rationale for real estate investment

Discussion in 'Economics' started by trading1, Apr 4, 2010.

  1. I'm looking at investing in apartments, if they yield a 8% return, my thinking is their value can't have much downside (or the yield would be even higher). This is a bit simplistic, but is there something I'm overlooking? For example, I had the same view to industrial real estate but discovered the flaw, theres a good risk of long vacancy periods that can ruin the investment model. Thanks for any help.
  2. I'm a landlord myself, some specifics like location price range etc, would help out.
  3. Lethn


    I'm gonna say it now but I think real estate is an absolutely terrible idea to invest in, if there won't be another crash soon then there will be one in the next couple of years depending on how much money the federal reserve is willing to print. Not only that, real estate is all overpriced to hell right now.
  4. http://articles.latimes.com/2010/apr/02/business/la-fi-chinese-drywall3-2010apr03
    Consumers told to gut Chinese-drywall homes
    Wallboard, wiring, sprinkler systems -- all of it should go, two federal agencies say.
    April 02, 2010|By Alana Semuels

    Homeowners who may have hazardous Chinese drywall in their homes should remove it, two government agencies said Friday, in effect advising thousands of people from Florida to California to gut their homes.

    Consumers should remove "all possible problem drywall" and replace their electrical wiring, sprinkler systems, smoke alarms and carbon monoxide alarms, according to new guidelines issued Friday by the Consumer Product Safety Commission and the Department of Housing and Urban Development.

    "Based on the scientific work to date, removing the problem drywall is the best solution currently available to homeowners," said Inez Tenenbaum, chairwoman of the safety commission.

    Authorities began investigating problem drywall in 2008, when homeowners in Florida complained of foul odors seeping from their walls and corrosion in their air conditioners, mirrors, electrical units and jewelry.

    Although officials initially found no problem with the Chinese-made material, studies eventually showed that the corrosion could be linked to drywall from China. The problematic drywall emits hydrogen sulfide at rates 100 times the rates of non-Chinese samples, the commission said.

    Some homeowners complained of health problems, including coughing, nosebleeds, sinus infections and other throat, nose and lung irritation. The commission said it was continuing to investigate claims from residents in 37 states, the District of Columbia, Puerto Rico and American Samoa.

    The agency issued guidelines in January to help consumers identify whether their homes contained problem drywall.

    Homeowners who had new drywall installed between 2001 and 2008 were instructed to look for blackened copper electrical wiring or air conditioner coils. Inspectors would then test the corrosive conditions in the homes and the drywall.

    Now, the same homeowners are being told that the best step is to remove the drywall, which amounts to gutting homes or additions where the cheap, imported building material was used.

    It's still unclear who will pay for this process. Thousands of homeowners have filed suit against the Chinese manufacturers who made the drywall and the U.S. companies that sold it.

    "We are looking to recover not just the cost to fix the home, but other damages," said Jordan Chaikin, a lawyer with Parker Waichman Alonso, a New York law firm that is representing about 1,000 homeowners who have sued for damages.

    Many of the homes containing the Chinese drywall are in the Southeast. They were constructed after hurricanes destroyed homes in Florida and Louisiana.

    In addition, many complaints have arisen from homes built in several states in 2006, near the end of the housing boom.


  5. All the more reason not to buy Chinese made crappy products.
  6. I agree. But buying a piece of land is a good hedge against inflation if the socialists go crazy and start the printing again...
  7. MattF


    Most stuff is still overpriced, yes. Some markets in my area are in the midst of what could very well be the double-dip portion.

    However, if you're buying in on something at 50+% off of its assessed/after repair value (like many of the bank-owned stuff that gets dumped on), and repairs bring it to around 60-70% or less, then there's a likely bet you have a good deal.

    Even still, renting it out would cash flow likely if you bought the thing low enough...unless market rents suddenly come crashing down as well because no one wants to pay it/live in that area.

    As for apartment buildings, yes do your homework. Seller #'s never reflect what yours could be, and often times they'll put in the income as if it were fully rented out (when it never was), or if just a little vacancy (when you should be more conservative and plug in for 10-20% vacancy).
  8. MattF


    More nonsense to get people to spend and get business going...unless the government's kicking in to pay for all of this, almost no one'll listen except the real idiots.
  9. Appreciate all the feedback, I get the impression it might not be as cut and dry as expected, some vacancy might knock a % point of the yield, then theres maintenance, downside risk and mucking about getting tenants
  10. had small apartments buildings for over 10 years. There is no place to begin to tell you about all the pain that renters can bring into your life.

    Those "don't wanters" who the books tell you to buy from? Those may be you in 5-10 years.

    I will give you one piece of advice. Far and away the best thing to own, is a building you LIVE in. There is nothing like buying a place, then getting a job somewhere else, and driving an hour each way to let in tenants who lost a key, the plumber, trying to meet a new prospctive tenant who did not show up. Then there are people who stop paying and you have to spend a lot of $$$ while they stay free for 3 months, quarreling tenants, a major factory goes out of business in your town and the value of your property drops 30% in 1 year and you can no longer get reasonable renters, driving a troubled tenant to alcohol/narc rehab to dry himself out, partiers who throw your new range down the stairwell, drug users or pushers working out of your building, people who hide 6 cats in their apt and it smells like a cesspool when they move out, and a lot of other things they don't tell you in "No Money Down" seminars.
    #10     Apr 5, 2010