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Long Term Thinking

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The National Association of Realtors recently studied how home equity weathered the downturn and how that affected the overall net worth of homeowners verse renters.

It is not surprising to me that the study found that despite a dip in the net worth of homeowners, renters’ net worth was far less than those who owned property.

While the average renter’s net worth in 2008 was $4,200, the average homeowner’s was $205,200, according to the NAR study.

That is remarkable and should not be overlooked.

I’ve read and heard tales of people getting out of their homes with short sales and foreclosures even when they can afford to make their payments because they believe that their property will cost them profit. I recently heard someone tell me that he sold his house with a short sale, took the hit on his credit and will be renting long term until he feels better about the housing market.

No disrespect, but that is amazingly short-sighted. Real estate is a long-term investment. All he did with his plan was insure that he left his home without equity, hurt his buying power now, while the prices are low, and put an end to the long-term appreciation that often comes with real estate.

Consider the NAR report, which found that if you bought a home 10 years ago from today at the median price, you would have positive equity in the property. The typical buyer stays in a home for 7 to 10 years, so most people would be OK. However, if you bought the home 5 years ago at the median price, you would likely have negative equity.

Yet, there are people out there who feel like they have to get out of their home now, which seals their financial fate. Fear and media hype are powerful forces against good judgment and solid data.

Another finding of the NAR report showed that real estate markets are best studied locally in order to make the best decisions. Variables such as location and local economy play a major role in real estate pricing.

Study your local community, collect the necessary information and understand what that data means before making a decision on your real estate decisions.

Solid real estate investments are not based on emotional responses to morning news reports and scary headlines. They are based on real data and sound principles. The good news is that in today’s world, we have access to the most important information, classes and experts to help guide us through.