Is real estate a good alternative to stocks?
In this market, anything that won’t evaporate can look attractive. “People want something that they can have and touch and feel,” says financial planner Patricia Houlihan. But your home is more of a lifestyle choice than an investment. Most people can’t afford to diversify, and real estate isn’t very liquid.
Is housing overpriced?
Most experts say that there isn’t a nationwide bubble, though some markets are overheated (example: Boston). But since houses are such a pain to sell, residential real estate doesn’t usually lend itself to speculative excess. One more likely scenario: prices will grow more slowly, but won’t plunge.
Is renovating my house a good idea?
Maybe as a lifestyle choice, but it’s not necessarily a good investment. In the short term, you generally recoup only between 70 and 90 percent of your investment, says Kermit Baker, director of Harvard’s Remodeling Futures Program. But in a rising housing market, some renovations–like bathrooms and kitchens–can help you keep up with the Joneses when you decide to sell.
What about buying a vacation or rental property?
Buying a house and renting it out can be lucrative for sophisticated investors. But it also comes with hassles. And if you’re caught in a recession, prices of vacation homes in trendy markets can plummet. “It’s a crapshoot,” says California real-estate expert John Reed. “You can get hurt badly.”
Should I refinance or prepay my mortgage?
If you’ll be in your home for years to come, refinancing can pay, but tapping into your home’s increased value (via a cash-out refi) can be risky. Paying off a mortgage can provide you with peace of mind and is a great choice for some investors. But by prepaying, you’re getting only a return that equals your mortgage rate, less the tax deduction on the mortgage interest.
What about other real-estate investments?
Real-estate investment trusts (REITs) pool a group of rent-collecting properties like shopping centers or office buildings. They’re liquid (they trade like stocks), they provide steady yields and they can be a way to hold real estate and still diversify. But like any investment, REITs can plunge, too. Even in a hot real-estate market, there’s no such thing as a sure bet.
