I recently had coffee with a past client. She was thrilled because, though she lost money in one real estate investment during the boom, she just bought a home for $860k that had previously been purchased for $1.3M in 2008.

At the end of the conversation, she quipped “I can’t believe the deals that are available. I should look at investing in other real estate properties besides my home!” I told her that SmartMoney.com actually blogged on January 8 that real estate “may finally be a good investment.” Their four reasons were i) everyone hates homes (as Warren Buffett says, “be greedy when other people are fearful”), ii) smart people are buying real estate, iii) real estate performs well during inflation and iv) demand may be coming back. Other reasons include:

• Leverage: Leverage allows you to invest in real estate worth $4 with only $1 of your own money. The other $3 is borrowed from the bank and, currently the interest rate on that borrowed portion is historically low. Therefore, though you only have an initial investment of $1, you receive appreciation on a $4 asset and any return is only calculated on a $1 investment. Further, if you chose the right rental property, your renter will be paying the principal and interest on the mortgage and upkeep. If the rent exceeds the mortgage, interest and upkeep, you will also receive cash flow from the property.

• Taxes can be deferred on Real Estate Gains: Once you have invested in real estate, you can sell and invest in other investment real estate assets without incurring a taxable event by using a 1031 Exchange. This strategy allows you to continually move your money to the most effective real estate assets and finally to that beach front property where you want to retire. Rent the beach front property for several years; then you can move into it as your primary residence and live comfortably in retirement. Or, you can decide to keep your cash flowing properties and, when you pass away and the property is passed to your children, your children will receive a step up in basis (i.e. they get to claim the house in their investment portfolio at the current market value) and they will not have to pay the taxes from the exchanged properties.

• Why invest in Charlotte? All of the factors that made Charlotte a “hot” place to move in 2006 still exist and Charlotte’s growth will soon return. Charlotte has an expanding hub airport that makes for an easy commute/travel to anywhere in the world. We have attracting factors like gorgeous weather, an educated work force, a broad base of businesses, a diversified arts community, great shopping and easy access to the mountains and the beach. And, the best part, people in Charlotte are friendly. Walk downtown and you still get a “have a good day” – and the passers-by actually mean it.

I’m not the only one that believes in the Charlotte Housing Market. Builder Magazine just ranked Charlotte 8^th in the “Healthiest Housing Markets”, with Raleigh ranking number 1 in their analysis. From their website:

“The Charlotte market may have hit bottom last year. Builders pulled only 5,750 permits (permit levels got as high as 25,000 in 2006). Moody’s Economy.com is calling for major increases during the next two years, including a 65% rise in 2011. Charlotte is another one of those golden markets where home prices never got out of hand…Strong household formation, even during the economic recession, is the secret to Charlotte’s success. Households are projected to rise another 2.4% this year. The area is projected to add enough jobs to keep up with population growth, but little more. Though Charlotte suffers from above-average unemployment, foreclosures remain relatively low.” Visit Local Markets page for Charlotte to see more data and analysis.

• Why Now? As I am sure you have heard, distressed properties are being sold at a discount and interest rates are historically low which creates record high affordability. Affordability refers to cost, not price. As mentioned in Pat Riley’s Blog and Keeping Current Matter’s Blog, the cost of real estate is affected dramatically by the interest rate paid on the mortgage. If you are leveraging your money to invest in real estate, you need to be aware of interest rates and that they are predicted to increase until the end of the year. The higher the interest rate, the more the asset costs and, therefore, the lower the return.

I constantly look for investment properties and, once you see the benefit of real estate investing, you will too. To stay informed as houses come on the market in certain neighborhoods, sign up for “First to Know” on www.allentate.com. You will receive automatic emails that will allow you to be the first to grab the good investments.

Your Realtor® can also send you searches or, if it is your first time investing, your Realtor® can help you understand how to find a good investment.

Realtors, where can our clients find the best investment properties right now?

By Amanda Jones