I got a call the other day from a friend of mine. He was very discouraged about his lack of return on his savings and 401k program. He could see his retirement plan and savings going down a 'rat hole.' With the banks paying a return on CD’s at the lowest rates I have seen in my lifetime, and the volatile stock market going 'up and down,' my friend had good reasons for concern.
It certainly is wise to have enough cash on hand to handle emergencies and at least six months living expenses. But beyond that, your cash ought to be giving you more than a meager return on your investments.
Many are afraid of real estate as an investment, particularly with the drop in prices the last few years. As with most investments, the key is to buy low and sell high. Now, while prices and interest rates are low, is the time to buy real estate. There has not been a better time in the last fifty years to invest in real estate.
Let me give you an example of a recent investment here in Springville that was purchased by an investor: This investor had a small inheritance and didn't want to leave it in the bank earning less than a 1% return. Having invested in real estate in the past, she called her Realtor and asked what he would suggest she do with her money.
He was able to find her a small rental home that was listed for $140,000. She entered into a 'buyer’s agency' agreement with her agent, and made an offer for the 'fair market' value. The offer was accepted and the transaction was closed.
Her real estate broker had a property management division. They immediately found her renters for the property, screened them and negotiated a year lease. This investor is pleased with her 7% 'cash on cash' return, without having to worry about property management. She is making a 7% return on the cash she invested after paying her property taxes, insurance, and management fees. Not a bad return on a fairly safe investment.
Real estate should be looked at as a long-term investment, particularly in today's economy. Be sure to work with a knowledgeable professional who understands the tax ramifications and the investment market--one who can give good information. When in doubt you should seek the opinions of other advisors. Until next week keep smiling.