i woudl expect some multiyear cycle in real estate. what is the longest time series to look at in this respect? thnx
Ive already stated that its paid for meaning i didnt leverage myself and AINT paying interest on anything no monthly payments, nada, zilcho...keeping ALL the properties will cost me $200 or so a year in taxes...all the properties are together... if im up 30-40% and the market correct 50% ( which i dont think ) and its not a hot market where i purchased...i think im still ok ..dont you???
hard to generalize housing nationwide. some places more vulnerable. depends on geography. near nyc, it would take more than half of the existing homeowners to dump their homes on the market at the same time to recreate a nasdaq bubble style sell off. and if they did, rental prices would skyrocket. why would people sell their home en masse to rent at higher prices.
He said "WHAT IF", so he can say the craziest things after that intro. The % depends of how much imagination one has. The last century there have been more 50% ups than downs. I bought some land 20 years ago; everybody said the price was crazy. Today that same land cost 500% more. And they still say it's crazy. Those who bought at the crazy prices 20 years ago didn't regret it. We will never see a drop as in the stockmarket, because housing is an essential need for everyone, stocks are not. If you sell your stocks you get money; if you sell your house you will have to rent, and renting is very expensive (at least where i live). What if the prices never come down more than 10% and start climbing again?
I'm in process of buying an appartment in Manhattan, even though I am semi-bearish on RE (I don't think it will crash, but I do think it will not grow as much as in the recent years). However, anyone who thinks that we will see a major softening, might want to consider a macro hedge for the RE they have bought. He/she's already long real estate, so she'd go short on basket housing stocks. to figure out correlation look at history, HPI vs stocks. In addition, one should go long on some S&P ETFs to keep the hedge market neutral, otherwise an extended rally in stocks will destroy the whole position. Alternativery, she might want to long some OTM puts on the same stock basket and finance it by selling put's on SPX, both far enough OTM to exclude smaller swings. There are more hedging possibilities, I'm too lazy to write them down.
I'll jump on that one. My condo in Long Beach/Signal Hill, CA went from 125K to 215K to 120-130K in the period from 1986 to 1993. I think the lowest priced one at the trough sold for 122.5K. Mine was much nicer inside. That's 43% from peak to trough. It took until 2001 to get back to the high set in 1990. Now the same POS sells for 475K, almost 400/sq ft. All thanks to Greenspan. Remember there isn't any inflation, Kool-Aid is on the left, please drink up!!!!
First off, I am a big believer in RE investment. I have made a lot of money in RE. I plan on buying 1 rental every year for the next 15 years. I am in a stong financial position and I am fairly confident that I can handle the negative cash flow for an extended period of time. I feel that it is hard to lose money in RE if you have a 20 year investment horizon. Go back and take a look at what happened during the late seventies and early eighties in RE around the country. There was a five year period where property values did nothing but decline, and what's worse, there were very few bids to hit to get out of a property, it was truely a buyers market. Five years! Interest rates were high, combined with constant taxes, made the situation such that investing in vacant land was absolutely horrible. A close friend, a typical middle class business owner, bought 8 lots on a beautiful lake. Developed a few of them, and then was stuck with the last three. Because vacant property provides no income, he tried hard to hang on to the lots, but just couldn't keep up with the payments. Afterall, he was a realtor, and business was slow. He had a family to feed, and a mortgage payment and a business to run. His cash flow was stretched thin, and he ended selling those lots for 15k just to get rid of them. Today, they would be worth over 200k. Times were tight, and tough decisions had to be made. Do you really think that next time will be any different? Today, a negative cashflow is very manageable, but what if things change. What if your income dropped by 13k next year, the average swing in income for middle class families. What if you were unemployed for 18 months? You are cash strapped, credit maxed out, Will you still be able to hang on to those lots. Continue to make payments and taxes? I think not. I don't believe that most RE investors are planning for these types of scenarios, instead they are basing their assumptions on things getting better. The simply are not planning for risk. All markets experience corrections.......all markets! Questions to think about, with home ownership at 70%, who is left to buy? Many areas are experience affordability ratios of less than 18%, often times a sign of a top in the RE market. If you were to conduct a realistic scenario analysis, you would see that a 50% drop in some of the hottest areas in the country is a very real possibility. Many other areas will see declines of 20% or so. Good investing and trading to all! Mike
Indeed, as you say, in the hottest areas, but i talk about areas where the average middle class lives, not about Beverly Hills or comparable places. If prices drop 20% so what? I f stay in my house for the next 20 years, my payments will not change. So decline or not, it will make no difference to my financial situation. And if prices go down 20% i still get a better price than what i paid for.
Real estate is not a fundamentally bad investment. Its not much different than any other investment except for the liquidity issues and lack of standardization of improved lots. But just like any trade you would enter into, what's your risk and what's your reward? Downside risk estimated to be between 20% for a primo property in a primo area that holds its value even in downturns; 50% for a unimproved lot in an overbought or undesirable area. Upside for the primo area? At this point, prices would need to increase by at least 30% for me to like that trade & fade the 20% risk of decline. The old 3:2 risk/reward ratio to ensure success through proper money management. Might be achievable in 2-3 years, but I know that I'm fighting rising interest rates. For the unimproved lot, it looks a lot grimmer. Unless I plan to develop it rapidly, I doubt I would be able to get a 75% return on it in 2-3 years. I wouldn't take that trade now. El Cubano - your situation is different. Hold your lots.