For those of us who have money in the stock market, we know how a drug addict must sometimes feel. We are high one day on news that the market has gone up, and down the next when some financial headline causes the market to tank along with our earnings.
There is no escaping the feelings that go with owning stock investments — happy one day, dejected the next.
On the other hand, investments in real estate are not subject to the daily wild swings of the stock market. Real estate’s path for appreciation or deprecation is more of a steady progression that takes a much longer time to measure.
That is why appraisers use comparable sales for the past six months to value a property.
The real estate market has been in a gradual turnaround in Flagstaff this past year and investors, builders and developers are beginning to see opportunity in our city. If you are considering investing in real estate, there are several types of property that you should evaluate. There are commercial, land and residential property speculation. Your own residence and land are generally considered a growth investment, while residential and commercial rentals are considered growth and income. Each of these investment types has its own pitfalls and rewards. However, if you plan accordingly, you should see a decent return on your dollar.
First, consider the type of real estate that you would like to have and the impact ownership may have on your life.
Once you have found a property that may suit your needs, you can conduct a quick financial analysis to see if it is a worthy investment. First, calculate the capitalization rate or CAP rate. The CAP rate is the rate of return or yield from a property that you expect as an investor. The rate is determined by dividing a property’s net income by its sales price.
You should also consider the rate of return on your down payment. Comparing these rates to your return from a bank, stocks or other investments will give you a good idea if you want to continue with the purchase of a particular property. If you are planning for growth, look at historical trends in the type and location of the real estate that you are interested in. History is no guarantee of the future; however, it does give you a basis from which to make your decision.
Real estate investing is not for the faint of heart or the short-term investor. It takes time for real estate values to appreciate. As with any investment, you must consider the risks. If the past is any indication of the future, real estate in Flagstaff and northern Arizona will continue to be a good investment. Talk to your realtor and accountant before making a purchase. Your realtor will have the facts about the market and your accountant can advise you on the tax implications of owning real property.
Finally, with an investment in real estate — whether it’s your own home or another type of property — you won’t be subjected to the daily highs and lows of the stock market, and you just might be able to sleep better at night.