If you can’t buy a home, should you invest in real estate anyway?

0
40
spotless_v01_728x90


Across the country, for the first time, prospective home buyers face frustration as they realize that get up Due to housing prices, they did not make it to the market. Many home buyers are losing bidding wars to cash buyers… A total of about 549,000 houses were put up for sale. nationwide in June 2021, the number of which has decreased by 45% over the past four years.

Some Americans, who have accumulated tens of thousands of dollars in a down payment that they now understand is not enough to buy a home, are wondering: Should I find another way to invest in real estate? Another how to buy a house?

Some commentators singing the praises of this idea, suggesting that it would be less risky for most Americans to be tenants rather than homeowners, and those tenants could instead invest in REITs (Real Estate Investment Trusts).

About 2 in 3 homes in the United States owner-occupiedbut home ownership can be risky. In the average family, 42% of the condition is associated with Housewhich means they are not very diverse: if the home has physical problems or if the value of a home in the area falls, that homeowner has put a lot of his eggs in one basket.

But in the United States, the cost of renting is often high compared to the price of homes. According to United States Census BureauThe median asking rent for vacant homes in the first quarter of 2021 was $ 1,226, compared to the median asking sales price for vacant homes available for sale of $ 200,900.

Let’s take a look at what would happen financially if you bought a modest home, versus if you rented the same home from a corporate landlord, for example Home Invitation, the largest single-family homeowner in the United States, investing money that would were your advance payment to the Invitation Homes REIT (INVH). To keep things simple, we’ll look at the last four years, from April 2017 to March 2021, the end date for Invitation Homes’ last quarterly earnings report.

Investment lease or home ownership

Invitation Homes, a publicly traded REIT, spun off from the world’s largest private equity firm, Blackstone.
Bx
, owns about 80,000 at home nationwide, more than 12,000 of which are in the Atlanta metro area. According to their most recent quarterly earnings report, the total value of their homes is $ 16.3 billion, and they collect $ 1.9 billion in rent per year, which means when they rent out a home worth about $ 200,000. they charge about $ 1900 for rent every month.

But the mortgage payment for a $ 200,000 home is only about $ 960, assuming an interest rate of 4%, a 20% down payment, and a monthly property tax of $ 132. Someone renting Invitation Homes will spend about twice as much each month on rent as their monthly mortgage payment if they owned a home.

The tenant, however, will be able to invest their down payment amount.

If, instead of making a down payment of $ 40,000, a lessee had invested $ 40,000 in INVH on April 2, 2017, their investment would have grown to $ 63,385 by March 31, 2021, a significant increase of 12% per year.

The homeowner would directly benefit from the rise in home prices during the period that he or she went to sell their home. A home bought for $ 200,000 in April 2017 will cost about USD 261,000 by March 2021. use, the $ 40,000 down payment turned into over $ 100,000 worth of equity. And remember that the landlord received monthly housing payments that were roughly half of the tenant’s price.

When you add it all up, including the homeowner’s closing costs and maintenance costs (but assuming the homeowner doesn’t deduct the mortgage interest from their taxes), the homeowner goes ahead by over $ 60,000 in just a four-year period. The longer the homeowner stays in place, the better.

Conclusion?

Landlords can charge high rent margins, some of which are eaten up by costs like marketing, vacant homes between tenants, and high costs eviction of tenants, a practice practiced by corporate landlords often… If you rent your residence and invest in a property management company instead, a lot of your money will languish in middlemen.

Anyone who wants to celebrate the fact that America is becoming a nation of tenants must reckon with the very real loss of wealth that this will lead to the middle class.

If you can’t buy a house, don’t double on REIT

In a way, Invitation Homes is unique in that it gives investors the opportunity to play with single-family residential properties in the United States.

Some REITs focus exclusively on residential properties such as Home Invitation
INVH
, but about 80% of the REIT market commercial or industrial real estate, buildings, including offices and shopping centers.

While 2020 was the year of a boom in housing prices, the REIT sector as a whole fell by 2% in 2020, while the S&P 500 rallied 16% over the same period.

“If you invest in a REIT, you almost never invest in raising house prices. You are actually investing in commercial space, and more specifically, you are investing in commercial space finance, ”said Dan Egan, vice president of behavioral finance. and investing in Improvement… As a result, he explained, “REITs are very sensitive to changes in interest rates because they typically use a lot of embedded finance.” For this reason, he said he would not recommend anyone save up money to buy a home to invest in a REIT, especially because of the false assumption that if home prices rise, their REIT is likely to rise as well.

AND REIT already part S&P 500 index, which means that if you own S&P 500 index funds, you already have a certain share in that asset class.

Although everyone’s situation is different, if you decide to keep renting a house instead of buying a house, extra money for investing, it is probably better to use a broadly diversified portfolio instead of a high concentration of REITs.

This article is for informational purposes only and is not intended to provide tax, investment or financial advice.



Source link