HOW TO CAPITALIZE ON THIS ECONOMY

By in Real Estate

“That’s why you’re so perky” ūüôā¬† Money Crashers replied after I admitted my passion for playing Wii tennis with El Carino. I appreciated that acknowledgement as I am committed to being a “glass half full” woman!*

Every investing scenario has it’s pros and cons. During the late 1970’s and early 1980’s inflation was rampant¬†causing interest rates to rise into double digits. The economy was pessimistic as home mortgage rates¬†topped¬†10% and prices skyrocketed. But, everyone wasn’t glum, savers were thrilled!

Imagine this, your money market account paid 7 to 8% interest. CD’s yielded even higher returns. And if you were smart enough to¬†purchase long term government bonds, you locked in 12% returns for 30 years! In fact, my dad bought some 30 year tax free municipal¬†bonds yielding 10%. Tax free means the interest is not subject to federal taxes! He received the 10%¬†bond interest until 2010 when the bonds matured and his principal payment was returned.

BE POSITIVE

Trying to get a positive return on cash investments like certificates of deposit, money market accounts, and bank savings accounts today is difficult, if not impossible. Sure you can look for yield in speculative global bonds or low rated junk bonds. But I assure you, if you invest in higher return assets you expose your money to high risk (translation; big chance of losing money).

So where is the positive?

Mortgage rates are lower than they’ve been in several generations.¬†Compound that with the fall of home prices over the past several years and you have the PERFECT TIME TO INVEST IN REAL ESTATE! Mortgage rates have nowhere to go but up. Home prices may not be at the absolute trough, but they are certainly lower than they’ve been in the past several years. I can attest to this personally as we just lowered our home¬†listing price to the sale price of¬†our next door neighbor’s identical home.

Although, I’m not generally a fan of non mortgage debt, if you need to borrow for an appreciating asset such as a business or value creating¬† home improvement, now is the time.

It is unlikely that you will see interest rates this low again in your lifetime.

THE TAKEWAY

As I stated at the start of this article, investing scenarios have their positives and negatives. As a finance professor and consumer of economic research, I can attest to the fact that economies are cyclical.

Look to capitalize on the opportunities in each economic cycle.

ACTION STEPS:

¬†Get a notebook and label it: ‚Äú(your name) Personal Finance‚ÄĚ and keep it by the computer. Use it to keep all of your personal finance goals, thoughts, activities, and plans.

  • If a home purchase in in your plans and you have a secure income stream, investigate FHA mortgages. They offer low down payment mortgage opportunities.
  • Consider investing in rental real estate alone or with a partner if you have access to a down payment.

*Conversation took place¬†during a Wise Bread twitter chat (Thursday’s at noon pacific time), moderated by Ashley Jacobs.

image credit; Douglas County History Research

What are your thoughts and recommendations for investing in this economy?