Diamonds are not forever but Real Estate Is … Make Wise Investing Choices!

Would you ever think to compare diamonds and real estate? At first glance, they seem like two completely different things.  However, they are both hard assets that are cost-prohibitive to acquire for the average US worker.  However, you can sell both “assets” quickly and not realize their full value in the marketplace.    Let’s first compare the similarities and then differences from an investment perspective.

Real Estate is a better long term investment than diamonds

Similarities

Hard Assets:

  • Both Diamonds and Real Estate are Hard Assets similar to other commodities
  • Negatively correlated with bonds and stocks, so when stocks crash both appreciate in value

Long Term Investments

  • Suitable for investors who are not looking for fast returns on their investment
  • Risk losing money if you try to “flip” your investment too early or didn’t acquire at the right price below market value

Additional Utility

  • Provide the investor with enjoyment and value
    • Diamonds are pretty to look at and make the person or people associated with the diamond have better social value 
    • Real Estate provides rental income and in the case of short-term rentals – owners can enjoy the property and generate revenue when not in use.

Differences

As investors, we all know that not all hard assets, such as real estate or diamonds, have the same return on investment.  In fact, ROI performance varies greatly even among real estate classes:  residential property, commercial real estate, agricultural property, etc.  Financial crises prove time and again that real estate is a highly volatile asset.   Diamonds are a closed market that is stable and less risky.  However, there are still differences among the rate of returns on diamonds such as the colored diamonds are less risky.

  • Maintenance Fees
    • Diamonds don’t have a maintenance fee … you’re ROI is based on the price you paid upfront for the diamond
    • Real Estate requires maintenance and repairs and possibly property management fees.  All these factors need to be carefully considered before acquiring property and affect your return on investment.
  • Portability
    • Several millions of dollars can fit in your fist and transport in a pocket … the irony for not being the rarest stone they have the highest size to value ratio of the natural resource category.   This is how historically (since the silk road trail) wealth was transported long distances and across borders.
    • Real estate can’t be moved. Real estate is not physically portable and the value does not transfer easily either.  However, 1031 exchanges are a great way to transfer appreciation as you sell your property.

At REI Capital Resources, we prefer real estate investing to diamonds.  In fact, diamond prices are extremely volatile – shooting up 249% from 1978 to 1980 before falling 77% by early 1986 – but the value of diamonds has also long been propped up by a number of artificial sources.   Real estate can be utilized and provide rental income.  As the number of cloud and work from home startups rise, commercial real estate is increasingly valuable to investors to provide “server farms” to meet bandwidth demands.

We are not saying diamonds aren’t valuable or important – especially as emergency currency and making your future or current spouse a little happier this valentine’s day.  We’re saying don’t buy a diamond as an investment with the idea of retained value.  If you look at diamond prices since the 1970s, there has been “Too Much Price Volatility & Demand Uncertainty To Be Considered Investable” by numerous sources.  Also, the use of diamonds as a symbol of a woman to be married is only about a 100-year-old custom.  There are numerous other stones considered rarer.  Thank you, Madison Avenue for making weddings a thing to save money for and cause the intelligent investor to consider generating a new stream of revenue.

We love this quote by Milton Friedman, “The speculator is looking for hidden weak spots in the market,” and acts as “the advance agent of the investor, seeking always to bring market prices into line with investment values.”   Diamonds don’t provide an adequate hedge against inflation, and most people would be better off with more practical financial planning, than investing for catastrophe purposes.  The diamond while a modern symbol of one’s love and commitment to another is expensive and ranks low when compared to value stability.

Diamonds vs. Gold vs. S&P 500

YearGold ROI  %Diamond ROI  %S&P500 ROI  %
2004000
200536-110
200657323
200797291
200811911-22
200917619-7
2010254507
20112763915
20122182437
20131852061
2014172873

*Data courtesy of the Rappaport Diamond Index, Kitco, the World Gold Council and Yahoo Finance. Diamond prices reflect monthly averages based on a 1-carat diamond. Gold prices are based on average annual London PM fixed prices. S&P 500 prices reflect average monthly adjusted closing prices. ROIs are cumulative.

The chart shows when the stock market suffered historic losses, diamonds at best served as a short-term hedge and very quickly fell behind the returns of alternative investments.

Therefore, I would recommend a 3 bedroom house that generates a positive return on investment that you can set aside the money after a year to buy your sweetie her diamond.  If she loves you, she’ll wait a year knowing a diamond is coming.

Waking Up

Real Estate is waking up. U.S. mortgage applications to purchase a home 🏠 rose 9% last week from the previous week and from a year earlier, according to the Mortgage Bankers Association’s seasonally adjusted index. It was the sixth straight week of gains and a 54% recovery since early April. Investopedia.com.

