Monday, February 13, 2006

“How Much is Too Much?”

Recently a client was referred to me who was thinking about buying a property, but she was unsure because property values have appreciated a lot in the past seven years. Her concern was that with values where they are, should she wait for prices to come down before she bought? Seems like a legitimate concern.

So how much appreciation is too much? At what point should rising property prices scare us of a coming “Bubble Burst”? Here’s a real life situation. A mother and father of my best friend purchased a home in 1981. They paid $350,000 for their home. I just sold it for his mom, because she didn’t need such a large property any longer. They held their property for 24 years and in that time they experienced average annual appreciation of 6.25%. That’s just 6.25% annually, barely over the national average. Hardly sounds like a bubble to me.

The nice thing about 6.25% appreciation is that the value of an asset almost doubles every 10 years. Imagine what that kind of compounding will do for your wealth creation. A property worth $500,000 today will be worth $1,000,000 ten years from now. That’s an extra $500,000 in the wealth column. His mom’s retirement is much more comfortable, because she and her husband bought real estate and held it for a long time.

My advice to my client was to buy and wait rather than wait to buy. Timing the market never works…Not in stocks and bonds and not in real estate. Had we all known what real estate values were going to do over the past seven years, we would have loaded up on more real estate. Now’s a great time to invest in real estate, whether its here in California, or in other states.

If you would like to see about investing in more real estate, either here or in other states, call me. I can answer your questions.

2 Comments:

Blogger Allyson Hoffman said...

Ron, great point here ... "if we had only known" ... well, we do and buying is good!

2:52 PM  
Blogger David Martin said...

This comment has been removed by the author.

3:44 AM  

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