When it comes to making a profit, the price tag on the house itself isn't the only thing a home buyer needs to consider. The wise buyer always crunches the numbers for any investment. When it comes to real estate, you need to consider the cost of loans, maintenance, insurance and so on. Unlike stocks, commissions and other transaction fees are very expensive with real estate.
That's why both Ruth and Jake say unless you're going to stay in a home for say five, seven years, don't bother. Even the most optimistic advisor will say at least three years.
"When you're buying real estate on a two-year horizon, it's a bet," Jake says.
Be wary of the promise of sure-fire profits
"Reputable real estate agents tell their clients that conservatively you need to be in a house for seven years, maybe five, to get your money out of it," Ruth says. "That's what real estate agents tell people, unless they're trying to push a sale, and they're pushing on something we call greed."
Not enough saved for retirement?
"I think what happens to a lot of people in midlife is that they kind of panic," Jake says.
That's when people make bad decisions, like investing in a business they know nothing about, buying real estate that may be inappropriate, or investing in stocks or mutual funds that maybe way more risky than they ought to because they're trying to make a killing, he says.
It's OK to rent
"If you have a place that you like to live and you're renting and the cost is reasonable and you are able to put more money in other investments, it is perfect," Ruth says.
An alternative way to invest in real estate - REITs
Real estate investment trusts, commonly called REITs, are publicly traded companies that own and manage real estate. Apartment buildings, hotels, malls and warehouses can be part of REITs.
You can own a piece of the action by buying stock in a REIT. The simplest way to do this is through a REIT mutual fund, preferably a well diversified low-cost index fund.
Build a diversified portfolio
Ruth says spread your money over different asset classes and dollar-cost average it by putting it away month after month, year after year.
Dollar-cost averaging isn't just a great way to save. It's also a disciplined investment strategy that keeps you from putting too much into the market when the market's strong, and being stingy with your investment dollars when the market falters.