Photo by Pixabay on Pexels.com

This is despite the sobering news from the Labor Dept. Weekly pay fell 11% in April from the prior month. That was the biggest drop on record, but it will likely be broken in May. Investopedia.com This, plus historically high unemployment, will be immense hurdles for people buying homes but might be incentive to start a business fixing and flipping homes to add to your own income and to provide homes, maybe small homes, to young and old consumers alike. Both want to get out of community living and out of big mortgages. I have the funds to help you fill this void in housing.

Real estate agents are using more virtual tours to showcase their homes. You might be able to use a video 🎥 to showcase your remodeling experience on a loan application for a private money loan for your next project.

I am working online with the rest of you. If you need funding, fill out the BLN application at   http://reicapital.blnsoftware.com/ or send my an e-mail or give me a call.

Patrick St.Cin

W – 512-213-2271

M – 505-239-3026

Patrick@REICapital.cash

www.REICapital.cash

Investing in Apartments – Commitment and Study

Even in the coronavirus pandemic crisis investing in rental apartment property can still be a good way to add thousands of dollars to your income in the long term. If you buy apartment real estate that is in a good location with growth potential, but that is not too expensive, this real estate investment will likely recover after the crisis passes according to (Brad Hunter, Forbes.com). However, the investment takes funds and commitment over the long haul.

Appreciation

There are two way to make money from rental real estate. The first, appreciation, is a rise in value over time. This profit can only be realized by reselling the property after some time has passed or after you have made upgrades that add to the value. Generally, real estate appreciates in value over time if you are in the right location. Be sure to study employment and home buying trends in your local area before purchasing rental property.

Cash Flow & Coronavirus

You can also make money in the form of cash flow by collecting rents as income. The coronavirus pandemic is affecting the apartment rental real estate industry because many people, more people than we have ever seen before, have lost their income in only a few weeks, unemployment claims are up all over America, and tenants may not be able to pay their rents for the next couple of months. This will impact the ability of landlords to make money. Either the landlord forgives the rent and eats the loss for a while to keep the tenant, or the renter is evicted, and the property becomes vacant. In either case, the landlord is not receiving income on the property and may have to seek forbearance from their own lenders.

If a landlord has paid off his or her own mortgage on the property or if he or she has established an emergency fund as Dave Ramsey suggest (daveramsey.com), they will be able to weather the storm caused by the jobs lost in the pandemic shutdown.

Jobs and Renting

Either the jobs come back after the danger from the virus is past and businesses reopen, and the renters stay, or a new set of renters materialize because those people who are no longer able to afford their own homes move to apartments and construction of new homes slows because of coronavirus-driven delays caused by labor shortages, and supply shortages. More people may need to rent. In this case. It is likely the landlord’s income will return after some shaky months.

Photo by Michael (Black) Ritter on Pexels.com

Asset Rebound

Because the income potential should rebound, rental apartment property should not lose its value overtime as an asset. If the building itself remains sound, there is no reason why the property value will not increase as other investments tank and real estate once again looks solid and reliable compared to stocks. Also, if interest rates remain low, investors will be willing to take on more debt and are not restrained from purchasing property at higher prices. This will help investors who plan to sell their rental properties make a profit.

Single-Family Rentals

Investments in single-family rental homes may also benefit in the long run as more people work from home and need more room than apartments afford. Brad Hunter also suggests in his article on Forbes.com that the single-family-built-to rent-industry may benefit as people need that specially designed home office space with its own door and bathroom.

Due Diligence

Investment in rental real estate should remain attractive but be sure to do your due diligence.

Study everything from location, jobs, virus hotspots, distancing trends, supply chains, virus rebounds as they occur, and what the kids are doing now.

References:

Dave Ramsey online at https://www.daveramsey.com/blog/how-to-invest-in-real-estate

Forbes online: https://www.forbes.com/sites/bradhunter/2020/03/24/coronavirus-impacts-on-real-estate–why-you-need-to-think-short-term-and-longer-term/#6f2133345f6f

Investopedia, The Impact of Interest Rates Changes by the Federal Reserve. https://www.investopedia.com/articles/investing/010616/impact-fed-interest-rate-hike.asp

We have funds available so let us invest in something together.

I would be pleased to have you call or e-mail too.

Patrick St.Cin

W – 512-213-2271

M – 505-239-3026

Patrick@REICapital.cash

www.REICapital.cash

REI Capital Resources is in accordance with the Federal Equal Credit Opportunity Act, REI Capital Resources employs business practices that promote fair lending and will not tolerate discrimination relative to borrower race, color, religion, sex, handicap, familial status, age, national origin or ancestry. REI Capital Resources fully supports the letter and spirit of these laws and does not condone discrimination in any mortgage credit transaction.

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Home Affordability Update

According to Realtor.com’s May 2019 monthly housing trend report, the national median listing price for a home sets a new record at $315,000.  Despite the continued rise in home prices, rising wages, more inventory, and declining mortgage rates, have made 74 of 100 metro areas more affordable to buyers in their market.

