| |
| |
|
|
|
|
|
|
Buying a Home - Your BIGGEST Investment
This column has often focused on intangible investments like stocks that a young investor might hold in their portfolio. While these are one of the most important components of an investment plan, it is not the dominant one for most young people. Even for some who are much further down the path of life, stocks and bonds often pale in comparison to the role that a home plays in their investment life. Buying a home is an enormous investment. It's easy to overlook the size of it, because the down-payment required is relatively small. Still, we all realize that we're investing the whole purchase price. Nonetheless, most people don't give the investment aspect of their home a second thought, thinking of their home as nothing more than a place to hang their hat. Since this may be the largest single investment made in the first half of one's life, it might be wise to look at it less as an expense, and more as a financial decision. There's no sense in scrambling to save a thousand in your retirement account if you're going to miss out on tens of thousands on your home. This leads to a whole raft of questions related to neighborhood choice, price ranges, over-extending oneself, and the trade-offs between immediate comfort and long-term wealth. There are more questions that can be covered here, so let's focus on a few key points that can help most people pick up an extra ten or twenty thousand dollars or more. First, any good realtor will tell you that neighborhoods are critically important. What's the phrase? The three most important factors are location, location and location. But, let's extend what we've learned about stocks to that truism. We know that we want to buy low and sell high. So, if you want to make a profit on your home, buy in a neighborhood that is improving. Don't look only at the current state of the neighborhood. As an investor, the trend of the neighborhood is far more important. Look for signs of deterioration or repairs taking place. Repairs of older homes may signify a neighborhood on an upswing, while homes in a nice neighborhood left un-repaired may demonstrate the beginning of a downturn. The tax laws relating to home ownership also provide some incredible incentives. In the last decade, opportunities for homeowners have improved, and this is especially true for those lucky enough to see their home value increase. Under current laws, profits on most single-family residences sold at a profit are completely tax-free, as long as you've lived in the home during two of the last 5 years. The tax-free amount can be up to $250,000 (or $500,000 for a married couple). Many people still believe that these profits are rolled over into their next home, but that was the old law. Today is the time to take your home profits, because they are tax-free. My approach is to take these profits whenever I can, because one never knows when those tax laws may change again. For many young couples struggling to make ends meet, this relatively new law can be a windfall, and it is especially popular among those who are handy doing minor repairs. Many have bought fixer-uppers, added a little paint and wallpaper, and come out a couple years later with a sizeable profit. Let's say you've decided that it is time to buy a home. If you plan to buy a $150,000 house, would you be better off to take a traditional suburban home in perfect shape, or a mansion in a trendy neighborhood near downtown that needs paint and upgrading? Consider: after two years, and maybe $20,000 in repairs, that big old house may bring $350,000, netting our home entrepreneurs a cool $180,000 in profits, all completely tax-free. On the other hand, our suburbanites will be lucky to sell for $180,000. Of course, even they are better off than the renters, who have moved their investment into someone else's pocket. Naturally, it isn't as easy as it sounds. There are issues with building codes, neighbors, upkeep, higher heating bills, and contractor disputes. Let's not make believe that money comes without any headaches. Still, $180,000 is worth quite a few headaches, and it would take quite some part-time job to make up for it. Don't forget, this is tax-free money. How many years do you work on your regular job to make $180,000 after taxes? That's like $300,000 before taxes for many people. Finally, the real key to success in this (or any) investment is to buy at the right price. No matter how well you fix it up, and regardless of how advantageous the tax rules are, a bad starting price will limit your potential gains. My rule of thumb is to never pay more than half of what I think something is worth. That means that I end up walking away from a lot of good deals, but I also find that I'm protected from just about any disaster that may strike. Consequently, even if you find yourself subject to Murphy's Law, you'll still stand a good chance to come out a winner. Scott Pearson is an investment advisor, writer, editor, instructor, and business leader. As President and Chief Investment Officer of Value View Financial Corp., he offers investment management services to a wide variety of clients. His own newsletter, Investor's Value View, is distributed worldwide and provides general money tips and investment advice to readers both internationally, and in the U.S. Scott Pearson can be reached directly at Scott@valueview.net or by visiting www.valueview.net
