Is Real Estate Still a Good Investment?

Last week, we posted on the challenges currently in the housing industry. But with challenges come opportunities. This week we want to concentrate on the possibilities available today in real estate.

To begin with, we want to make sure we bring some reality to much of the talk out there. Is real estate truly a good investment? More importantly, is it a good investment at this time? Let’s take a look.

Below is a graph showing real estate compared to three other investments (the DOW, NASDAQ and S&P 500). If you invested money in each on January 1, 2000, what would be your return on October 1, 2009? (the last time I updated the chart)

As you can see, your return on your real estate investment would have outperformed any of the other three. Even in this decade, with all the problems in the sector, real estate was still a great investment.

Now the question of whether or not this is the time you should invest. Whether or not you are investing in gold, stocks, fine art or real estate there is a cycle the investment goes through. It is known as the cycle of investing.

As always, let me show you a visual to help make my point:

At times of euphoria, prices are at their highest. When things seem bleakest, is when prices are best. It is as simple as the old adage: buy low, sell high.

So you can see that we are probably at the ‘point of maximum opportunity’ if we were to invest in real estate today.

Now, you may say- ‘But Steve-you told us last week that prices were still going to tumble in most areas!’ Yes, I did.

However, as a buyer of a big-ticket item, you must realize that cost is more important than price. Unless you will be buying all cash, you must take into consideration the expense of financing your purchase. It is that expense combined with the price that will determine the cost of the item.

Obviously, when talking about a real estate purchase, the expense of financing is the mortgage interest rate.

Tomorrow, we will look at where interest rates are and where they are probably headed.