Is real estate a wise investment?
In the long run, there are fewer investments that have shown a better return.
However, the key to investing wisely in real estate is understanding how the industry differs from others. For example, when the defense industry dips, it usually shows a national decline and the stock prices of defense-oriented firms drop across the board. The same is true of most industries. They are impacted nationally.
That is not the case with real estate, which is actually an industry and investment driven by local conditions. One community may suddenly lose a manufacturing facility, and almost overnight the market is flooded with properties for sale. An excellent example is Southern California. Several years ago, when defense cutbacks began an excess of homes went up for sale, increasing the supply and lowering demand. Therefore, it became a buyer's market. At the same time, Bakersfield, a community less than 150 miles from Los Angeles continued to experience high demand for real estate. With a short supply of homes, it was a seller's market.
Obviously, the key to successful real estate investing, like stocks and bonds, is to buy low and sell high. But, how do you know when the "low" has been reached? Or, for that matter, how can you judge when your property may be peaking in value?
Some investors rely partially on the media. They read the daily newspaper, watch television and follow the trends. Although the media provides a good deal of information, remember that by the time things are printed or broadcast, the news may be old. For instance, you will find statistics frequently quoted in the media that have been supplied by the National Association of REALTORS (NAR). But, NAR statistics, like most, tell you where things have been, not where they are going.
So what can you do? First, check local economic indicators. If, for example, a community depends on defense spending, and there is a government cutback, you can be assured that your area will be impacted. Even if the community does not have a major defense contractor, it may have subcontractors.
The local chamber of commerce can frequently help. They usually have information on which companies are moving in and out of an area. Logically, the relocation of a firm into a community generally indicates that demand for real estate in that marketplace will increase-while if firms are moving out of the area, housing demand will often shrink.
Aside from economic indicators, check real estate trends and cycles. Talk to a real estate agent. They can provide statistics on how quickly homes have sold, how prices have fluctuated in the past six to 12 months, and projections of future home sales. They can show you how today's market compares to last year's. Are sales headed up? Down? The same?
The answers will not only help you determine what the market is like in your area, but they will also be critically important in helping you determine when and where to make your real estate investment.
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