Though down and out following the collapse of the bubble in 2007, real estate could be back in vogue as an investment. Lower prices, lower interest rates and an improving economic climate could set the stage for another great boom in real estate investing.
Real Estate as an Investment in 2010
Anyone who has watched the evening news in the past six months knows there's no shortage of “fixer-uppers” and under-priced repossessed homes on the market. As the recession wears on, more and more homeowners are underwater, and many are walking away from the homes into which they've invested so much. For investors, there has never been a better time to buy.
The cost of borrowing is one of many great reasons to be a landlord. With rates under 5% for prime borrowers, monthly payments on investment grade houses are well below monthly rent prices. In addition, a new slew of previous homeowners who are now renters need a place to live, and with banks unwilling to make another risky loan, they'll turn to the rental market for inexpensive housing.
Follow the Jobs
Should the employment situation improve in the coming months, the rental market will be quick to follow. As more people find full-time and even part time employment, demand for the basics of life, which is primarily shelter, will grow faster than the general economy. In many places, especially on the west coast of the United States, single family homes now shelter multiple families as unemployment swells well into the double digits.
If You Don't Want to Be a Landlord
You don't have to be a landlord to take advantage of rising real estate prices. Real estate investment trusts, homebuilder stocks, and a variety of exchange-traded funds are sure to increase in price as the real estate economy rebounds.
One popular choice, the SPDR S&P Homebuilders ETF (XHB) has nearly doubled in the past 12 months, and it pays a healthy 1% annual dividend to investors.
Other opportunities in individual companies, such as Equity One (EQY), which rents office space and retail fronts to small businesses, provide another outlet into an already improving industry.
In the end, the opportunities are many, and the chance for profit is huge should the economy recover.