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Whenever I hear someone say ‘God will provide,’ I can’t help but immediately think ‘He already has, so go do something with it!’ Which brings to mind the topic of real estate in California, a state that is considered to be the fifth largest economy in the world with 1 million new residents arriving per year. This makes it the most popular place to live and work in the U.S., primarily because of the great climate, a substantial job market, higher wages, and a pretty fantastic lifestyle. In essence, we yogis live at the foothills of extraordinary wealth opportunities just by the mere fact of our zip code!
Any weathered financial guru will chant on and on about the benefits of real estate as one of the quickest ways to achieve the quality of lifestyle you desire. This is due to the fact that when invested in real estate, your money can make you significantly more money while you simply lie in savasana! You see, poverty is when large efforts produce small results and wealth is when small efforts produce large results.
If you were to sock away $3,500 of your hard earned dollars today and receive a ‘Rich Man Rate of Return’ - by my books, a 10% rate on your investment in one year - how much money has your money made you? $350. Now if you had used that same $3,500 smackaroos toward closing costs to buy a property with no money down toward the purchase price of a $450,000 condo, how much wealth have you created for yourself in one year if you receive again your ‘Rich Man Rate of Return’ of 10%? $45,000 in equity wealth for you my yogi! Plus, Uncle Sam has collaborated with you in building your riches in the process, as he is going to offer you the opportunity to deduct all your mortgage interest, property taxes, and other expenses off your gross taxable income. Just think, every time you write that rent check, you are writing it toward someone else’s real estate riches. Especially since historically over the long haul, real estate prices have nationally averaged an annual 7% rate of return per year. Now take that $450,000 condo purchase today and voila! In ten years, it will double in price to $900,000! Imagine, you get to create $450,000 of equity wealth in your sleep just for paying your monthly mortgage versus your rent! This is one of the main reasons why 97% of millionaires in this country have created their fortunes through real estate.
With that said, I see a lot of people who missed out on the recent real estate boom in California in the last few years, who are now succumbing to the sensational media reports that we are in a big real estate bubble. These individuals seem to be unconsciously hoping that real estate prices will crash, so they can make up for the great real estate years they missed. The sad truth is that although short-term interest rates have steadily increased in small increments over the last two years, interest rates are still historically low. At this time, a 30-year fixed rate loan is hovering around the 6% mark, meaning there is still affordability at current lending rates. Plus, the underlying economics support a slowdown in real estate price appreciation to more modest levels of 7% to 9% increases per year, versus the 20% plus in real estate prices per annum we have seen in many areas across the state these last few years, but certainly not a crash.
Some of the major economics that support a continuation of modest price appreciation in the next few years include the ongoing demand for housing from the incredible wave of immigration from Asia, Mexico, South America and across Europe. Not to mention the 75 million baby boomers moving into retirement whose expenditure patterns illustrate that they are either selling their houses for smaller, more expensive houses or are taking their equity and buying second homes. In fact, this robust demographic is enjoying unprecedented health, wealth, and optimism, which ultimately means no nursing homes in the near-term combined with continuous spending as they live into their golden years, thus supporting a robust economy moving forward.
In fact, the professional occupations and service occupations will increase the fastest, adding 7 million and 5.1 million jobs respectively. Job growth happens to be the number one driver of real estate price appreciation as well. The stock market is still having its ups and downs, which means investors are still pumping their money into real estate. Inflation is expected to stay low, as in the past labor unions were large contributors to inflation, but are being weakened by a decline in manufacturing jobs and a large labor pool of immigrants willing to work without a union. In summation, more than 95% of the population is employed, interest rates are still low by historical standards indicating affordability, and real estate always appreciates in good times and over the long-haul. Why not step out of your financial comfort zone, challenge yourself to see the forest through the trees, and take action today!