*** Hey! Where is part 5? It’s over at INO Blog… It’s about asset allocation according to your age.  (link will be updated later on today)***
If I was to start over my financial life, I would do something differently: I would buy a property right after signing my first employment contract. During almost 4 years, I gave $30,000 in rent instead of building equity within my own property.
When I was young, my parents basically lived on the profit made on each property sold. They used to buy a property, move into it, do renovations and sell it 2 years later. They always though (and they still do!) that real estate was a sure value. In fact, they always told me that property values always go up. Wrong!
Those who bought big properties back in 2007 and 2008 in USA or Western Canada can surely tell you about it. Making money from real estate is not an absolute basic of personal finance. While the real estate market is more stable than the stock market, it doesn’t mean value cannot drop.
Property value in Alberta and British Columbia dropped by 20% so far and it is even tougher in some states down south such as Florida and California. Back in the 90’s, several North American regions saw their property value remain stable for 5 years straight. Considering inflation, those people had probably to wait 10 years to make a decent return on their “investment”.
The main risk when you purchase real estate relies within liquidity:
#1 To ensure the property maintenance. There are no points of buying a huge property when you can’t put furniture in it!
#2 If you plan on sell your property to pay something else or do another project, it may take more time than expected.
#3 It is harder to get the equity from your property (you either have to sell it or request a mortgage). In both cases, fees can occur.
#4 Your main residence should not be considered as an investment. It constantly requires that you inject money for taxes, maintenance, improvements, etc. On the other side, your main residence will never generate stable income. The only gain will be realized once you have sold it (usually to buy a bigger one and stick to the very same situation!).
You Are Better Be A Owner Than A Renter: Revisited
Real estate should not be considered as the Investor’s El Paradiso. There should be a big difference to be made between owing your main residence and rental properties. While the first remain an expense that you must buy according to your means, the latter can generate interesting profit (and stable income from rent over time).
In both cases, it is highly important to revised your budget and consider all expenses related to real estate before making a decision. If you can afford it and you do not face liquidity problems previously mentioned, investing in real estate may be quite profitable.
I hope you liked my series on investing rules revisited. Do you have any other investing rules that don’t fit our financial landscape anymore?
Find the full 6 investing rules revisited:
Part 6: If You Are Young, You Should Invest the Biggest Part of Your Portfolio into Stocks
image source: flickr