Real Estate is dying? Investment-wise what is the next Asset Class Du Jour?
- Thread starter lrm21
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I've been looking for experienced and informed traders like you guys to bounce some ideas off of. This thread is really good and I stayed up way too late last night trying to read everyone's input.
A few points I'd like to make:
1. Whenever there is discussion or articles about the real estate market, about half of the articles aways talk about California. Yeah, the prices in California are crazy, but there is a whole other section of the country that is hardly discussed. Just wondering what people think about an impending price drop/defaults in those areas. I was reading an article published in June in Money magazine that comparing the typical housepayment to the typical paycheck on a region by region basis. Sort of a regional affordability study. In my area, North Central Florida, the price of housing was only 2% ahead of where it should be. I can see home sales stagnating a little bit, but the talk about blood in the streets seems a little far-fetched. Agree or disagree?
2. The difference between buying multiple properties on fixed notes at the now low interest rates should be differentiated from people buying houses to flip them, should they not? For example, I own a few houses that I have on fixed notes and I rent them out. The loan rates are so low that the payment is comparable to what they were (on an inflation adjusted basis) prior to the price run up. Even if real estate prices drop, I can only see that happening because interest rates climbed hire first, raining on the parade. If that happens, my payments won't go up, and may be as low comparatively as the payments on a new house at a lower price at a higher interest rates. Yet at the same time, there will be some people who lose their houses who need to rent, and there will be more people jumping out in the workforce because the economy is/has improved. Bottom line question is, how can I get hurt?
3. Who was it that was saying real estate investing isn't a good investment? Depends on what kind of investing, but have you looked at buy and hold investing? You buy a $100,000 rental property for 10% down plus $3500 closing costs, and you've got $13,500 into the deal. If you can rent it out and make your payment (that is a big "if"), then the folks living there will pay down a 30 year fixed note at a rate of about $1000 a year. At the same time, your house will (on average) increase in value 3 to 4% a year. If the house is worth $100,000 at the beginning of the year, at the end of the year, it will be worth $103,500 and you'll have an extra $1000 paid down. That is a $4500 return on a $13,500 investment. I don't have my calculator handy, but that coincidently is exactly a third, or a 33.33% return on your investment. I didn't include the little repairs you need to do, but I didn't include the tax advantage for depreciation either. If you stick to nicer, newer houses and screen your tenants well, you'd be surprised how fast you can pyramid up.
4. Lastly, my interest isn't so much the value of the property because I know it goes up over time and I'm in this for the long haul. I am, *VERY* interested in what rents will do. Does anyone have ideas or forecasts on how rents will do in the areas of the country where prices aren't too terribly inflated?
Nice meeting you all,
Smart Money
A few points I'd like to make:
1. Whenever there is discussion or articles about the real estate market, about half of the articles aways talk about California. Yeah, the prices in California are crazy, but there is a whole other section of the country that is hardly discussed. Just wondering what people think about an impending price drop/defaults in those areas. I was reading an article published in June in Money magazine that comparing the typical housepayment to the typical paycheck on a region by region basis. Sort of a regional affordability study. In my area, North Central Florida, the price of housing was only 2% ahead of where it should be. I can see home sales stagnating a little bit, but the talk about blood in the streets seems a little far-fetched. Agree or disagree?
2. The difference between buying multiple properties on fixed notes at the now low interest rates should be differentiated from people buying houses to flip them, should they not? For example, I own a few houses that I have on fixed notes and I rent them out. The loan rates are so low that the payment is comparable to what they were (on an inflation adjusted basis) prior to the price run up. Even if real estate prices drop, I can only see that happening because interest rates climbed hire first, raining on the parade. If that happens, my payments won't go up, and may be as low comparatively as the payments on a new house at a lower price at a higher interest rates. Yet at the same time, there will be some people who lose their houses who need to rent, and there will be more people jumping out in the workforce because the economy is/has improved. Bottom line question is, how can I get hurt?
