Kevin Kirkwood, founder and Broker of KRK Realty: In today’s uncertain times, it is essential to prepare for both up and down financial markets. In just the last ten years we have seen the financial markets go through some pretty major swings, and more of those types of market changes are expected over the next decade. While Arizona has not been immune to these market fluctuations, we have enjoyed significant long-term appreciation.
SMART HOUSE INVESTMENTS- Maintaining both Long-Term and Short-Term Perspectives:
These market realities are reflected in the modern expectation that every investment portfolio will reflect a certain degree of diversification. This concept is based on the concept of dividing your assets among different classes of investments to accommodate and thrive in both up and down markets.
Real estate is an important component of most such diversified portfolios. Yes, there are some tumultuous times (2007-2009 was not exactly a “fun” time!)! However, at KRK Realy, we have experienced first-hand over the past 20 years in the real estate investment and property management industry, that holding real estate investments is a key factor for generating significant wealth.
When you consider investing in rental property, you are choosing an asset class that is considered an excellent source of protection against inflation. With continued deficit-spending programs and artificially low interest rates, most financial sources are predicting significant inflation over the coming decade. If this occurs, it may erode the overall purchasing power of your investment portfolio, causing a decrease in real value.
Real Estate Investments- Combining Several Financial Advantages:
If you are holding real estate investment properties, the appreciation in those assets will help counter the effect of higher levels of inflation. Historically, the value of such property increases at a rate equal to or higher than inflation. This increase occurs because new homes are built with materials and labor at the higher prices, creating upward pressure on older homes.
Additionally, our firm can help explain how leverage works to your advantage when you own investment property that increases in value. For example, if you purchase a $200,000 home with 20 percent down, you only have $40,000 of your money in the deal. If your property appreciates by an average of 5 percent a year over 5 years, that $200,000 home will have a market value of $250,000. While that is an increase of 25 percent on the whole, it is an impressive 125 percent on your cash investment.
Our company is often working with investors and clients to identify and purchase properties that provide a number of financial advantages, including: