The Most Neglected Real Estate Investment Strategy
Leave it to a radical pastor friend of mine to correct me on yesterday’s blog post about forgetting one of the best real estate investment strategies on the planet . . . . of course a “man of the cloth” should be other worldly and not accumulate too many possessions to tie him to this world. And this particular preacher loves his local flock but also married an evangelical Asian and they love sharing the good news around the world. The pinnacle of his “living in his real estate investment” strategy, was to serially buy builder’s pre-furnished model homes. By not being attached to the primary residence or the furnishings, but being willing to reinvest every few years in an appreciating market, my friend found the solution to holding to his values and still having a home appropriate for entertaining out of town guest speakers, interim pastors, and other visitors!
LIVE IN YOUR INVESTMENT PROPERTY! (For more than two years!) And resell it after that as soon as its has earned some tax free income for you through appreciation or rehab! Yes, there is a great deal of talk in the current Congress about eliminating or reducing the deductibility of the home mortgage interest. But keeping home appreciation tax free for the primary residence seems to be outside the crosshairs of the new tax laws being proposed. So under current law, if you sell a home as a single person, and make up to $250,000 dollars on it ($500,000 for a married couple) you don’t pay any income taxes on the quarter million dollars of income! The main tax downside may be that, unlike a normal investment property that you DON’T live in, your ability take a tax deduction for depreciation is limited. Talk to your tax advisor!
Bottom line, I stand corrected for neglecting to mention this strategy. 2007/2008 gave us a speed bump to real estate investment strategies that relied for success solely on rising home values. (Or the recession could be seen as the freedom to stay put for a few extra years in one place). It appears that appreciation has relentlessly returned to the market. There will always be prophecies of a bursting bubble looming just ahead. But even a declining market can be overcome by enough “sweat equity”. If you have no time to invest in rehabbing your residence during a declining market, the safety net may be a short sale! For Flippers who “hold” and reside in a place for two years, at least they have the consolation of “low maintenance” and reliable tenants and a Short Sale gives them the further luxury of being able to start over with a new property with more potential for appreciation if the current one was a flop.
In any event, a wonderful article was published today in USA Today that says our own Virginia Beach is the #2 buyer’s market in America right now!!! Check it out for the nuances and details! And for goodness sake, if you can kill two birds with one stone, not to be too gory, make home sweet home the best investment you can!