February 02, 2009

Super Bowl Half Time Conversation Turns to Real Estate

No matter whom you were cheering for during the game, the interception by Pittsburgh just before the end of the half certainly changed the face of the game. Those in our crowd cheering for the Cardinals had their dreams and hopes dashed in one play.

After that interception the conversation of our gathered group turned to real estate and the current market changes. Some of the people at our assembly had yet to purchase their first home (students). Others in the group had purchased a home several years earlier and they were willing to share their own stories.

One couple had purchased a home in Las Vegas in 2004 for $212,000 dollars. Eighteen months later in early 2006 they had accepted a new job position in Utah which required the selling of their home in Las Vegas for $318,000. The appreciation during this period was 50% on the property and a cash-on-cash return on their $25,000 down payment was 424%. Many investing in Las Vegas real estate in 2004 made such returns… until the market turned the other way leaving a string of foreclosures and losses for investors. They were glad they left when they did. It is always good to know which way the market is heading before buying a property for appreciation so you are not the last one standing at the party or feeling like your touchdown pass was intercepted and run back for a touchdown!

To continue the story, this couple then took their $106,000 profit and invested in another home in Utah in 2006 valued at $389,000. Values in Utah County increased by 18.7% in 2006, and increased by 7.4% in 2007, while decreasing 7.3% in 2008. With the up and down years calculated the home’s value would be estimated at $480,000 at the end of 2008. They are waiting to see what 2009 will bring them but they don’t have to move or sell so they can wait out current market conditions. Here is a great site that lists the appreciation rates for the last five years by zip code.

Sometimes the best retirement real estate investment begins with the purchase of one’s own home. In fact, in most cases, the single largest item of any retiree’s portfolio is the value of the retiree’s personal home. Based on an historic average appreciation rate of 5% per year, a $200,000 home purchase this year will be worth $310,000 in ten years, $505,000 in 20 years, and $823,000 in 30 years.

It is important to understand that even though the increases in values are substantial, the owner still has to pay mortgage interest, insurance, property taxes, and keep the property updated and in good repair to reach these appreciation values. All in all, one real estate retirement plan begins with owning one’s own home.

We can see that an initial $25,000 investment can turn into a sizable part of a retiree’s plan for life after employment days are over. The problem with most people, however, is that they don’t take action or create a plan to purchase a second property. If you are interested in how to build a real estate retirement portfolio, please visit our website and click on the button that says “Real Estate Retirement Planning Guide”. I would also love to receive your e-mail.

Posted By: Steve Randall