3. Who was it that was saying real estate investing isn't a good investment? Depends on what kind of investing, but have you looked at buy and hold investing? You buy a $100,000 rental property for 10% down plus $3500 closing costs, and you've got $13,500 into the deal. If you can rent it out and make your payment (that is a big "if"), then the folks living there will pay down a 30 year fixed note at a rate of about $1000 a year. At the same time, your house will (on average) increase in value 3 to 4% a year. If the house is worth $100,000 at the beginning of the year, at the end of the year, it will be worth $103,500 and you'll have an extra $1000 paid down. That is a $4500 return on a $13,500 investment. I don't have my calculator handy, but that coincidently is exactly a third, or a 33.33% return on your investment. I didn't include the little repairs you need to do, but I didn't include the tax advantage for depreciation either. If you stick to nicer, newer houses and screen your tenants well, you'd be surprised how fast you can pyramid up.
4. Lastly, my interest isn't so much the value of the property because I know it goes up over time and I'm in this for the long haul. I am, *VERY* interested in what rents will do. Does anyone have ideas or forecasts on how rents will do in the areas of the country where prices aren't too terribly inflated?
Nice meeting you all,
Smart Money
Ah, those famous last words! "House prices never drop." That's what people also here in Scandinavia thought when we had our bubble 15yrs ago. In fact, that is what people ALWAYS think at the top. Isn't it funny?
I don't know where you are located, but average home prices of over $1m definitely sound insane. Are you prepared for that being cut in half?
Just hope you don't have much (=any) debt.
Moo is right folks.
Remember I'm a Homebuilder not a person who has a few rentals on the side like an IRA. I eat and find shelter from my Homebuilding earnings. I think this is why my timeframe and caution on this is causing a problem with others.
It takes yrs to go from buying land to selling the last house. This is not like selling your own home or rental or stocks. That is why my view has to be very long. I'm not operating in buy and flip time. I've said several times, I am not calling this a top in RE. I don't know when that will be. No one does. This is caution time for me. Time to get small.
I apologize to Old Trader. My fault. I always try to be tolerant and patient. I covered that in Church today and felt bad. I lost it cause it was after midnight when I posted that. However, I don't like my ideas called junk as you did. Does anyone? And to be frank, I like people who have a zest for learning. To do that you must listen to more knowledgable sources. For instance, I'd listen to you if you wanted to go on about Floor Trading. I wouldn't assume because I have a stock IRA that I would know more than you. Rentals or pounding nails is not Homebuilding. It's so different that it would take a book to describe so let's leave it as that. As for Convert, he is just plain rude and a cheap sniper. Very hard to like that type at all.
Darkhourse, I'm not at one extreme. No way. I make my living from RE. I love it I'm sure more than any other here. I mean I love RE!! I don't like this situation, but have seen it before. I have to accept what comes and I have to pull out when danger approaches. Too long to build and too many 0000s.
The current issue is still Vhegn's (sp) post. I know it is real complicated in all its' ramifications.
12-11-04 08:15 PM
http://www.frontlinethoughts.com/pr...sp?id=mwo121104
Mike805, 805 is my family's area code. And I've lived there off and on for yrs. I know the area from the 60s. My Sis owns Preferred Rentals, my old friend Ed Pauley owned a bunch of land in N SB until he died. He couldn't build cause of SBs weird laws. And Ed had pull, best friend Baron Hilton, Dad built a basketball court in LA and owned a football team, my highschool girlfriend is married to the guy who owns the surf shop near the pier, Merricks. OK, boring but it's kind of my old home. Maybe you'd know some of these folks. Bruce Norwood. Hah, I know this is boring.--------Bye.
Remember I'm a Homebuilder not a person who has a few rentals on the side like an IRA. I eat and find shelter from my Homebuilding earnings. I think this is why my timeframe and caution on this is causing a problem with others.
