The results are in:
Real estate giant RE/MAX recently revealed the results of a December, 2005 on-line survey of 1,200 homeowners.
Thirty percent of the respondents not only owned their homes, but also owned investment properties. Interestingly enough, the largest demographic of these investment property owners are part of “Generation X,” (now in their thirties). Owning real estate for profit has become trendy, even to a generation of people who have largely frowned upon traditional investments.
But, like most trends, this one will likely fizzle out sooner than many of these young investors believe, for several reasons:
— Rising interest equates to higher payments; real estate investments are costing more to own.
— Property prices have been increasing quickly for some time now, but such rapid growth is not sustainable; investors getting in the game now will not be making the get-rich-quick profits that others have enjoyed over the past few years.
— People who invest in stocks and similar liquid assets have the flexibility to cash out of their investments at any time, allowing them to use the funds for anything from emergencies to vacations at almost a heart’s beat. Real estate is comparatively less liquid as an investment to begin with, and then if you add in the element of a slowing property market, you have a large group of individual investors locked into their holdings until the right buyer comes along.
— In many urban areas, properties have become extremely overvalued and homeowners are taking on such historically large mortgages thanks to the lowest rates in over a quarter of a century that any downturn in the market could translate into overzealous investors’ mortgages that are worth more than their assets.
Although I firmly believe that real estate makes a great long-term investment, I don’t think investors are ever well-served by following trends — especially in their heyday. For investors who want quick profits, I’d steer away from today’s investment property market. At the same time, if you want long-term “slow and steady” growth, real estate’s the way to go, as long as you keep the old “buy low/sell high” adage in mind.