. Many homeowners who bought at the top of the market have been devastated by depreciating property values. However, we must remember that the main cause of this drop was a very overheated market. In reality, it gets totally out of control. In contrast, those who bought their properties before 2000 had enough capital to weather the storm, and their real estate continues to be a route to financial security.

Every change in economic conditions that affect real estate creates a new opportunity for financial gain. If you currently own your home, this may be a good time to purchase a residential rental property. For those who are in a position to make the 20% down payment required by lenders for investment properties, all other elements are in play for a successful purchase. Interest rates are low, property values ​​are low, and all those homeowners who couldn’t try have created a very strong rental market. There are bargains to be had. Foreclosures, short sales, and other desperate homeowners have produced an exceptionally fluid buying environment.

In years past, the axiom was “if you can rent it for a few hundred dollars of mortgage payment, appreciation will take care of the rest.” Well, that may or may not be true today; at least for the immediate future. If the purchased property can be rented for close to the monthly payment, short-term appreciation is not the primary concern. After all, you buy a rental property for long-term profit. With today’s low interest rates and a substantial down payment, a rental property purchased at the right price and in the right location should produce positive cash flow. Rental rates were flat and even increased during the recession and are likely to continue for the foreseeable future.

Although this is by far the worst recession since the great depression, we have experienced housing market downturns before. In fact, on average, we’ve had property value declines every seven years. Assuming we can return to a sustained growth economy, history will almost certainly repeat itself and a substantial appreciation will occur. There are many factors that determine property value. inflation and supply vs. demand are the main factors. It is highly unlikely that we will ever see zero inflation. If inflation dictates that a home builder has to pay more for materials, he must either sell the house at a higher price or stop building. We keep making more people, but we can’t make more land, so when demand is greater than supply, an appreciation occurs.

This is an oversimplification and does not take into account other economic considerations, but well-located real estate in growing communities is likely to show a substantial increase in value over time.
In short, everyone should diversify their investment portfolio, and today’s real estate market offers a window of opportunity. Be careful and remember the old axiom “The three criteria for buying real estate: location, location, location.”