How To Make Today’s Real Estate Market Work For You
Between 2001-2008, many people saw their 401k’s either shrink or stay the same as they were 10-11 years ago. Can investing in real estate help you to grow that? And what do you need to know about today’s market before buying?
“Markets are changing a lot. You have to pay attention to the details of what’s going on because it affects your bottom line and your pocketbook.”
Just as the weather goes through a repetition of seasons, the real estate market goes through cycles. “It’s known as the Garrison Cycle,” explains Jared. “It starts with Expansion, where you see new buildings going up. This is followed by Equilibrium, then Decline, and finally to where we are right now – Absorption.”
So what do you need to understand about today’s “absorption market” before investing? The first point I want to make is that we are talking about diversifying a portion of your portfolio.
It’s never a good idea to put all your eggs in one basket, so to speak. Which is why we start with 20%.
I always advise my clients to build a team of advisors. That way you can sit down with your financial planner, CPA, and real estate agent to work together on designing a total investment package that takes into account the BIG picture of your RichLife. Gaining a slice of the real estate pie could be a part of that picture, and a great way to boost your overall rate of return. Here’s what advisor Jared Garfield says you need to know:
“The QE3 IRA loan enacted by the government is really having an effect on today’s market. It’s going through a shift. This ‘Quantitative Easing’ piece is basically giving mortgage securities $43 billion, with a promise to keep short term interest rates low for another 3 years, or until 2015.”
“What this means is that there is an extra $43 billion dollars out there flooding the market. Inventory is down now from what it used to be. Houses that were selling for $35,000 a quarter ago, are now selling at $40-$50,000.
In other words, we’ve become a seller’s market.”
But it’s not too late to get a good deal on a loan. As part of the QE3 package, interest rates are at an all-time low:
· 2.77% for a 15 year mortgage
· 3.49% for a 30 year fixed.
It’s going to be a little more difficult to find those houses, but once you do, you’re going to get a great loan.
If you have money sitting around in old CD’s, IRA’s, and old 401k’s, consider the following formula:
· Rules of Thumb:
- Diversify 20%
- Invest in properties selling for $50,000 or less
- The number of loans allowed by the bank = 9
Here’s another rule of thumb to consider: When buying properties to rent out to tenants, you want to follow the 2% rule when figuring the ideal rent. So on a $50,000 property, the rent would be $1,000 a month. This formula will get you those return rates ranging from 17% – 35%.
Before you do anything, however, I recommend talking with a RichLife Real Estate Advisor. You want to make sure the decisions you make will achieve the intended outcome. I want you to have a million dollars in the bank, but that should never come at the expense of your RichLife.
What do you wish you knew about today’s market? I’d like to hear what’s on your mind. Visit RichLife Advisors.com and click on Ask Beau. Your question could be featured on the RichLife Radio show, where it will help others to live a wealthy, healthy and fulfilled life on purpose. Here’s to your RichLife!