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- Category: For Buyers For Buyers
- Published: 23 September 2008 23 September 2008
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A lot of investors are seeking shelter for their recent losses in the stock market. You know what they say; "Buy low, sell high!" So, let's think about that for a moment... Real Estate prices are at an extreme low right now; with foreclosures and short sales on the rise every day, there are more deals out there than you can shake a stick at!
Let's take a look at a quick comparison of investing in securities vs. real estate:
Assume you had $100,000 to invest into treasury backed securities with a current rate of inflation at 5 percent and a yield of 4 percent. At the end of one year, the balance in the account would grow to $104,000 showing a "profit" of $4,000 which is then taxed at a minimum of 15 percent or $600 for a total of $103,400.
However, inflation of only 5 percent (the government estimate is higher and most analysts put it into double digits) means that $103,400 can now only purchase $98,230 worth of goods. In only 12 short months you have actually lost nearly $1,800 of purchasing power. Unfortunately, the actual numbers are much worse since inflation is rising rapidly. As the real rate of inflation approaches double digits, the actual loss of purchasing power can reduce your investment by half in as few as five to seven years!
Short-Sales & Real Estate
Now let's examine real estate. Let's assume you had the same $100,000 to spend and used it to put 20 percent down on five short sale properties (a nice hefty sum to be sure...and withe Short Sale knowledge, something you can likely avoid) with an average price of $200,000 each. Let's further assume that each of these properties was formerly priced at $250,000 and have each lost $50,000 prior to being indexed to the current rate of inflation. (Boise Homes For Sale) Since this is a short sale, we will assume the sales price is close to the actual value of the property today but notice, even if it continued to fall for a short period of time, you have other options available to offset the losses (tax incentives for example).
You now control $1 million of real estate. "Real" or physical assets tend to increase in value with inflation as it drives the cost of goods and services to higher and higher levels. Using the same 5 percent rate of inflation, the holdings would grow by 50k in just the first year alone...nearly ½ your total cash outlay! Search Homes for sale in Nampa Now!
This is a very simplistic example but it demonstrates the power of inflation to build or destroy wealth. Throughout history there have been two primary means to building wealth in this nation: building a corporation or building real estate holdings.
So where do you go with this information? What are you doing right now to understand that it is time to move money away from equities and into real estate? Are you continuing on the sidelines hoping for a market rebound, or are you mastering the market of the moment and learning everything you can about short sales and REOs?
For more information and a free consultation about investing in real estate, contact Don Wixom today! He's always looking out for your next move on Idaho Real Estate!
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