Great cash flow and appreciation can be had these days thanks to the prices of real estate trending toward the early 2000’s prices. Over the past decade people had stayed on the sidelines while watching a number of people invest in real estate and make it BIG. There were also a large number of real estate investors who were over optimistic and/or greedy who lost their shirts in real estate. (we will touch on that later)
Fast forward now to 2012 and we have virtually found ourselves in a time machine. According to this Case Shiller report, we can see that we are experiencing prices from 2003, yes that is a 10 year travel back in time!
Those who watched people make it big in real estate have traveled back in time (as it relates to property prices) and can now take advantage of the upcoming appreciation. You are now older and wiser and have your chance to experience massive wealth building opportunities. Appreciation or capital growth is (I believe) the number 1 wealth building principal available today. With home values running the same as they did 10 years ago, you can now ride the (much healthier) wave of price appreciation.
OK, to sweeten the pot and enjoy the second best wealth building principle (cash flow) let’s get back in the time machine, traveling back to get to interest rates that will generate us better cash flows
As you can see here, our time machine only goes back 100 years and look at this. In 1912 interest rates (according to (Global Financial / Winens International) were higher than they are today. With these historical low interest rates you are able to pay for a mortgage much easier as it takes less rent to pay for your mortgage.
But wait, look at these projections by Marcus & Millichap Rental demand is at an all-time high and over the next couple of years rents will continue to rise at a steady pace. Now we know this will not rise forever, nor do we want it to as it is imperative to keep housing expense at a healthy level. What all this tells us, however, is we have prices equal to that of 10 years ago, we have interest rates that are better than any of us have ever experienced (generating great cash flow). We also have rental rates on the rise which will continue to give us a hedge against inflation. As long as we purchase with low prices and lock in low interest rates, we have a hedge against inflation. When we add in rising rents, we are positioned better than those folks we watched over the past decade.
For our foreign friends:
The currency exchange rate for many countries is favorable to stretch you dollar even further than we local Americans can obtain. Many of you have a dollar value that is 10 percent and higher than the U.S dollar that is like gaining another 10% on the sale price.
For those investors who pushed their luck or thought the profits would never end and maybe got caught up in the swinging pendulum (the declining market), you should welcome the time machine.
For the people who never got in to the investment arena or may have been too young to invest at the time, you should welcome the time machine.
The Bad News About Great Cash Flow and Appreciation
The time machine only goes one direction. It goes into the past. The key is to learn what we can from the past and apply new found technology and good old fashion street smarts to gain perspective as to what the future holds for us.
You MUST get educated. You WILL find opportunities in any city in the U.S.A to invest and make money, but this is not good enough. We all know the most important aspect of real estate is location. The second most important aspect (never discussed) is sustainability. Not all markets are created equal.
Now you have had the great advantage of traveling back in time to regain better prices and better interest rates, do not abuse this privilege by haphazardly buying any investment. Capitalize on this great gift and make it count. Do your diligence. Find the best location for sustainable cash flow and appreciation potential and do yourself proud.