Fed Policy Should Drive Investors To Real Estate

About a week ago, the Fed announced that it would hold interest rates at or near zero percent through 2013. The feeling in Washington is that to raise interest rates now might hamper the already fragile economic recovery.

This recently declared policy means two important things for investors. First, you won't be able to make money merely by investing cash in various bank instruments ( like CD's, for example). Second, mortgage interest rates will likely remain low for at least the next two years.

Fed monetary policy has kept interest rates low for quite a long time now, and lender banks are not making much money from those kinds of loans. As a consequence they are not paying much for the money you deposit with them. CD's are not paying near what they were in my father's day, neither are passbook savings or other bank-backed programs that have been traditionally supported as "safe havens" for money -- especially among those approaching their retirement years. The other side of this coin is that it encourages low mortgage rates, thus making housing more affordable.

If you think about it a little, this Fed policy encourages investors to look toward real estate as a viable addition to their portfolios. After all, you won't be able to make money with money for at least another two years, and mortgage interest rates look especially attractive for the foreseeable future. On top of all that, real estate prices are low right now and many sellers seem willing to negotiate even better deals -- especially if the property is a short sale or foreclosure.

This kind of policy setting by the Fed should drive investors toward real estate. This might be the time to invest in some good residential real estate or small commercial property with an eye toward making a profit each month from rental income. Look to the long-term and forget about "flipping" the property which is a short-term strategy that works best when the market is overheated with buyers who have easy access to mortgage money.

Of course, you can always put your money into the stock market if you like roller coaster rides. If you do that, keep in mind that they call the last ten years of stock market activity the "lost decade" because practically nobody -- even professional money managers -- made any appreciable money in the stock market. The last two weeks should prove my point on that.

Since the Fed's window for raising rates is at least two years away, I'd say now is the time to consider adding real estate to your portfolio.

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For Sale By Owner Guru Uses Agent To Sell His Property!

For years, I've been saying that home sellers were shorting their profit potential by selling their property without the aid of a real estate agent. Real estate agents generally get a 9% higher price for property than do the owners.

Despite this, many people insist on trying to sell on their own. In fact, in recent years there has even been a a website developed which acts like a national Multiple Listing Service specifically for owners to promote their property.

This website, called ForSalebyOwner.com, was founded by Colby Sambrotto. Recently, the Wall Street Journal reported that Sambrotto wanted to sell his 2,000 square foot, 2-bedroom apartment in New York City. Being a For Sale By Owner (FSBO) guru, he tried to do this without the help of a real estate agent.

Apparently the apartment lingered on the market for about six months. After that, Sambrotto called in the help of real estate agent Jesse Buckler. Buckler told Sambrotto that his apartment was priced too low and was not attracting the right kind of buyers. He advised that the price be raised by $150,000.

At first, Sambrotto did not accept the advice of Buckler, but finally allowed the price to be increased. In a short time, the apartment attracted multiple offers and ended up closing for $150,000 over the original asking price.

Hey, stop laughing! This is a true story! Check the Wall Street Journal for August 3, 2011.

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Why Investors Should Look At Real Estate

You've probably seen the morning reports on the stock market's performance for the past eight days. Between the debt crisis and the childish performance from Congress, word of a big drop in consumer spending, bad employment figures, soverign debt problems in Europe and all the rest, stocks had their longest losing streak since the start of the 2008 credit crisis. Investors are worried about federal spending cuts and the apparent stall in the economic recovery.

Because of this, the Dow Jones Industrial Average dropped 265.87 points on Tuesday, August 2nd. The eight day losing streak for Wall Street has been the worst since October, 2008 -- that is when Lehman Brothers collapsed and is considered by many to be the peak of the U.S. credit crisis.

The Standard & Poor's 500 dropped over 32 points on Tuesday. For S&P, this is the worst 7-day streak of losses since October 2008.

The Nasdaq composite dropped over 75 points, a 2.8% drop in overall value in one day.

Quite possibly, whatever gains you feel like you have made in the stock market since the first of this year may very well have been lost in the last week or so. Check your statement for July and see how you did.

I know some people who did pretty well in July with their investments. They invested in real estate during the last year or two. No, they did not flip any property. They rented them to solid tenants who paid their rent on time.

I am not an investment advisor, but those who read this blog know that I have been suggesting for some years that the stock market has become a "roller coaster ride" and that long-term real estate investments will prove to be the best -- and perhaps the only investment -- that will be profitable over the years. Did you know that most of the great fortunes made in America included a healthy portfolio of real estate investments? It's true!

Yes, there was a real estate bubble and some people are in dire financial situations because they became overextended. In many cases, these were people who were "flipping" real estate and trying to make money on the difference between the purchase price and the upswing in real estate values in the 2003-2008 period. Many of these people got burned.

Others, however, who invested for the long term have done very, very well indeed. Rather than trying to make a quick hit by flipping, these investors took the longer view. They found good tenants and rented their properties for a nice profit each month. Like every business, they probably found that real estate rentals have some ups and downs, but in the long run most of these people have made out very well -- certainly better than stock market investors given the same time period.

My understanding from various property managers with whom I am acquainted is that right now is a great time to own investment property because the demand for nice, clean single family homes and apartments is very high. A lot of people are losing their homes to foreclosure and short sales. Despite this, those people still need a place to live and have reasonable incomes to cover the rental costs. Consequently, this is a good time to own rental property.

If you have had it with Wall Street, why not talk to a real estate agent who knows a thing or two about property as an investment? This might be just the approach to help you recover that lost nest egg.

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