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Blog Article

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Publicado porDebbie Kalfas

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Categories:Topics, Art & Design
Published by: Debbie Kalfas on Aug 28, 2010
Direitos Autorais:Attribution Non-commercial


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I think we can all agree that a double dip recession is very likely right now and times are

scary. Home prices may very well drop in the coming months as this new recession takes hold. However, based on traditional affordability measures of median priced homes costing 2-3 times median annual income, home prices are now in line with local buying power in most areas. So while a dip may happen, housing affordability and pent up demand (estimated at around 3,000,000 households) will quickly snap prices back to this new normal once the job market stabilizes. Conversely, those that buy property today believing it is a steal will be in for a disappointment. Local market conditions aside, property appreciation rates will only slightly exceed inflation for the foreseeable future, and will be limited by such traditional fundamentals as interest rates and income growth. Having said that, there are a few things to keep in mind: Nobody can ever expect to time the market perfectly. The best we can hope for is to dive in 10% above or below the bottom. We will only know where we landed in retrospect. Positive cash flow properties almost always make sense. This is the secret to long term real estate success. If you have long term fixed rate financing and your property throws off positive cash flow after deducting for replacement reserves, and principal pay down on the loan, then what the general market does from year to year is not a big concern. Other investment alternatives are even scarier. Robert Shiller the creator of the S&P Case Schiller housing index, which predicted the housing bubble, has also statistically shown that the current stock market is overpriced by at least 30%. With bonds at historic lows, investing there could be a disaster as well since when rates rise, bond prices fall. Of course, safe investments such as money market funds and CD s are paying less than 1% these days. So what's an investor to do? We believe small investment properties make a lot of sense right now. With rates at new historic lows and rents predicted to rise, returns on equity invested can be as high as 10 to 15% compounded annually over the next decade. Of course, that assumes income property will keep up with inflation during that time frame, but the good news is that real estate has always managed to meet or exceed inflation over the long run. Attached are a few articles to further support my argument which you may wish to review.

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