It takes yrs to go from buying land to selling the last house. This is not like selling your own home or rental or stocks. That is why my view has to be very long. I'm not operating in buy and flip time. I've said several times, I am not calling this a top in RE. I don't know when that will be. No one does. This is caution time for me. Time to get small.
I apologize to Old Trader. My fault. I always try to be tolerant and patient. I covered that in Church today and felt bad. I lost it cause it was after midnight when I posted that. However, I don't like my ideas called junk as you did. Does anyone? And to be frank, I like people who have a zest for learning. To do that you must listen to more knowledgable sources. For instance, I'd listen to you if you wanted to go on about Floor Trading. I wouldn't assume because I have a stock IRA that I would know more than you. Rentals or pounding nails is not Homebuilding. It's so different that it would take a book to describe so let's leave it as that. As for Convert, he is just plain rude and a cheap sniper. Very hard to like that type at all.
Darkhourse, I'm not at one extreme. No way. I make my living from RE. I love it I'm sure more than any other here. I mean I love RE!! I don't like this situation, but have seen it before. I have to accept what comes and I have to pull out when danger approaches. Too long to build and too many 0000s.
The current issue is still Vhegn's (sp) post. I know it is real complicated in all its' ramifications.
12-11-04 08:15 PM
http://www.frontlinethoughts.com/pr...sp?id=mwo121104
Mike805, 805 is my family's area code. And I've lived there off and on for yrs. I know the area from the 60s. My Sis owns Preferred Rentals, my old friend Ed Pauley owned a bunch of land in N SB until he died. He couldn't build cause of SBs weird laws. And Ed had pull, best friend Baron Hilton, Dad built a basketball court in LA and owned a football team, my highschool girlfriend is married to the guy who owns the surf shop near the pier, Merricks. OK, boring but it's kind of my old home. Maybe you'd know some of these folks. Bruce Norwood. Hah, I know this is boring.--------Bye.
I have no idea where you get your data about "prices historically just do not drop" in the Santa Barbara area of California, but that simply just is not so. If you have any data to back up this claim please post it.
In 1994, just a few years after the last bubble burst (bubble peak was early 1990), almost 31% of all homes sold in Santa Barbara were sold for LESS than the purchase price. Every one of these sales represents pain, in many cases bankruptcy, and lost dreams. This would qualify for a "blood in the streets" award, typical of coastal real estate bubbles. The pain of bubbles burst gets carried forward a few years until the market can absorb the ruin. Only then can the market slowly pick itself up and carry forward. Seeds of destruction and seeds of rebirth in a complete real estate cycle.
Around the same time the counties of San Diego, Ventura, Los Angeles, Orange, and San Bernardino were being hammered with hundreds of thousands of distressed properties. And this was only part of California. New England had a monster tale of woe itself last time around. Each and every property has a story. Over time they get forgotten...
related link...scroll way down for the chart
http://www.dqnews.com/AA1995OFA06.shtm
"Hardest hit were homes in areas that experienced the fastest run-up in prices in the late 1980s. In Orange County, loss sales accounted for 45.3 percent of the last three month's sales (see chart), in Ventura County it was 38.0 percent....."
...more to follow OWP
OWP,
I was going to forget SB, CA and Mike's post cause of my relationships there. But you are right and Mike hasn't lived in SB too long I'll bet.
Mike, my Sis and her husband bought a 1 acre lot with ocean view on San Roque Rd for $12,500. It was during a brutal downturn and before the freeway went in. It was incredibly cheap even for that time, but times get bad.
My parents bought an 1800 sf home in N Santa Barbara for $140,000 in the late '80s. Ocean view and pool. Foreclosure. It is now worth $2-$3M. They sold it in 1999 for $380K and felt great. Just 5 yrs ago. Five yrs and it goes to $2-3M????? And RE doesn't move in price in SB?
