Have you given any thought to buying your own home in Silicon Valley?  If so, consider the following questions:

• Are you a high tech employee?
• Do you believe that the price of money (interest rates) will increase?
• Is the price of the home you intend to buy more than 15 times the cost of your annual rents?

If you answered "yes" to any of these questions, ask yourself this:  Is buying a home really the best move to make?

First of all, many of you reading this now may have come to the US for the purposes of employment only, and may not know how long you intend to stay.  Perhaps you heard somewhere that home prices in the Silicon Valley are dropping, and that buying a home can be a profitable investment.  However, home buying is an emotional issue that should have relatively little to do with the goals of profitability.  We have all seen what happens when people confuse buying a home, with buying real estate for the purposes of investing (you may not have had one yourself, but you certainly heard of the "sub-prime mortgage meltdown").  Financially speaking, a home is a LIABILITY, not an asset or investment.  And if you don't know how long you'll be here, does it really make financial sense to burden yourself with an unnecessary liability?

The low interest rates are another argument why now is a good time to buy a home. That can be a very good argument, if you plan on spending the rest of your life in this country.  If you think you'll be here for a couple of years, then the low interest rate is a pretty good reason why not to buy a home.  At some point, the interest rates will start moving again, and they have only one direction to go: UP. This will effectively curb the value of your home-- as interest rates increase, fewer people will be in a position to buy your home (there is an inverse relationship between the interest rate and the price of real estate; as interest rates increases, real estate values decrease, to compensate for the fact that a high interest rate eliminates potential buyers).  Value is determined only by what someone else is willing and able to pay for it.

Historically in the Silicon Valley, it starts to make financial sense to purchase a home when the purchase price is 15 times the annual rent.  Currently, the average home is roughly 28 times the average annual rent.  Considering how much short sales in the area are dragging down the average, it's fairly obvious that homes are still over-priced, and the market is not yet healthy or stable.

Imagine this scenario:  you've been here for a bit, and decide that now is the time to buy a home, which you do at what you believe is a reasonable price (maybe less than what the last owner bought it for).  However, your situation changes after a while, and you go back to Israel.  Since you bought your home at a price 28 times higher than the average rent, it's not likely that you'll cover taxes, insurance, management, and other expenses.  Since you purchased  a short time ago, you'll likely have to sell it for the same price you bought it (or maybe even lose some of your down payment), which means that you would have made more money just leaving it under your mattress.

At Capital Growth Investment, we can offer you a more effective way to put your money to work.  We provide our clients with high cash flow investment opportunities in rental income properties in emerging markets across the country.  We have fully operational systems in all the markets we promote, so whether you're in Cupertino, Mountain View, or Tel Aviv, your investment is paying for itself and putting money in your pocket.

 

Click on the links below to read some related articles:

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=ajImkJ5FYdQ8   

http://cafe.themarker.com/view.php?t=1403172

For qualified investors, we also facilitate group purchases that will allow you to leverage your cash and purchase apartment buildings, which can yield a Cash-On-Cash return in the double digits.  Imagine this scenario: you take the $300,000 that you are thinking about using as a down payment on a home, and put it towards a down payment for a large apartment building, which can easily yield a very attractive return.  Interested in learning how you can acquire an asset that will pay for itself and your other personal liabilities?  If you want a better way to make your money work for you, contact us today.

Questions?  Comments?  Contact Us!

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Ofer Goldenberg is the CEO of Capital Growth Investment.