Last week an investor called me from LA who is a stock broker. Our conversation got me thinking about the rich investment opportunity real estate provides, in spite of all the talk of a bubble burst. I’ve played the stock market for years and have won some and lost some but I’ve never been able to get it down to a predictable outcome. I invest in stocks because I’m told by financial advisors that I need to diversify. However, there is a way to invest that has many more controllable and dependable outcomes – Real Estate! Real Estate will never go out of business, never merge, never have problems with DOJ, never be outdone by the overseas manufacturing industry, never worry about ever changing technologies. There’s always supply and there’s always demand. With the exception of mother nature simply obliterating the landscape, real estate will always be there.
I don’t mean to paint an overly rosy picture here, but having been in the business for, gulp, nearly 30 years, and watching the ups and downs and downs and ups, (I once sold a home to a client with financing at 22%! not to mention using precious gems as a down payment!), I just don’t see the glass as half empty but rather half full. I have been a restaurant and marina owner and a real estate developer and investor, throughout the various market ups and downs. I suggest you look at real estate values over those last 30 years and see how many times they’ve multiplied. And we’ve had 5 or 6 ‘busts’ in that time. As a new licensee, I sold my first home for $32,500 in 1978 and today that home is listed at $495,000 – a multiple of 15 times. We all know this is true, so why are we all sitting around worrying? All this talk about real estate busting like the stock market did is just ridiculous. We’re not comparing apples with apples and even if the prices do go down, it will most likely be short term creating a great buying opportunity, and when prices bounce back we’ll all sit back and have a good laugh at all those naysayers with dour predictions.
I wish I’d taken my own advice in 1986 when I could have purchased 150 homes from a bank for 20 cents on the dollar. I didn’t have the foresight at that time to know what I am telling you now; real estate bounces back and prices rise even higher. Had I bought those homes that year, I’d be writing this from my estate in Maui! I’ve learned my lesson and now I want to share my perspective with you.
So, keep on investing. You may not be able to live off the profits from a short term flip but if you invest with someone that understands the market and the profit potential, you won’t have to worry about any ‘busts’ now or in the future.
you are blindly leading us into your own profits…. at our peril
That’s a suprising response. I’m not even sure what it means. Besides, I don’t share my ‘profits’ We don’t solicit investors and the post was meant to share my own experence only. I thought sharing opinions on the subject of real estate is what this blog was about!
Eileen, I think by “profits” ks means “commission revenue”. ks is referring to an agent, not necessarily you personally, who never says don’t buy this, or now is not a good time.
It’s one of the problems I have with 1031 exchanges. You have to sell and buy pretty much at the same time with a very small window. Consequently the 1031 laws almost prevent someone from selling high and buying low. You can’t take your profits to cash for several months and time the next purchase, like you do with the stock market, because the gain on the sale becomes taxable if you do not find a replacement property very quickly.
I think a seller in a 1031 exchange should have at least 6 mos to a year to find a suitable replacement property. I try to stay in residential only, but once in a while I do investors that other agents don’t want, like first time investors or low credit score 1031 exhange “victims”.
Eileen, I think by “profits” ks means “commission revenue”. ks is referring to an agent, not necessarily you personally, who never says don’t buy this, or now is not a good time.
It’s one of the problems I have with 1031 exchanges. You have to sell and buy pretty much at the same time with a very small window. Consequently the 1031 laws almost prevent someone from selling high and buying low. You can’t take your profits to cash for several months and time the next purchase, like you do with the stock market, because the gain on the sale becomes taxable if you do not find a replacement property very quickly.
I think a seller in a 1031 exchange should have at least 6 mos to a year to find a suitable replacement property. I try to stay in residential only, but once in a while I do investors that other agents don’t want, like first time investors or low credit score 1031 exhange “victims”.
I think a lot of people are suspcious of anyone touting Real Estate as a good investment. More and more people are seeing prices at record highs, affordability at records lows and rising interest rates. The prospects for any more short-term appreciation in Real Estate seem dim. And just food for thought the house you sold in 1978 for $32,500- if you invested it in the stock market (Dow Jones average) you would have $447,000 by now. Not quite $495,000 but how many pieces of Real Estate can really have that much appreciation? I think that with any investing, research, timing and luck are very important as you said. But Real Estate, in most areas of the country, has not been a good investment over the long run, while the stock market generally has.
You correctly point out that selling high and buying low in the short exchange period when dealing with same market residential property is difficult. However, most 1031 transactions involve commercial investment property. Many commercial RE investors either move to different markets to address this issue, elect to purchase property in an asset class that is less desirable at the time (e.g. retail, office, multifamily, industrial) or move to a higher level asset through a Tenancy in Common model.
-Russ
It’s safe to say that, over the long run, BOTH real estate and the stock market have been good investments. If you are trying to time the market, a pretty good case can be made that now is not the best time to buy real estate — but as always it should prove to be a decent investment if you’ve got a long enough time line.
Craig
yes, Craig. I agree,over a long run real estate can reap rewards, but as many academics argue, the relationship between gains and inflation is narrow, unless you reap gains within a period of “exuberance.”
I think Eileen’s remarks are refreshing in that she has worked in enough cycles to know that the appreciation is not a straight line and that the national median prices do drop as opposed to many in the industry believing otherwise.
OT- lenders are tightening. And earlier this morning we received another call from a lender doing an audit on a foreclosure that closed 11 mos. ago. Once again………..a 100% loan.
