It is true… “Investment Property For Sale” is a phrase we are hearing a great deal about lately… All the turmoil in the real estate and investment property markets has most people either shying away from investment property for sale or jumping in and buying any investment property for sale they can find.
The fact that opinions vary so wildly when it comes to investment property is not surprising given the recent history of the property market, and the fact that opinions are strong reflects a healthy discussion happening under the surface.
The fact is all markets fluctuate and move based on the opinions of the market participants. Those opinions or beliefs result in specific behaviors. Those who are bullish on investment property become buyers and those who are bearish avoid any and all “investment property for sale” ads.
I am firmly in the camp that believes those signs which read “Investment Property For Sale” are advertising a great deal of value for those who understand what is happening at this point in our financial history. Let me explain…
Many factors influence where you might want to put your money. And by that I am referring to the asset class in which you choose to become a market participant. For example, if you believe large US companies are growing their earnings, you may want to buy a particular company’s stock or an ETF includes several US companies you expect to grow their cash flow. If you believe that inflation is a risk, you may consider buying gold, silver or other commodities. If you prefer no volatility, you may be comfortable staying in the bond market and receiving a 5 or 6 percent return. Perhaps you have an idea that a particular country’s fundamentals, like Brazil at the time of this writing, may be improving so you buy the Brazilian currency (which is currently paying 6.5% returns) because it is becoming more valuable than the dollar.
What do you believe?
Do you believe the Fed and US Treasury are printing money? Do you see the price of real things like gold, silver, and food rising? Do you feel that we as a nation will have to raise taxes to payoff our enormous debt? Are you tired of poor performance from your retirement fund? Do you see poor interest rates on your bank accounts?
If you answered any one or more of those questions with a “yes”, then its time to do something different to protect and grow your wealth.
Remember those “Investment Property For Sale” signs I mentioned above? Good. Because investment property can help you achieve the following:
1. Shield you from inflation
2. Give you tax advantages
3. Give you cash flow
4. Increase your returns
5. Protect your hard earned cash when done right.
Lets take a look at these point by point. In terms of inflation investment property along with rental rates tend to rise right along with inflation. So it you purchase an investment property at say 100k, you stand a good chance at having it be worth more than that in a buy and hold situation. And, at the same time, the rents you would receive from an investment property and tenant situation would also tend to rise.
Tax advantages are great to have as well. Currently, any maintenance as well as depreciation on an investment property in a buy and hold situation can be written off. And, depending on how you hold the property, you may be able to write off those items mentioned above against other income! Be sure to check with your accountant or tax professional for specifics and proper guidance. The point here is that money saved is just as good as money earned. Why not keep more of what you earn?
Cash flow is the life blood of any business and investment property is no different. The rent you receive from a tenant situation can provide above average cash on cash return with very little risk if you structure the deal properly. If you purchase an investment property for 100k and receive 900 per month in rent then your cash on cash return is 10.8% before expenses, but also tax advantages which can give you a higher return! Why would you put money in the bond market at 5%? It makes no sense.
Did you know the average dividend paid on the S&P 500 is less than 2%? That should be completely unacceptable to anyone who expects to retire. Investment property provides a much better cash on cash return than most bonds and most stocks which pay dividends. And with proper insurance on the property your investment can be a wonderful store of value for years with little worry or market volatility. Putting cash into “Investment Property For Sale” may just be worth you doing a little investigating.
As far as protecting your cash goes… wow. You will receive inflation protection with both the price of the property and the rental rates, you can insure the property against loss, you can remodel or add on to certain properties to raise values and rents, you will have a greater cash on cash return than dividends or bond yields which will allow you to grow you nest egg that much faster, and finally you have the ability to realize appreciation and sell into favorable markets.