- The Washington Times - Friday, November 3, 2000

When people ask me about the best time to buy or sell a house, I say, "Any time's a good time." I really mean it.
Unfortunately, the hype of buying low and selling high on the stock market or of getting into the next hot initial public offering has everyone comparing real estate to the flamboyant, yet volatile, trade of stocks. You shouldn't make that comparison, and here's why.
Let me preface this with the fact that I'm not a financial planner, nor am I a stock analyst. Real estate, however, I know, which is why I say you can't compare it to the stock market.
First, let's look at your cold, hard cash investment in stocks vs. real estate. When you write a check to purchase $10,000 worth of stock, most times the value of your stock is $10,000. If you bought a house with a $10,000 down payment, on the other hand, the value of your investment would be leveraged and worth much more say $200,000 if you were purchasing a house with a 5 percent down payment.
The stock now runs with the ebb and flow of the market and so does your risk. If the stock increases in value by 10 percent, you just made yourself $1,000. With real estate, your investment grows based on the leveraged amount. If the value of your house increases 10 percent ($200,000 plus $20,000 $220,000), your initial cash investment has doubled. That's a return of 100 percent.
For an investment for long-term gain with hopes of retiring in luxury, I would point you in the direction of Wall Street. For wealth-building close to home, however, using money you're going to have to spend anyway (if you don't buy, you're going to have to rent somewhere), I point you to Main Street.

Equity building

Buy now. That's the mantra to follow. When the housing market's hot, buy. When the housing market hits a lull, buy. When the housing market starts falling, buy, but buy smart.
A hot market is a good time to move into your first property or to move up. "But the prices are getting so expensive," some potential buyers say. True, and as you wait, the house you want gets further and further out of reach. A $200,000 property, growing in value at just 3 percent a year, gets $500 more expensive for each month a buyer waits to purchase it, making it worth $206,000 12 months later.
That also means the projected monthly payment increases (and that's even with a stable interest-rate environment). So, in a heated market, buying before values jump too high obviously is a good move.

Tax reduction

Another way of growing wealth via real estate is from the lower tax bill you will receive from Uncle Sam after deducting from your gross income the interest you pay to the bank. For the house mentioned above, with an interest rate of 8 percent, your first year's interest payments would exceed $14,000 which is totally deductible from your income. That's a tax savings of nearly $4,000 if you're in the 28 percent tax bracket.
If you were renting at the same amount of money as your mortgage payment for the above property (roughly $1,300 per month), you literally would have had to pay Uncle Sam an additional $326 more in taxes each month.
One fear some buyers have (which seems unfounded in most real estate markets) is the possibility of home values dropping after they have bought a house. Though this hasn't happened in most areas across the country in the past decade, even where it has, time is your best friend, because what goes down eventually moves right back up.
Even though the values may drop, the homeowner still maintains the tax deductions and saves real money on the monthly budget.

Investment property

If you get caught in a market where declining property values force you into renting out the property so you can move into another house, you still can benefit from the house you once lived in. Now what you have is a house payment being made by someone else, but you receive the benefits of equity growth and tax deductions (if you continue managing the rental property yourself).
By hanging onto the property until values head back up, you still receive a deduction for the interest rates, and you can depreciate the property by 4 percent per year (for a $200,000 property, that's $8,000).
When you combine your interest deduction with your depreciation, your deduction is about $22,000. This is set off by the income from the property (the rental payments). If they're about $1,400 per month, that gives you income of $16,800, leaving you with a $5,200 deduction from your gross income. (Keep in mind, this is on top of your deduction for interest payments on your primary residence.)
A good resource can be found at Digital Daily on line (www.irs.ustreas.gov/).
M. Anthony Carr has covered the real estate industry for 11 years. Please send your inquiries and comments to 8411 Arlington Blvd., Fairfax, Va. 22033; or e-mail macarr@nvar.com.

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