If you’ve not been living in a cave for the past couple years, you’ve heard about the rapid climb in home prices across the country – and much of the developed world as well. Inventory is in short supply, buyers are snapping up their first home, or their next one, or a second home, as fast as they can outbid the other interested buyers. Great for the seller, not so great for the buyer.
Conversely, in the past year or so there’s the news about office buildings going vacant as workers flee to the suburbs for remote work, office buildings are supposedly going to be half empty and begging for rent-paying tenants. Great for the renter, not so great for the landlord.
Well, which is it? Real estate going up or down? And the answer, of course, is yes. It all depends on what you want and where you are. Several of our clients have purchased buildings to house their staff, replacing rent payments with equity-building mortgage payments. When the intent is to stay in one place for a while, there are few investment decisions better than that one. These days, with interest rates the lowest they’ve been in decades – thank you, Fed – the idea is even better than usual. If you’re using a lot of space for which you’re paying rent, this could be a no-brainer. Talk to your CFO or CPA about what would work best for you.
But for the rest of us who don’t need a building to house our team, why do we care about real estate at all, except to make sure we’ve refinanced our homes at least once in the past 2 years.
So let’s tackle that question. Where do you put your money today? Some options:
- Leave it in the bank or a money market fund and collect a whopping 0.5% per year.
- Lend it to your bank and get a CD, collect a massive .75% per year.
- Buy bonds from the US Treasury, ideally the 30-year ones, collect up to 1.8% per year.
- Buy stocks, mutual funds, ETFs and the like – collect anywhere from +50% to -50%, you just don’t know when – unless you buy smart and simply wait it out.
Isn’t that exciting?
Now let’s look at the real estate market from a different angle. What if you could buy a piece of property for which there was an assured stream of income for years to come, a relatively certain gain on sale sometime down the road, that would give you annual returns of 5%, 6%, 7% and sometimes more? What if you didn’t need the building, but a very wealthy tenant could be found that very much needs the building, and that provides a product or service for which there is strong demand that will only get stronger in the years to come? Would that be of interest? Well, it turns out you can. Stay tuned for more on this in a later post.
We are Your CFO for Rent.