This week the Congress began deliberation on the CAP AND TRADE legislation even while the Health Care debate has yet to be decided and a bill passed through for the Presidents signature. If Democrats in the Senate and House Leadership get their wish, they will pass a public option which by ANY minimal estimate will add an additional $1 TRILLION dollars to the National Debt and eventually drive private insurance out of the market. Any plan that drives out the free market is doomed to inefficiency, huge losses and fraud. Keep in mind that NO government run program has EVER been cost effective. While major industrial democracies in Europe and the Far East are running away from centralized government control, the US seems to be running in the opposite direction. But what does this have to do with REAL ESTATE you may ask? Very simply and importantly, Interest rates. The cost of money is the life blood of Real Estate. If buyers cannot afford the monthly mortgage payment, properties do not get sold.. Simple. If the government continues to spend money it does not have, then lenders require better returns on lending. That means the Federal Reserve must increase interest rates to attract bond and treasury investors to finance the US debt. That trickles down to you and I in higher interest rates on anything from Credit cards to car loans and yes, 30 year fixed mortgage rates.
The pressure is already building against the dollar because of our incredible deficit. Foreign buyers are demanding higher returns for the greater risk of holding US securities. The danger is, higher interest rates also slow business activity and the nation can ill afford that right now..
SO.... What is the government doing? They are trying to ram through this ill fated bill even though the majority of Americans oppose it. The CAP AND TAX bill is even worse and would add an additional $3,400 a year to the average americans energy expense.
All of these measure will affect the cost of money. ( Interest Rates) They WILL rise. It will also raise the cost of construction at every level. Both of these mean HIGHER PRICES for real estate and higher interest rates to borrow the money to BUY that real estate. SMART investors and home buyers know that inflation is coming. It is already on the horizon and we are seeing it beginning to creep up the cost of oil, which is pegged in US dollars. The less the value of the dollar, the higher the price of a barrel of oil.. Its simple. This is another reason why the G20 is clamoring to replace the US dollar as the medium of exchange because they no longer trust us to keep our financial house in order.
Lets put it this way. If you were to buy $1000 of a persons debt and they paid you 4% interest you would make sure that they had the ability to pay it back and also not borrow so much money from someone else that they got in a situation where they COULDNT pay it back...... The US government goes on the open world market and sells our debt.......by the trillions. Investors are now getting a little freaked out that we simply are spending more than our ability to ever pay back. They want higher interest return because of the higher risk. AND some are even saying... NO... NO MORE LOANS! So, the US is PRINTING MONEY!
REMEMBER.....the ONLY REAL investment that is not PAPER are commodities like GOLD, SILVER, COPPER, and REAL ESTATE. They are the greatest protection against inflation.
If I had to bet the bank on it. I would say that we are headed for a serious round of inflation. No one in Washington seems to have the guts to address the issue and it WILL hit us at one point or another. You cant defy gravity. Its coming.
WHAT TO DO?
1) Lock in to a long term low interest fixed loan on your current real estate. If you cant. SELL!
2) Pick up the great deals from Short Sales and REO foreclosures NOW while there are loan programs and interest rates low enough for you to afford or to keep your expenses low and lease or rent out your investment.
* Keep in mind that in inflationary times, when you are paying a fixed loan amount. You are paying yesterdays dollars with todays inflated value. Its a good deal for the savvy investor. As rents and rates rise, your base cost remains the same.
3) Dont be AWOL on your real estate investments. In a volatile market like this, your attention is important. Watch the markets. Make sure that you have the BEST loan, Make sure you have taken all tax advantages or property tax savings you are allowed. If you are a Florida resident or have Florida property, make sure you HOMESTEAD your property or look at making Florida your primary residence. Planes and the internet can make it possible for many. Also, Florida is only one of 4 states that have NO income tax! That is a huge savings for most.
4) Look at diversifying your investment portfolio that includes CD's, growth stocks, commodities, and of course real estate. Real estate offers tremendous tax benefits by sheltering income as well as giving an annual deduction for depreciation that few other investments can offer. You can shelter your real estate rental income by deducting expenses, management fees, cost of maintenance as well as depreciating the asset, even though it is likely GAINING in value! Dont you love the US TAX CODE! God Bless it and its 12,000 pages!
5) Real Estate offers a simpler way to plan your retirement and give you equity value while receiving monthly income.Its also usually easier to transfer ownership.
When you make these decisions.,, ALWAYS use a professional! My grandfather, a successful businessman, always said that he hired people that knew things he didn't so that their knowledge went to work for HIM! Smart man. You can't be an expert at everything. Todays world is to complicated.. Dont think so? Open the hood of your car and try to fix that engine yourself.
Geoff and I stand here ready to help you with your real estate needs. We have over 25 years of proven successful experience in real estate, both commercial and luxury beach front properties.. Our commitment is to make sure you get the BEST DEAL at the RIGHT PRICE, for the RIGHT REASONS that fit YOUR NEEDS! Give us a call today. Your piece of paradise awaits you and for the time being, its more affordable than you think.
