I was just watching a discussion on CNBC that was discussing investment in real estate, real property in light of the current real estate market. It was interesting to hear the opinions of the panelists, but one item stood out. It gave room to stop and pause and think...In uncertain times, liquidity of the investment is key. It is easy to redeem a stock, bond or gold, or many other assets, but real property it takes time to get your money or equity out. What are your thoughts?
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Jim,
If I had money that I didn't need (retirement, perhaps) and could use that money for a ten year period then I'd be a buyer. In fact, I'd probably wait till late fall, because in our market that's when prices tend to drop as the market stagnates.
Because so many people will not be able to purchase you'll be able to increase your rents. Keeping a property that long will cure any incorrect purchase price.
It depends on the market, there are some markets that have experienced "irrational exuberance", but for the most part, I'd say that real estate would be a "buy". The current slowness is presenting a buying opportunity. In stocks, they call it "buying on the dip".
The demographics are such that within the next 20 years or so (real estate is definately a long term investment) the US population is going to increase substantially. I heard on NPR something to the effect that by 2020 that the US population would top 310,000,000 people. More people need more houses...they ain't making more land!
R. B. "Bob" Mitchell
www.valuelistre.com
Ravi, that's great news. We're not seeing that in Cape May County, and haven't for some time.
Jim: Real Estate should be part of everyone's portfolio. I would rate it a hold. If you look at the long term averages, your portfolio should be evened out by holding various asset classes. They all don't perform well at the same time, but the diversification will smooth things out over the long term.
"Cantaloupe"
Ravi Multiple offers, that is something I do not see in the suburbs of Atlanta too often! That is a fantasy! They do occur, but wiht listing inventory hitting record highs in Atlanta, I wouldn't hold my breath waiting for one.
Tom I think the reason buyers have dissappeared, is that they are putting itheir buying on hold also!
Exactly! The land is always there! Real estate is tangible. I agree long term.
It depends!
I recently went to a seminar on how to build wealth with real estate. The speaker, Tom Lundstedt, www.tomlundstedt.com was fantastic. Basically, he shows you how the dollars you earn from your real estate investments are worth more than the dollars you earn from your job (mostly because of the way investment property is taxed). What an eye-opener.
The key is in re-calculating the rate of return on your equity every year...the numbers will tell you whether you should hold the property, sell the property, trade up, or pull the equity out to buy something else. If you don't do the annual "return on equity analysis" you are not a real estate investor, but merely a real estate speculator...
So long term is not necessarily the answer if you are looking to be an investor. Once your return on equity could be better somewhere else, it's time for the 1031 exchange!
The seminar related mainly to investment properties (rentals, buildings, strip malls) and was not market specific.
As for "regular" homeowners, in our market, it is the perfect time to sell, and buy a move up home, but sellers are skittish. They don't realize that during our recent sellers market, they were buying high and selling high. Conversely, during a buyers market (which is what we are experiencing here), they are buying low and selling low. I explain that while they may realize less $ on the sale of their current home, they will make it up on the purchase of their new home. Example: .02 x $300,000 = $6000 "loss" on the sale of their current home; .02 x $600,000 = $12,000 "savings" on the purchase of their new home. That's a gain of $6000! So why not buy now? They are just so focused on the "loss" that they have a hard time seeing the big picture. Of course, that's assuming that the .02 is across the board. For us, the higher end market is moving more slowly (less potential buyers) so the gain may actually be even better.
Jim,
Great thoughts to think and live by. As we all know cash is king. With that said, the one reason I have sold my personal holdings is too raise cash. I have bought appx. 20 investment properties in the last 8 or so years. I purchase for the long term generally but I have sold in order to expand my portfolio. The tax advantage of owning property is often over look by the average person and many newbie investors. As of current time, we are in the process of buying a large holding of property. This purchase has been move forward by a recent sale.
Kelly Market stats will always rule when common sense returns. Many sellers are lamenting the fact they should have sold, when sales were easier, and persons did not negotiate the offer. Reality will sink in again soon.
Frank the difference is that you are a true investor.