Real Estate Values Don’t Go to Zero

Image of a kitchen and words Investment thought - real estate values don't go to zeroWith the cornavirus in full swing, fear and uncertainty have given the stock market a beating this week. For many of us who are self employed, there will be no pensions, so over the years we squirrel away what we can into our retirement accounts. As I checked our online accounts this morning, it hit me how solid realty investing is overall, because real estate values do not go to zero. Stocks can.

Of course, there can be exceptions, but in most cases, even if a house is fully destroyed, there is still value in the land. For condo owners, even though the unit is just airspace between the walls,  the ownership includes a fraction of all common areas, and that, too, includes land.

Real estate investing is a challenge in Silicon Valley, as it takes a large down payment of about 45-50% down to be cash flow neutral (and not losing money each month).

For many, the way to become a landlord is to purchase a first home, live there and improve it for awhile, then save for the “move up” house but keep the original one as an investment. That’s not easy to do, either, since saving the down payment is a huge challenge at all price points – unless one has great stock options, and the market is doing well when they are needed.

Just buying your own home to live in, though, is not really an investment per se, but it is a great to grow wealth over time as the mortgage is paid down, values go up (buy and hold!), and eventually the property should be mortgage free and valuable. It is also a hedge against inflation.  This can be a retirement home for the owner, or the owner can sell it, cash out, and move somewhere less costly, where the proceeds from the sale can support them in retirement.

There are many good things about buying realty, whether for investment or for one’s own future. When I look at my retirement accounts this week, I’m grateful that we also bought our first home in 1989 and our move-up home in 1999. Even when home values fell during the great recession,  the value did not disappear entirely. Real estate is tangible. Many consider it a safer place for their hard earned dollars, since real estate values don’t go to zero.