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Is Real Estate a Good Investment in 2013?

By Edited May 11, 2014 0 2

Real Estate in 2013

Are you wondering if real estate is a good investment in 2013? Or are you considering buying your first home in 2013 but worried about the economy? There are several reasons why real estate is a good investment in 2013 and beyond, but many people are worried that real estate prices could collapse again and the United States could go back in a recession in 2013. However, despite the worries of another global slowdown and a slow market, I do believe that buying a home for investment is a great deal going forward. I think buying a home in 2013 could pay off, especially 10-15 years down the line. 

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What Determines the Price of Real Estate?

Firstly, you must understand what affects the price of real estate in the United States. There are a couple of factors that come into play. Supply and demand is the first and most obvious factors. If there is more supply of houses and more sellers, but not enough buyers, the price of homes typically goes down, and vice versa. 

Why would there be more sellers in the real estate market than buyers? The main reason would be the strength of the economy. In a slow economy, people are trying to sell their homes. Also, in a slow economy or a recession, more foreclosures occur, which depresses the market. 

Will Real Estate Price Rise in 2013? 

The price of property rises when demand picks up or if there aren't enough homes on the market. If there is excess inventory, there is a glut of homes and prices will suffer. 

I don't actually think real estate prices will rise in 2013, but I still think buying a house in 2013 is a good deal. There are a couple of reasons I feel this way that I will explain further.

Prices tend to do well in an inflationary environment, as we just aren't seeing much inflation in the country - yet! I think that we will see prices start to rise in 2014 at a percentage rate of about 2 percent per year. 

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1) Why to Buy Real Estate in 2013 - Low Interest Rate Mortgages 

The Federal Reserve has committed to keeping interest rates at 0 percent until mid-2015. Right now, real interest rates are actually negative - "the real interest rate is the rate of interest an investor expects to receive after allowing for inflation," according to Wikipedia. 

So, right now you can get a good 30-year fixed mortgage at a rate of about 3.5 percent interest. That's an insanely good rate! My advice is to get either a 15-year or 30-year fixed rate mortgage, and stay far, far away from an adjustable rate mortgage in 2013. Interest rates will eventually rise - I see them going as high as 10 percent sometime after 2015 - and you're not going to want your rate to go that high! Lock in a 30-year fixed rate and you will pay that amount for the next 30 years. What a great deal!

2) Because You Need to Live Somewhere and It's Better Than Renting

 In my opinion, buying now is better than renting (if you can afford it, everyone has a different circumstance, however). The reason is because when you buy a home and pay off the mortgage each month, you are building your equity in the home and your net worth. When you rent, your paying to live there but after 10 years of renting you won't have anything to show for it. 

The one downside to owning is that you have to pay taxes, insurance, maintainance, etc. So I wouldn't recommend buying if you're not making that much money or if you plan on moving soon. But if you're making enough money and you think you are ready for it, you should definitely consider buying a home in 2013 and beyond. 

3) There are Numerous Tax Advantages to Owning Real Estate 

So, what are the tax advantages to owning real estate? Well, did you know that you can deduct mortgage interest payments from your taxes? That is a great advantage of owning a home. 

Also, if you are an investor renting out a home, there are even more tax benefits. Not only can you deduct interest payments but you can also deduct the depreciation of the home - this allows you to deduct a portion of the cost of the property over several years. 

You can also deduct the cost of repairs made on your home. 

Buying a Home and Renting it Out - Making Money Easily

If you are buying a home as an investment in 2013, you will want to rent it out to make money off of it. Since you can't be sure that your home will increase in price, you should be focused on making your property cash-flow positive. What this means is that after you receive rent and pay all your expenses, the money left over is yours.

For example, if you put $40,000 down for a $200,000 property and the property has a net operating income of $20,000, you should be aiming for a yearly cash flow of about $8,000, which would give you a cash-on-cash return of 20 percent. Confused? Let me explain further. 

$40K down on a $200K home is 20 percent down. Net operating income is rent minus expenses, but does NOT include debt service (mortgage payments). Cash flow is the money that goes in your pocket AFTER mortgage payment. Cash on cash return is the amount you put down ($40K) divided by the yearly amount you make in cash ($8K). 

Final Thoughts on the United States Market in 2013 and Beyond

Despite the economy remaining a little sluggish with unemployment around 8 percent, I still think real estate prices have bottomed out. Not only that, I think interest rates have nowhere to go but up - they literally can't go much lower from here. 

I hope you enjoyed this article on why I think real estate is a good investment in 2013 and beyond!

 

Real Estate in 2013
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Comments

Nov 17, 2014 11:53pm
jessicafoote
My clients who bought homes in San Diego anytime in 2013 are sitting pretty at the moment.
Nov 17, 2014 11:53pm
jessicafoote
My clients who bought homes in San Diego anytime in 2013 are sitting pretty at the moment.
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