I realized that what I am trying to explain is something like seeing a tidal wave and the destruction. But there are no pictures. Of course most of you (especially younger) will think I am nuts. That's just normal human behavior. Can't blame you. I can dislike rudeness.
AT SOME POINT (I don't know how soon. Don't try to say that I am saying, the sky is falling in right now) you all will get to see it. It won't be more than 5 yrs. It is really an interesting event. All disasters have a certain weird .............what??
I was going to forget SB, CA and Mike's post cause of my relationships there. But you are right and Mike hasn't lived in SB too long I'll bet.
Mike, my Sis and her husband bought a 1 acre lot with ocean view on San Roque Rd for $12,500. It was during a brutal downturn and before the freeway went in. It was incredibly cheap even for that time, but times get bad.
My parents bought an 1800 sf home in N Santa Barbara for $140,000 in the late '80s. Ocean view and pool. Foreclosure. It is now worth $2-$3M. They sold it in 1999 for $380K and felt great. Just 5 yrs ago. Five yrs and it goes to $2-3M????? And RE doesn't move in price in SB?
I realized that what I am trying to explain is something like seeing a tidal wave and the destruction. But there are no pictures. Of course most of you (especially younger) will think I am nuts. That's just normal human behavior. Can't blame you. I can dislike rudeness.
AT SOME POINT (I don't know how soon. Don't try to say that I am saying, the sky is falling in right now) you all will get to see it. It won't be more than 5 yrs. It is really an interesting event. All disasters have a certain weird .............what??
Well, I've lived in SB for 21 years and did not become a property owner until 1996. So you may be right whereas I have not experienced a significant downturn.
Even so, a 20% decline in prices as the article you attached does not make me worry/panic/fear - if you want to compare it trading, lets call it a retracement.
Second, If those properties were being held now, the owners would be sitting on a substantial amount of money and those who sold would be bitter about market downturns that caught them off guard.
In fact, if you were "forced" to sell during a 20%-30% downturn - you did not know what you were getting yourself into. Think about this - you pay 200k for something and you sell it for a 20% loss at 160k. In five years that same property sells for 500k and in ten years it may very well be worth a mil.
Rather than a plan, the mentioned scenario sounds like an impulsive buy and panic stop hit that you were not prepared for (i.e. the red in PL window made you panic) while later you are watching the price skyrocket and becoming bitter that you sold at the wrong time. Point is, over the long term you cannot go wrong buying real estate in a good area and if you do not plan for the unexpected you are only fooling yourself.
I do not leverage myself past what I know I can financially survive for at least 2 years and I recommend that to anyone purchasing a property. SB IMO has very limited supply and I look forward to the next 20% dip so I can buy more
BillBuild, I am not trying to be disrespectful in any way and I appreciate your thoughts more than you think. However, understand that I am ever an optimist. SB/Montecito has a highly limited supply and a very wealthy population with great schools. From a speculative standpoint, I just cannot see a long term decline in local prices. Note I have investment properties in North Carolina, New England and Colorado as well where I'm fairly sure those local prices are not as overvalued.
Regards,
Mike
Even so, a 20% decline in prices as the article you attached does not make me worry/panic/fear - if you want to compare it trading, lets call it a retracement.
Second, If those properties were being held now, the owners would be sitting on a substantial amount of money and those who sold would be bitter about market downturns that caught them off guard.
In fact, if you were "forced" to sell during a 20%-30% downturn - you did not know what you were getting yourself into. Think about this - you pay 200k for something and you sell it for a 20% loss at 160k. In five years that same property sells for 500k and in ten years it may very well be worth a mil.
Rather than a plan, the mentioned scenario sounds like an impulsive buy and panic stop hit that you were not prepared for (i.e. the red in PL window made you panic) while later you are watching the price skyrocket and becoming bitter that you sold at the wrong time. Point is, over the long term you cannot go wrong buying real estate in a good area and if you do not plan for the unexpected you are only fooling yourself.
