Lessons Learned – The Value of Leveraging with Real Estate

The probability that in San Juan county property values will rise before the island economy recovers is something islanders should consider if they are thinking of purchasing a home.

The real estate market in the San Juan islands is a bit different than most other small communities. On the mainland the local economy typically drives the local real estate market.

The San Juan islands differ in that a significant number of properties are second or vacation homes for people who work and live in other parts of the country. These homeowners are using income generated elsewhere for their purchase. Therefore the island economy plays a smaller role in the decision to purchase.SalePending3

What might an island resident do to achieve their American dream of homeownership in this situation? One possible option is to “play the market”. Invest now into something small and affordable or in need of cosmetic fixing. As prices begin to rise you gain equity. Use that equity by selling the small home and purchasing a larger home.

Remember the big down cycle in the real estate market in the late 1980’s? While it wasn’t a crash as deep and long as the current cycle it did present some excellent opportunities to buy into real estate.  Once recovery began many places saw their values recover in less than one year.

If you are looking to achieve your dream of ownership think about getting ahead of the pack. Make your investment now and ride the market upward. You may have to lower your expectations. Instead of owning a dream home, make it your goal to ‘just get your foot in the real estate door’. If you aren’t handy enough to invest in a ‘fixer’, purchase small. If you are handy, consider a ‘fixer’. There is a lot to be said for sweat equity. Either way the plan is to hold onto the property long enough to build equity. Equity is used to leverage into a ‘better’ home as the market improves.

LyonsThink about this. Real estate is one of the few areas of investing where you can leverage into an investment. Let’s say you have $10,000 in the bank and have a stable job and good credit. You invest that $10,000 in a $100,000 house. Now assume the market recovers at a conservative 3% in the next year.

If you left the $10,000 in the bank do you think you’d receive a 3% interest rate? Probably not. Even if you were lucky your $10,000 would have earned only $300. Now say you invest that $10,000 in a $100,000 home. Your equity will be closer to $3,000 or ten times more than you’d earn from the bank.

If you’d like to discuss how you might leverage your savings into home-ownership give me a call. I’m here to help.

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