The best way to buy a ranch today could be to not buy a ranch, but buy something else instead.
When one buys any type of investment real estate, it’s a step towards owning a “ranch”. The tax laws allow investment property owners to trade any investment property for other investment property and defer taxes on the profit of the sold property.
Some of the best opportunties for real estate ownership today are residential real estate (not ranches), but this will change some day so be patient.
In order to be successfully traded (while defering taxes) the proceeds from the sale of property (such as residential property) must be reinvested in the target property in accordance with the IRS rules for a 1031 exchange. Therefore, any good investment property can be the start of owning a ranch or duck club.
The current economic “crisis” has created a very difficult-to-understand real estate market. However there is one aspect of today’s real estate market that you can go to the bank on.
That is, for you savers out there with money to invest, real estate is currently a phenominal investment. The rate of return on a single family home is currently the best I’ve seen in the last thirty years – by far.
The catch is that cash is in short supply and lenders are not interested in making loans. Therefore, the only buyers out there who can take advantage of the current situation are those who have access to cash in one form or another.
If you have cash now is a good time to purchase a California home for a song – especially lower-priced homes that are traditionally owned by first-time buyers. The crop of first time buyers from a couple years ago are stuck. Many owe more than $100,000 more than their home is worth.
These people are victims of the subprime mortgage era and they are burried. Many have moved from their homes and raised the flag of surrender.
Others have toughed it out, but must find relief in one form or another. In the meantime home values have dropped about 40%
For those fortunate few who saved their cash and have good credit ratings, this is the time for action. The rate of return on these homes (the amount of rent that can be collected relative to the cost of a home) is extremely attractive.
For example, I’ve been showing homes for sale in our area that will produce a spendable income stream for cash buyers of 5% per annum or more.
On top of that, one has the right to depreciate the improvements on the site which means that most of the rental income can be offset by depreciation expense.
Not only that, but appreciation, is now a sleeping giant and nobody is factoring any appreciation into the sales price of homes. However, appreciation is not gone forever. Will it take two, three, five or ten years for appreciation to reappear?
It really doesn’t matter because today’s buyers are getting any potential appreciation included in their purchase for free. It’s a free bonus.
The real good news is that once the market does improve and appreciation reappears, it will be time to trade up to something you can own and really enjoy – like a hunt club.
Investors must have patience to succeed. They must save cash to get a start and they must have faith that sound actions will be rewards. For those who are still in their early years, time is on you side. Take advantage of it.
Even if you have no cash, but have an income, you are in the game. Put a portion of your income aside. Invest in stocks at today’s bargain prices. Use dollar cost averaging to purchase as much quality stock as you can and don’t speculate. Mutual funds are a good way to go. You will be rewarded.
If you’re lucky enough to have opportunities to spend money, don’t buy cars, put your money into investments that generate a return. You’ll reap the rewards of your good decision making in the future.