MORE RESOURCES:
Investing - Google News |
|
|
|
RELATED ARTICLES
Credit Scores = ROI Profits for Real Estate Investors Strong credit saves real estate investors money on mortgage finance costs. A good credit score, along with the other credit and mortgage qualifications, means that investors can pay lower fees for financing, such as points and interest charges. Bankers in Denial Denial is a ubiquitous psychological defense mechanism. It involves the repression of bad news, unpleasant information, and anxiety-inducing experiences. Is Starting A Business For Me? What To Consider Before Starting A Business Do you have the right temperament?Starting a small business is one of the most serious decisions that a person can take in life. Positively, it often results in higher income levels than one could achieve as an employee together with the unique buzz of being your own boss but conversely it also can be stressful, will demand longer working hours and will probably reduce your ability to take long holidays. Guru Focused: Robert Olstein's Short Sells While it is rather rare that value gurus sell stocks short, Robert Olstein has been selling short in his Financial Alert Fund. The accountant-turned fund manager spots values by looking behind the numbers. How To Start Investing For Financial Independence, Part 1 Today, I am going to start a multi-part series about how to go from being a beginning investor to being "financially independent" in a steady and predictable way. At our website, we get tons of e-mails about how do I start, how do I start with little $'s, etc. Understanding The Real Rate of Return! There is one indicator more than any other which determines the health of an economy and it is the Real Rate of Return. Furthermore this is the simplest of all indicators to understand because it determines the safety of assets. Investing 101: Risk Terminology - BETA About thirty years ago, statisticians armed with all of their statistical theories began to confront the financial markets. A handful of useful tools emerged that the average investor should be familiar with when they look to purchase stocks. Moving Average Convergence Divergence ( MACD ) Charts The Moving Average Convergence Divergence charts, or MACD charts for short, are a technical indicator that is derived from the more simple moving average.The MACD charts are oscillating indicators, meaning that they move above and below a centerline or zero point. Value Investing By definition, value investing is the process of selecting stocks that trade for less than their intrinsic value. A value investor typically selects stocks with lower than average price-to-book or price-to-earning ratios. The Switzerland of Asia Shines In many respects, Singapore is the Switzerland of Asia.Begun in 1819 as a British trading colony, the Republic of Singapore was founded in 1965 under the leadership of the current Prime Minister's father, Mr. Bearish or Bullish? If you are interested in stock investing and the stock market, you may have plenty of questions. Even if you have already started investing, you may still have many questions about the details of the stock market and your options. Chinas Great Missed Opportunity While a U.S. Day Trading Strategy or Stock Trading Software? The Way You Pick Stocks Affects Your Results The trading method you employ to approach the stock market can make a big difference in your results.Stock trading is a very competitive field and in order to succeed you need to FOCUS on a set of simple strategies that you can implement without hesitation. Basic Options Terms Options are good investing and speculative instruments. But options terminology may confuse even experienced investors. Tyranosaurus Rex Everyone knows T Rex was the most fearsome of all dinosaurs. He could and did kill everything in his path for food or maybe stupid meanness. Will a Falling Dollar Derail Your Plans for Retirement? How much are you willing to pay for a tank of gas? We've all watched as gas prices hit record highs, but what would you do if you filled your tank and paid by credit card only to discover on your monthly statement that you paid $80 to fill an economy car. No, this is not some future doomsday projection of oil prices. Coca-Cola - A Value Stock? There has been much talk lately about Coca-Cola and its potential as a value stock - as it now spots a dividend yield of 2.6% (which is the highest dividend yield since the late 1980s) and a P/E or less than 21 - right at the bottom of its five-year low. Buy: Hold: Sell: Jump I'm sitting here at my computer desk with a cup of coffee at my elbow. The coffee rest in a mug, the mug garnished with the words Buy, Hold, Sell, Jump, vertically along its sides. The Differences Betweeen the Wealthy and Everyone Else I recently received an e-mail from a young lady who had doubts about the principles of wealth found in "Rich Dad, Poor Dad". She mentioned a couple of past failed investments, and wanted to know what I thought about investing and financial freedom - whether it was just a myth, or whether it could be acquired. Before You Invest You Must Read This It is important to answer the following questions before you begin to invest any of your money. The answers to these questions will help to guide you to when, what, where, and how much to invest.
|
| home | site map |
| © BullMarketData.com 2008 |
