Real estate is not liquid. To an extent this is true but not entirely so. Even in a slow market refinancing is an option if personal funds are needed. Today however right this moment in time homes are more liquid than ever. Of course, finding a replacement home to buy after you sell your home can be problematic but rentals are a solid option.
Real estate taxes are expensive. The fact is that with Homestead exemption you limit excessive lifetime increases so they future tax ratio to worth becomes smaller. For example, a friend of mine just sold his house of 18 years that where his value was set at around $500,000 and his taxes were at $10,000/year. The taxes were at $14,000 when he sold and the house with Homestead limited assessed value had grown to over under $700,000. The house sold for $2,000,000 and the new taxes will be around $40,000/ year for the new owner. He will get Homestead protection as well but at the newer higher value.
Real Estate can go down in value – Quickly. I suppose you could have bad timing and purchase real estate just before a bad recession and for a period real estate can and will go down. Also, I am talking mainly about Florida when I speak of real estate which is a fair comparison against other population “acquiring states.” These states would include George, North Carolina, Tennessee, Texas, Arizona, Nevada. Unfortunately, Blue states are donors to these states for a variety of reasons.
But, in general over time real estate seems to go up in value almost every time, sometimes faster (like now) than other times. Why is that? There are a number of reasons. Of late (speaking of the past 5-6 years) buildable land has become scarce and the time frame to entitle land has gotten longer and more difficult and has become less dense due to politics. Now, materials and labor are going up as well. Inflation in real estate is back. If you already own real estate that is a good thing. If you are still looking, then you are looking at increased purchasing prices.
Tax advantages to real estate– Real estate offers several tax advantages. First, if you place a mortgage on your purchase the interest is deductible. If you sell your home after a year’s time for a profit you pay at capital gain rates. Finally, tax avoidance, like stock IRA’s and 401K’s, is available in IRS sanctioned 1031 trades. Taxes and insurance costs are the greatest two income eaters during one’s lifetime and real estate at least can help drive down taxes. In the event your timing is unlucky and you lose money on an eventual sale, your losses are also tax deductible.
Stephen Gravett has been a real estate developer for over 45 years and was most recently CEO of Kennedy Homes for the past 11 years and is still CEO of Kennedy Development Partners (KDP). He is also full time Director of Operations for 5 Star Developers. He is a state licensed broker and since 1980 a State licensed General Contractor Unlimited. He flew B-52’s in the US Air Force during the Vietnam war.