“…the boost in affordability has yet to translate into more home sales perhaps because. while the shift in trend is welcome, the current monthly savings are small and some buyers are waiting for markets to tip further in their favor.”

Danielle Hale, chief economist at realtor.com

The top ten cities showing the biggest improvements in availability of affordable homes also added decreasing listing price. The ten include:

Charlotte, North Carolina, median home price $329,450

Dallas-Fort Worth, Texas, median home price $350,000

Austin, Texas, median home price $369,995

Cape Coral-Fort Meyers, Florida, median home price $299,900

Portland, Oregon, median home price $474,975

Atlanta, Georgia, median home price $335,00

Lakeland-Winter Haven, Florida, median home price $231,500

San Francisco-Oakland, California, median home price $954,500

Des Moines, California, median home price $288,000

San Jose-Sunnyvale, California, median home price $1,167,444 000.

This data is not telling us that that there are more homes in the lower prices for first-time home buyers. According to the realtor.com report, the number of houses below $200,000 decreased 8% year-over-year, and the number of houses priced above $750,000 increased 11%.

The data is telling us that the price of homes in a specific metro area market, when compared to the price in the same market, became more affordable over the past year to the residents in that market. The market itself may still be a very pricey market, but the buyers in the market with increased income and lower interest rates are more able to afford the median home.

San Antonio-New Braunfels, Texas was also one of the 74 metro areas that became more affordable over the last year with a median home price of $295,000. Houston-The Woodlands et al, Texas metro area registered no change year-over-year with a median home price of $324,945.

So affordable homes in the lower prices are still needed to round out the market and where there is a demand, investment will follow.

REI Capital Resources is a direct lender as well as a broker of funding solutions. We offer short and long-term financing options and are eager to support your project with funding.

Please give me a call when you find that perfect real estate investment and know how much money you need. We are “focused on funding your success.”

Patrick St.Cin
512-213-2271
Patrick@REICapital.cash  ffff

Vacation Rental Investment Property: Income

Summer is here and our heads are full of vacation plans. Some of us rent summer vacation homes to stay in and some of us rent vacation homes out to others for income.

As a real estate investor, you may be considering buying a property to rent out for income or to remodel and resell. There are four points about income taxes that apply to rental properties that you should know about.

1.  If you rent the dwelling for fewer than 15 days a year, you do not have to report any of the rental income and cannot deduct any expenses as rental expenses.

2. If you receive income from renting property for use as a dwelling, such as a house or apartment, you will most likely need to report the income, and you may be able to deduct certain expenses.

3. The accounting method you choose to follow determines when you count income and deduct expenses.

4. Whether you use the property personally for vacations with your family and friends makes a big difference.

Accounting Method:

The accounting method you use determines when you claim income and deductible expenses.

Types of Rental Income:

Monthly rent is only one kind of income you may receive.  You may also receive rent in advance. You report monthly rent when you receive it. A tenant may pay you to cancel a lease. This income you report when you receive it. A tenant may pay some the expenses attributed to the rental dwelling (for example utilities). You declare the expenses paid as income. You can then deduct the expense if they are deductible rental expenses. A tenant may pay you with services (for example painting) or property (for example they construct a built-in grill). In this case you report the fair market value of the service or property as rental income.

Security deposits are not included in your income if you intend to return them to your tenant at the end of the lease. But, if you keep part or all of the deposit, include it as rental income in the year you receive it.  If a security deposit is used as the final month’s rent, include it as advanced rental income when you receive it.

Personal Use

According to the IRS, If you use the property for personal use 10% of the time or 14 days a year (whichever is greater) and rent it out at the fair market value for income, limitations apply on the rental expenses you can deduct. You will need to divide the expenses between the personal use and the rental income use based on the number of days of each. Of course for personal use, you will not receive income so there is nothing to report on the personal taxes. When you use the property for both personal and rental use, you will not be able to deduct rental expenses in excess of the gross rental income minus the rental portion of the mortgage interest, reals estate taxes, casualty losses from federally declared disasters for the rented part, realtor’s fees, and advertising costs.

One thing to note about personal use is that if you rent to a relative or friend for a token amount, less than the fair market value of a dwelling just like yours, you have to count this use as personal use, not as investment rental income use.

I have a long-term rental loan program that can provide funds for your real estate investment for the purpose of renting for income.

REI Capital Resources is a direct lender as well as a broker of funding solutions. We offer short and long-term financing options.

Please give me a call when you find that perfect real estate investment and know how much money you need.

Patrick St.Cin
512-213-2271
Patrick@REICapital.cash 

References

IRS Publication 527 (2018) Residential Rental Property

IRS Tax topic 415 Renting Residential and Vacation Property

Vacation rental Image in Florida. Jan Lieberman [CC BY-SA 3.0 (https://creativecommons.org/licenses/by-sa/3.0)%5D