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Why My Money Is on U.S. Real Estate Right Now

By Dr. Steve Sjuggerud
Tuesday, February 2, 2016

Oil has crashed. Stocks have, too. What investment is holding up?
 
Florida real estate...
 
"Single-Family Home Prices Soar in Broward County," according to a headline in the Miami Herald newspaper last week. But it's not just Broward County.
 
Miami home prices are up 50% since 2012, according to last week's update from the Case-Shiller 20-City Composite Home Price Index (which measures the prices of single-family homes across 20 of the country's largest cities).
 
After moves like this, you might think that house prices in Florida are getting expensive. You would be wrong...
 
Even after these upward moves, Florida real estate looks darn attractive relative to just about anything you can do with your money.
 
According to a fantastic new report from RealtyTrac, the rental yields in Florida are still incredibly high. Take a look:
 
Location
Yield
Broward County (Fort Lauderdale)
13.1%
Duval County (Jacksonville)
13.2%
Escambia County (Pensacola)
12.8%
Tampa / St. Petersburg area
11.2%
Orange County (Orlando)
10.4%
Miami-Dade County (Miami)
9.3%

These numbers represent GROSS rental income not NET rental income... These are "top-line" figures. But if you figure "all-in" rental expenses in the 5%-7% range (relative to the value of the house), Florida residential real estate STILL looks GREAT.
 
To see how this applies to your own situation, I highly recommend you take a moment to look through that RealtyTrac report. It's a report on the national situation in house rentals. In particular, zoom in on the graphs of your area. You can find out just how attractive it is to buy a rental property in your area right now.
 
According to the RealtyTrac charts, the value in Florida (based on rental yields) is still incredible relative to anything else you can do with your money.
 
However, you can't say the same about the California coast...
 
According to RealtyTrac, most of the counties near the coast in California have GROSS rents in the 5% range. That is way too low...
 
In short, after expenses in California, you would likely end up breaking even – at best! At that point, you'd be hoping for appreciation in California to make up ALL of your real estate returns. While that has worked in the past in California, it is a dangerous game.
 
My money is on the Florida coast... It's relatively cheap. It's desirable. Rental yields are high. There's no supply. It's where the majority of money is today... What bigger endorsement can I give you?
 
The story is bigger than Florida...
 
Relative to just about any other asset class, residential property across much of the U.S. looks pretty darn good. It offers us relatively high rewards for relatively low risks.
 
If you're looking for a safe place for your money, consider residential real estate in your area. A quick starting point is the numbers in the RealtyTrac report, minus 5%-7% for expenses...
 
Check it out here.
 
Good investing,
 
Steve




Further Reading:

For more reasons why now is the ideal time to buy a house, check out this essay from last week. As Steve explains, home prices suffer from extreme seasonality... "And the biggest gains for 2016 will likely occur over the next five months."
 
"Stocks aren't doomed because of a weak start to the year," Steve writes. "There are plenty of reasons to be cautious about stocks today. But a weak January is not one of them..." Learn why right here.

Market Notes


TROPHY ASSET UPDATE: SOCIAL-MEDIA EDITION

Today's chart highlights the long-term uptrend of one of the market's elite trophy-asset companies.
 
Regular readers know that "trophy assets" are the world's highest-quality, one-of-a-kind assets... like the best copper mines, the best steel mills, the best real estate, etc. Most recently, we've shown you this idea at work with casino operator MGM Resorts. It owns the most luxurious, highest-quality hotels and casinos on the coveted Las Vegas Strip.
 
For another powerful example, we turn to one of the most recognizable brands in the world: social-media giant Facebook (FB). Facebook's trophy asset is the world's largest online social-networking site. Whether you're on a mobile device or your personal computer, there's a good chance you and most of your friends use Facebook to keep in touch with friends and family. The company has more than 1.5 billion monthly users. It's an impossible-to-replace social network.
 
As you can see from the chart below, being the best in its industry has sent Facebook shares soaring over the years. Shares are locked into a huge uptrend, up 270% over the past three years. And they continue to move higher today. The stock just hit a new 52-week high and is already up 10% in 2016...
 

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