26.0°

With the economy in shambles, Americans have seen their retirement disappear, the stock market rise only to plunge the next day and the government bailing out failing corporations. Given the circumstances, it's safe to assume most are not thinking about purchasing a new home.

Despite the volatility of the market, now is a great time to invest in real estate.

"It's a good time to buy, it's a good time to invest," said Erick Watkins, owner-broker of Alaska 1st Realty in Soldotna. "It's a buyers' market."

According to Watkins, prices on houses have come down on several properties compared to this time last year. The need to sell is one factor for lower prices.

Watkins said some people that need to sell -- someone who has a new job and has to move in a short amount of time for example -- are forced to drop their price in order to get the house sold in time.

Interest rates, too, have dropped to a range of about 5.5 percent to 6 percent.

The state of Alaska also makes for a better deal on a home, Watkins said.

"Alaska itself is a unique market place. Everywhere I look there's help wanted signs."

Watkins said because much of Alaska's economy is based on developing natural resources -- oil, natural gas -- jobs are actually growing on the Kenai Peninsula because of the high demand for our natural resources.

"It's made a stabilizer in the economy," he said.

Watkins said house prices have stayed relatively low on the peninsula.

"It's a great time to jump into the market and grab a property while it's low," Watkins said. "As soon as things start turning around in the Lower 48, thins up here will start growing again.

"Alaska is just going to pick right up where it left off and start moving up again."

The large population who work in the oil fields represent a large percentage of home buyers, he said. They have safe, secure jobs, which allows them to have the means and job stability to purchase a home.

Watkins said the peninsula has lower property taxes than much of the rest of the state, in particular Anchorage, resulting in homeowners keeping more of their money.

"It's a totally different picture, we're nothing like the Lower 48," he said.

Watkins said people in Alaska aren't buying second and third homes like they are in the rest of the country. "Our (economy) is based on local business and natural resources," he said.

"The Kenai Peninsula, especially the Soldotna area, is one of the best places to live in the state of Alaska," Watkins said. He said big bargains are available on the central peninsula.

This wasn't always the case though.

Watkins said about 20 to 30 years ago the Kenai-Soldotna area didn't have the selection of homes to choose from it now has. Today, the inventory has increased as well as the quality of the homes, he said.

Now is also the time to own an investment property.

With the influx of employees moving to the central peninsula, many rent before choosing a permanent place to live.

"I don't know too many people that are having empty apartments to rent," Watkins said. "The rental market has been tight.

"There's more demand on rentals than there ever has been."

Because the risk of having an empty apartment to rent is low, Watkins said it's a great time to invest in a four-plex. The owner can live in one unit and rent out the other three.

"It's never too late to get started," he said.

A misconception Watkins frequently hears is that people think they need a huge amount of money to buy a home.

This isn't the case, Watkins said. For just 3 percent down, a person can move into a new home.

Several programs exist to help prospective home owners get the house they're looking for. The Federal Housing Administration and the Alaska Housing Finance Corporation are two agencies with such programs. Watkins said because of AHFCs programs people in Alaska can own a home with some of the lowest interest rates in the country.

"It's a great program," he said.

Watkins expects the real estate market to remain where it is through spring, however, the market can change at anytime. With the current state of the stock market, many are watching and waiting before they commit to investing their money, though now is the time to get involved, Watkins said.

He said real estate market prices increased for a few years, then plateaued and now they are coming down, making it an opportune time for investors.

"The real deals right now are in some fixer-uppers out there," Watkins said.

He said Alaska has many properties that need some work. Because maintenance is required, the price on 'fixer-uppers' is low. It just depends on how much work is needed to get the property back on the market.

For those people that enjoy working with their hands, 'fixer-upper' properties can be a great investment, Watkins said. An interested person just needs to consider how much work is needed and how much time they can devote to the project.

On the other side -- from a seller's point of view -- "It's not a great time to sell," according to Watkins.

He said more sellers are in the market than buyers. If a person doesn't need to sell, they shouldn't, Watkins said.

"Markets are driven by greed and fear all the time," he said. "When someone needs to sell, they're fearful and that's when you step in and take advantage of the market and buy.

"People see the stock market falling and they're scared, so they sell."

Watkins said if someone has the courage to get into the market and find the best deal, they're the one who will make money on their investment.

One advantage to investing in real estate over the stock market is in real estate a person can defer payment on capital gains taxes.

In the stock market, when a person sells they have to pay capital gains tax after the sale. In real estate, a person can take advantage of a 10-31 exchange, which allows the person to use the money from the sale of a non-owner-occupy property -- rentals, shopping malls -- to invest in another property without having to pay capital gains tax on it.

"It's a win-win deal for the investor and for the (Internal Revenue Service)," Watkins said.

He said the IRS knows though the person isn't paying capital gains tax today, they'll most likely invest in a bigger, more expensive property that is worth more money, hence the IRS will make more money in the future when they do collect the tax.

"That's a huge benefit," Watkins said. "In real estate, you can essentially roll it over until you die."

The IRS also allows a single person to keep up to $250,000 or a married couple up to $500,000 from the sale of a owner-occupy property tax-free. The tax-free sum is a total over a lifetime from a property that the person has lived in two out of the past five years, Watkins said.

"I don't think that they average person knows that," he said. "It's the biggest, unknown tax benefit of all time ever given out by the federal government."

Bank loans are another advantage to investing in the real estate market.

Banks won't loan money to a person wanting to invest in stocks, but they will loan it for someone wanting to buy a house. For just a $10,000 down payment, a person can own a $100,000 house but that same $10,000 only gets the person $10,000 worth of stock, Watkins said.

"It doesn't take long before your real estate investment will quickly outpace (what you have) invested in the stock market," he said.

Before investing in real estate, Watkins said it's important to "crunch the numbers." He said a major problem in the Lower 48 was people buying properties hoping their value would increase in the future instead of buying properties with a positive cash flow today.

"If you keep doing that, eventually somebody will get burned," he said.

Many people were getting loans for houses they couldn't afford, Watkins said. He said Alaska doesn't have the foreclosure rate that much of the Lower 48 is currently experiencing.

Because there is not way to predict the future, Watkins said the best way is to buy properties based on positive cash flow today. Buying in the hopes the value will increase in the future is not a safe approach in real estate.

"You should have a team approach to buying real estate," Watkins said.

He said have a contractor, realtor, banker, accountant, etc available before making a purchase.

"Things change at the speed of light and you've got to have a team to help keep up with the changes," he said. "What worked last year isn't going to work this year.

"There are a lot of great opportunities and now is a great time to check it out."

Mike Nesper can be reached at mike.nesper@peninsulaclarion.com.