| A recent survey conducted by the National Association of Realtors reported that 23 percent of all residential real-estate transactions in the U.S. last year were purchased by investors, rather than buyers looking for a place to live. Around the Puget Sound area, the combination of low housing inventory and low interest rates has resulted in a booming market that’s ripe for the picking for real estate investors. According to the Northwest Multiple Listing Service, the average price of single-family homes rose more than 12 percent in 2004 in Kitsap County. But rising property prices aren’t the only thing making real estate a sound investment; the dot-com crash and stock-market declines have made many investors rethink their reliance on stocks and seek alternative investments, such as real estate.
Anyone that invested in the stock market last year probably watched the value of their investment drop by the end of the year. By contrast, anyone that bought a home in Kitsap County in 2004 would have seen their home appreciate in value by 12 percent plus or minus. In recent years, housing has become something of a safe haven for investors at a time when stocks have been perceived as high-risk investments. Median home values certainly have been less volatile than stocks, resisting even moderate price dropping since 1994. As such, many investors looking for a safe place to invest their money have bought into residential real estate.
All things being equal, even if the return from stock market investments and homeownership are the same, real estate would still yield a better net result. This is because profits from the sale of stock are generally taxable, yet profits of up to $500,000 for a married couple (and up to $250,000 for single owners) are shielded from taxes when a primary residence is sold. The rules change somewhat if the home being sold is not a prime residence, but rather is an investment property. In that case you will be faced with a 20 percent capital gains tax on the increase in value of the property. However, this cost can be deferred if the gain is reinvested into a new property.
If you simply consider the fact that the Puget Sound area’s population is estimated to experience an increase of over one million people by the year 2030, it’s safe to assume that there will continue to be a demand for housing. According to the National Association of Realtors, you can also safely assume that your home will appreciate, on average, at least four percent a year. Of course, some years will be better than others, as we have experienced in the Puget Sound area, but overall, homeownership is one of the best investments you can make. |
