We have learned so many lessons lately, yet the picture is fuzzier than ever! Our national economy has nearly collapsed, and drastic measures have been taken to stop the slide. The housing market, the credit crunch, the gas prices have all taken their toll on the economy, and the safe haven of the rest of the world has taken ill with us. What do you do today to find invesment returns for tomorrow? It is a difficult time to invest.
The stock market continues to have dramatic shifts up and down, but mostly down. In October alone, the market dropped 14%, and most investors are experiencing a paper loss of approximately 40% in their stock and retirement portfolios this year. Financial advisors are recommending to hold steady, and let the "market" return over time, but what if you do not want to follow that course, or you have money to invest for return today? Where should you put it? We are in an economic period with downward pressure on prices, so it is unlikely that inflation will be a factor for a little while. Our needs to print money and increase our national debt are at historic levels.
How about precious metals? Gold has dropped in value by 25% since March, when it topped out at $1,000 per ounce, and the one detriment to owning precious metals is the lack of income while you hold them. Precious metals must appreciate in value to provide an investment return. Short term prices on gold are unlikely to increase greatly, because there isn't any inflation, but when inflation returns, precious metals will provide a solid hedge.
Interest rates are at nearly historic lows, so CD's, mortgage backed securities, and treasuries will not provide much of a return. Over the long term, they typically lose value versus inflation, and yes, we will have inflation again. It will probably return within a couple of years with a vengeance, as our current money supply strategy, and printing money to cover our debt will increase the value of materials. How does this work? Our dollar will lose value when we increase the money supply, because we just print more without increasing the value. Other countries are not going to want to trade their valuable resources, such as oil, unless we are giving them solid value, so the price increases to make up the difference. Now, I must say that I am not an economist, but I think that is accurate.
What investment offers a return as it is held, and will give above average returns when inflation comes back? You guessed it! REAL ESTATE! Of course, we are talking about real estate investments, not real estate speculation, which led to a lot of our problems. What is the difference? Real estate investments typically require a 20% to 30% down payment, which allows us to "ride" through tougher market cycles. Residential real estate investments typically give a 4% to 6% return from rents while you hold it, and it offers great returns when hedged against inflation. Also, real estate has intrinsic value, the value of materials and workmanship, which protects against wild swings in the economy. Is this true in Durango Colorado real estate? YES! Values today are down 4% from a year ago, in one of the most trying real estate cycles of all time. Real estate investments will usually provide double digit returns during most business cycles, when inflation and rent return are added together. The other components in timing a purchase are the market interest rates, supply, and demand. As mentioned in my recent blogs, this is the perfect time to buy. Interest rates are in the 6% range, the supply of homes is at a record high, and the demand is soft, which means you should be able to get a below market deal, which will increase your long term value.
So, what are you waiting for? Are you waiting to hit the absolute bottom of the market? A strategy to perfectly time the market is rarely successful, and it works against the market gurus who suggest that "pigs get fat, and hogs get slaughtered"! Call me and let's discuss this in more length.
Don
If I can be of any service, please contact me: Don Ricedorff at 970-375-7014, don@frontier.net, or at my website at durangorealproperty.com.
Don Ricedorff is a licensed real estate broker in the State of Colorado and he resides in Durango Colorado. He has broad experience and numerous real estate designations, which have provided him with an unparalleled education to assist his clients.
CRS, Certified Residential Specialist
CRB, Certified Residential Broker
CCIM, Certified Commercial Investment Member (The toughest real estate designation)
ABR, Accredited Buyer Representation
GRI, Graduate of Realtor Institute
RSPS, Resort and Second Home Property Specialist
CIPS, Certified International Property Specialist
SRES, Senior Real Estate Specialist
He is also an active volunteer in the community and his church. His personal interests include spending time with his family,tennis, fly fishing, hiking, boating, and water skiing.
Thursday, November 6, 2008
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