Path to Wealth is Through Real Estate Holdings

One of the most sure fire ways to improve your wealth is through the purchase and maintaining of real estate. Real estate is typically the safest investment tool as it will always perform well into the future. You may see short term reductions in the real estate market due to adjustments like we are seeing now in many areas throughout the country. However, real estate will always appreciate over the long-term. There are many reasons we have seen a major "bubble bursting" in the real estate market throughout the U.S. and chief among them is speculators. Real estate is not a "get rich quick scheme", but rather a means to generate positive growth through the years.

The first issue with the current state of the real estate market is the speculation that has been done over the past 5-10 years. Many people began to view real estate as they did the Dot.com stocks of the '90s; a means to a quick buck. This is not the nature of real estate. Consider the fact that many people have held land in their families for 50-100 years to see a major profit from their initial investment. Using real estate as anything but a long-term investment is a highly risky venture since short term factors may affect the value of the property. These factors are virtually eliminated if the property is held for a longer period of time.

The average homeowner is not going to see a major increase in their property values annually and expect to maintain the increases. Traditionally, real estate appreciates 3-5% annually. This does not sound like much and it isn't much for the short term. But, keep the home for 5-10 years and you should see a much more favorable return. For instance, a 5% increase on a home that cost $200,000 is nearly $10,000. Now, this sounds good and is good, but consider the commissions and closing cost you will need to pay to sell the home and you are looking at a net loss since commissions can be anywhere from 3-6% and another 1% for additional closing cost.

Now, consider the same home that has been held for 5 years. The return would be much greater compounded over 5 years and would be approximately $255,250. Now, take out 6% for the maximum closing cost of $15,315 and you would see a profit of nearly $40,000. Keep the same home for 10 years and the numbers grow even more.

When the market appreciates too quickly, you actually price too many people out of homes and there is a natural correction within the marketplace. You see this happen with the stock market where there is a correction if it is considered to be overpriced. Historically, quick appreciation or either real estate or the stock market results in a correction.

There are two primary investment tools in order to improve your financial position: real estate and stock market. With the stock market, you are buying into a business that usually makes money, but there is no guarantee that it will. If the business loses money as many have in 2007, then the stock will not perform very well for you. Additionally, how many businesses have gone bankrupt in the past 5-10 years? You always have that issue when investing in the stock market that the business will not be viable for the long term and minus inside information, which is illegal, an individual on the outside does not really know how viable the business actually is. Many people thought Enron was a very viable company, until the doors were locked and the employees dismissed.

Real estate is a much better option in which to build your wealth. Despite short term hazards, the long term position for real estate is always strong. First of all, they are not building anymore land, so it is a limited commodity. Secondly, real estate will always appreciate over the long term barring a major catastrophe. Real estate is the more solid investment tool for long term wealth building.

Should all of your investment dollars be in real estate? Of course not, since the number 1 rule of investment planning is to diversify. A first home and possibly investment property will always be beneficial to your bottom line and will result in increased wealth. On average, 23% to 29% of your wealth should be allocated to real estate with 11%-13% of your real estate investment being your primary home.

Call me if you are interested in improving your net worth via real estate in the Raleigh/Durham market. Even if you are looking outside this area, I can get you in touch with a successful agent who can help you.