71% of all our purchase transactions we closed in 2005 were 100% financed, most with ARM’s, many with 2yr-3yr. pre-payment penalties. Is this healthy? Or are the borrowers out there just “leveraging” the money that’s available?
Do any lenders on this blog concur with underwriting guideline tightenting? If yes, then how do you counsel your borrowers who may not qualify due to tightening? Are there other products out there cropping up that help borderline folks?
-Tim
yes, Craig. I agree,over a long run real estate can reap rewards, but as many academics argue, the relationship between gains and inflation is narrow, unless you reap gains within a period of “exuberance.”
I think Eileen’s remarks are refreshing in that she has worked in enough cycles to know that the appreciation is not a straight line and that the national median prices do drop as opposed to many in the industry believing otherwise.
OT- lenders are tightening. And earlier this morning we received another call from a lender doing an audit on a foreclosure that closed 11 mos. ago. Once again………..a 100% loan.
71% of all our purchase transactions we closed in 2005 were 100% financed, most with ARM’s, many with 2yr-3yr. pre-payment penalties. Is this healthy? Or are the borrowers out there just “leveraging” the money that’s available?
Do any lenders on this blog concur with underwriting guideline tightenting? If yes, then how do you counsel your borrowers who may not qualify due to tightening? Are there other products out there cropping up that help borderline folks?
-Tim
Ardell – the short 1031 exchange window is why Dallice (my partner) recently posted about using your IRA as a vehicle for real estate investing. Has more flexibility when it comes to time, but certain other limitations. Investors should consider the IRA alternative.
Eric – don’t forget factors that puts real estate ahead of the stock market for most investors. (1) you can live in real estate ( gotta live someplace), (2) more/cheaper financial leverage, (3) interest deductions, (4) capital gains exceptions for primary residences (5) in the case of single stocks (vs index funds) – much lower volatility. Your home isn’t going to drop 30% in value overnight because the company missed it’s quarterly earnings by $0.03.
It’s certainly arguable (in bubblicious markets) that now isn’t the best time to be buying real estate. Hey, people have been saying that for years. But even if certain markets are cooling, not every area will get caught in the downdraft of the bubble.
As I’ve said (ad nauseum?), the Boulder/Denver region didn’t experience the bubble (01-05) and we aren’t likely to experience a bursting bubble (save psychological impacts). -Osman
Ardell – the short 1031 exchange window is why Dallice (my partner) recently posted about using your IRA as a vehicle for real estate investing. Has more flexibility when it comes to time, but certain other limitations. Investors should consider the IRA alternative.
Eric – don’t forget factors that puts real estate ahead of the stock market for most investors. (1) you can live in real estate ( gotta live someplace), (2) more/cheaper financial leverage, (3) interest deductions, (4) capital gains exceptions for primary residences (5) in the case of single stocks (vs index funds) – much lower volatility. Your home isn’t going to drop 30% in value overnight because the company missed it’s quarterly earnings by $0.03.
It’s certainly arguable (in bubblicious markets) that now isn’t the best time to be buying real estate. Hey, people have been saying that for years. But even if certain markets are cooling, not every area will get caught in the downdraft of the bubble.
As I’ve said (ad nauseum?), the Boulder/Denver region didn’t experience the bubble (01-05) and we aren’t likely to experience a bursting bubble (save psychological impacts). -Osman
Tim-
Your question… “Should underwriting guidelines be tighter?
Tim-
Your question… “Should underwriting guidelines be tighter?
Personally, I think the areas that may/will be annexed to City of Kirkland are good investor markets. Buy an ugly as sin condo, the ugliest beat up one you can find in Juanita or fixer in Finn Hill. They haven’t appreciated as much as Downtown or Houghton, are still good values relatively speaking, and bet on the fact that they will be annexed. Check with City of Kirkland regarding the border streets of the proposed annexation.
Fix them, remodel them, rent them or flip them or hold them until they are annexed. Anyway you slice it, I think some of them are good values, but some are not good construction, so be careful out there to pick the good ones!
My $.02
How about White Center and Burien. They’re up and coming and much better value than West Seattle and Capital Hill. We’ve bought in the Central District, the Lid, etc. You’ve got to hunt and look for other ways to make a profit than remodel. Saw two houses on one lot today. Splitting them apart is another way to go.
I still say real estate is a great investment vehicle if bought right. I use 1031, but like Osman, I have a big bunch of real estate in my Roth IRA. Love it as I never have to pay taxes on the gain.Getting ready to feature 401K self directed investments on my web page.
NO UBIT tax on those, Osman.
We haven’t done anything for ourselves at this point, as we try to find a client who can profit, when we see a good property. But we are thinking of doing 3 flip projects to have three complete “how to” examples” for clients.
I think anything with a view is always worth having.
My partner, Kim Harris, is the “area expert” of our team, and the one who deals more with investor clients. He says Des Moines, Seward Park, West side of Newcastle, parts of Matthews Beach, Richmond Beach and North Beach. Des Moines being his top pick. Eastside, between Redmond and Sammamish just off of the plateau.
Good luck with those. They’re time consuming, expensive and not much profit. We’ve got about two dozen under our belts and the ones we made profit on had something else going for them besides just a remodel. As I said before, hard to make a profit merely on the rehab, remodel flip.
For those who are losing faith in real estate as a great investment, just broaden your view and see where in the nation the market is better for your investment purposes. No one says that the only market is in your back yard. Where one market is slow, another is booming.
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Investing in real estate is definitely a smart business move. There will always be a need for real estate, you just need to be smart about the areas you invest in.
Walt