Why Real Estate Returns Will Outpace The Stock Market Over The Next Five Years. (Opinion)
Since the record breaking covid stimulus package has hit the American public the economy has exploded with stock market rally’s happening left and right. Some economist have speculated this may cause overheating of the market but as of now investors are reaping the benefits of new investors and increased spending. The stock market isn’t the only thing that is booming however- with historically low interest rates and a great emphasis on staying in- homes are also seeing a meteoric rise in value. Unlike the Stockmarket however the cool down for the price of housing won’t be stopping any time soon. Here’s why:
Demand
Historically low interest rates and a rising emphasis on staying at home has led to record demand in home buying. People want to have greater control on where they live during uncertain times and low interest rates has created droves of potential buyers who couldn’t afford payments before.
High Building Cost
Consumers want more, newly built, affordable homes, but builders are finding that hard to deliver, especially as prices for framing lumber spike ever higher. Covid constraints and a renewed interest in homes has restricted lumber supply causing lumber prices to sore greater than 200% in some parts of the country! Even though housing prices have jumped 14% in some parts of the country this still isn’t enough to make new construction possible in many areas thus house prices will still continue to rise until the market can balance demand with supply.
High Leverage
Rental properties are usually bought with borrowed money. Using borrowed money for rental property is a form of leverage that can increase an investor’s return. If an investor buys a $100,000 rental property with only $10,000 as a down payment and collects $8,000 in rent the first year he has made an 80 percent return on his $10,000 investment. Using borrowed money to buy dividend stocks, however, will usually produce a negative return. Solid dividend stocks typically pay between 3 to 6 percent annually. So, unless an investor can borrow money at less than 3 percent, the interest payments will cost more than he receives in dividend payments. Rates are still historically low, this only increases the amount of leverage an investor has under current market conditions.
The Bottom Line.
With historically low interest rates, extreme upside, and potential for a down turn in the stock market real estate is more appealing than ever for long-term portfolio gains. If you are ready to get your real estate investment journey started 2nd Wind Properties is here to guide you along the way. Check out our other blogs for more information or view our properties to get started today!
