Current Year Likely to Set Record of More Than 50,000 Foreclosures in Atlanta Area
For the average American family, the best investment they ever make is usually their own home. In fact, residential real estate has consistently been one of the safest investments available over the past thirty years.
I like little houses, especially for someone just getting started. It's not because this form of real estate is better than commercial real estate or raw land or apartment buildings. It's just easier, for a variety of reasons:
= Bargains are readily available in single-family homes. Because there are so many people who live in houses and because people's lives change, there are lots of sellers who need to sell quickly and can afford to be flexible on their price or their terms. This creates lots of opportunities, especially in a major metropolitan area like Atlanta.
Just look at the 4,000 or more homes being advertised each month as going into foreclosure in the metro area. Each one of these is an owner who needs to sell quickly, and may be wiling to offer a bargain just to get out from under the foreclosing loan. In contrast, multi-family properties and commercial properties are typically owned by investors who have more resources and less urgency in their financial lives.
= Financing is easy to get for single-family homes. If you have even decent credit, you can get a thirty-year loan for almost the entire purchase price. To make things easier, the lender will offer you this loan at less than seven percent interest, even as an investment property, and guarantee that the rate will never go up. That makes it easy to plan expenses in the future.
= Single-family homes are readily available in my community. I can drive past them on the way to the office. I know what's happening in my hometown, and can keep an eye on things easily. In contrast, someone recently sent me a brochure on an office building for sale in Charlotte. I have never been to Charlotte, and I don't want to go to Charlotte. I don't even know how to get to Charlotte.
= Single-family homes are easier to rent. I know that this is a tough rental market, but almost everyone would rather live in a house than in an apartment, and there are ways of making a house rental much more attractive than renting in an apartment. For example, I can offer my tenant an option to purchase the house they are renting and rebate part of the rent to them toward the purchase price. And I have found that houses attract better quality tenants than apartments as well. In contrast, how in the world do you lease an empty gas station?
= Single-family homes are easier to sell. I know this is a tough sales market, but the truth is, even in a slow market, there are plenty of homes selling in this marketplace. And in the vast majority of sales, the seller moves to cash if desired. This is in contrast to commercial real estate or raw land, where it is assumed that the seller will participate in the financing in order to complete the transaction.
= The single-family home market is extremely stable. Economists describe home prices as having downward inflexibility. That's because people live in them, and if they can't sell for at least what they paid, they will just stay there until they can. The last time there was a sustained downward trend in real estate prices was during the Great Depression. In contrast, take a long look at your 401(k) balance.
= Single-family homes are relatively easy to understand. The most common problem encountered in home ownership is the failure of the water heater, which can be replaced for less than $500. Major expenditures are most often predictable, and many maintenance functions can be performed by the owner. You can learn to put on a new roof or build a deck or paint the walls. In contrast, it is beyond the skill level of most to repave a parking lot or repair an elevator.
= Single-family homes offer tax benefits that are just too good to be true. Where else can you buy an ugly duckling investment with little or nothing down, live in it and fix it up for a couple of years, then sell it and keep all the profits totally tax free? Only in residential real estate. If I were younger (or my wife would let me), we would be moving every 24 months. You are almost crazy not to do so. I know people who do nothing but find bargain homes, move in and fix them up, then sell every two years. They pay absolutely no tax. No federal, no state, and no social security. I will admit that they are limited to half a million dollars tax free on every sale.
= I also like houses because they make great retirement plans. You can retire comfortably on as little as ten little houses, and they are extremely flexible as retirement vehicles. For example, you can continue to rent them as income, you can refinance them to pull out tax-free cash, or you can sell them individually under the installment method to generate excellent income while managing the tax bite. All at your pleasure.
By John Adams. The Georgia Real Estate Report, June 2007.
John Adams will be teaching his latest seminar on real estate investing on Tuesday, June 5 in North Atlanta and Thursday, June 7 in South Atlanta. The name of the seminar is BIG MONEY IN LITTLE HOUSES.