I do not leverage myself past what I know I can financially survive for at least 2 years and I recommend that to anyone purchasing a property. SB IMO has very limited supply and I look forward to the next 20% dip so I can buy more
BillBuild, I am not trying to be disrespectful in any way and I appreciate your thoughts more than you think. However, understand that I am ever an optimist. SB/Montecito has a highly limited supply and a very wealthy population with great schools. From a speculative standpoint, I just cannot see a long term decline in local prices. Note I have investment properties in North Carolina, New England and Colorado as well where I'm fairly sure those local prices are not as overvalued.
Regards,
Mike
I'd love to accept your apology, but frankly, in the process of apologizing you managed to get a couple of more shots in. Let's just say that if I felt you were a "more knowlegable source" I would listen. Nothing you have said leads me to such a conclusion. And certainly your continual minimizing of my real estate knowledge (not that you would know one way or the other) does not put me in a particularly receptive mode.
In terms of your predictions, giving yourself a 5 year window is really beyond the pale don't you think? In fact, within 5 years it's conceivable that if you are wrong prices could be up another 25-50%. That is not the type of prediction I would put any credence on at all, with all due respect to your self-professed expertise in real estate investment.
Now, I'll try to leave the thread so you can continue with the dire predictions.
OldTrader
Old Trader, I wasn't appologizing so much to you. I know you don't desire to change and you are one heck of a grouch. And it seems imperative that you think you must be right. It's been said that only the young are really open to learning. I try to fight that within myself. One can get too old and set in one's ways. Not open to new ideas cause it upsets a retired life with all ducks in a row. So many old folks are like that!!
I was appologizing most for my sake and the board. Being rude has no real excuse. Not for you either. And you've been rude right along.
And I'm not trying to be rude now. It is just life that some people are set in their ways. C'est la vie.
A Homebuilder does look seveal yrs in the future to determine whether money should be committed now.
But you're happy. Great. So am I. I'm afraid I do see a dire economic correction. And I'm not lying about my experience in RE.
But this is dire too:"Buy when there is blood in the streets" Some guy with the initials NMR said that. Is that dire? If so, it didn't stop him from making one of the greatest fortunes the world has known.
I'll repeat Moo. "Real Estate never goes down.?" It would be great for me if that were true. A 20-30% correction puts the brakes on Homebuilding and wipes out most builders with inventory. If you have no debt, then no worries.
Mike, you are fortunate in SB. What an equity building heaven. When I left there in the 60s it was in a horribly depressed market in RE and most jobs. I moved to CO and majored in Geology at the School of Mines. My Father and Uncle were just too overbearing for me at my age then. I could have stepped into a big co. as a partner. Nope too dumb. Now, I go back often.
Go Broncos!!
I was appologizing most for my sake and the board. Being rude has no real excuse. Not for you either. And you've been rude right along.
And I'm not trying to be rude now. It is just life that some people are set in their ways. C'est la vie.
A Homebuilder does look seveal yrs in the future to determine whether money should be committed now.
But you're happy. Great. So am I. I'm afraid I do see a dire economic correction. And I'm not lying about my experience in RE.
But this is dire too:"Buy when there is blood in the streets" Some guy with the initials NMR said that. Is that dire? If so, it didn't stop him from making one of the greatest fortunes the world has known.
I'll repeat Moo. "Real Estate never goes down.?" It would be great for me if that were true. A 20-30% correction puts the brakes on Homebuilding and wipes out most builders with inventory. If you have no debt, then no worries.
Mike, you are fortunate in SB. What an equity building heaven. When I left there in the 60s it was in a horribly depressed market in RE and most jobs. I moved to CO and majored in Geology at the School of Mines. My Father and Uncle were just too overbearing for me at my age then. I could have stepped into a big co. as a partner. Nope too dumb. Now, I go back often.
Go Broncos!!