farmerEd said:
Anyone besides me feel they are missing out on the huge money being made in real estate these days?
Lots of penny stocks doubled yesterday too, and I didn't own any of them. I coulda been way short on the euro or the British pound and made big bucks this morning, but I don't regret missing that "opportunity" either.
Homeowners make money because their real estate is an illiquid asset with high transaction costs. Most hesitate to day-trade their real estate (or it's just too much hassle to move every few years) and end up becoming buy & hold investors. (Imagine if you could sell your home for a few mouse clicks and a $7 commission, and then surrender possession in three trading days.) If it's too hard to trade (and lose money) then the opposite eventually happens. When homeowners move it's rarely because of a detailed analysis of the fundamentals & technicals. It's for emotional reasons like "I'm sick of this place" or "There goes the neighborhood" or "I'm upgrading" or "My job is moving" or "I need to raise cash for groceries." How many of us have sold stocks for that reason? (Well, maybe for that last reason.)
If your home ends up being the equivalent of NASDAQ 5000 on the downslope then you can still go into your bedroom and pull the covers over your head. (You might not even hear the foreclosure notice being delivered!) If you have cashflow then you can keep paying the mortgage and enjoy the benefits of homeownership. It's a lot harder to do that with shares of CSCO or JDSU (or margin calls).
Spouse and I moved 19 times in our 20-year careers. Homebuying was never a financial decision but rather a desire for stability & control-- when we thought we'd be in a place for three years or more then we bought. Of the two places we've sold, we made money (Monterey) and lost a little (Charleston, SC). Our "smartest" decisions have been renting in San Diego ('94-97 in a flat market) and holding in Hawaii ('89 & '00-present). The '89 Hawaii home purchase has seen its peaks & troughs but has basically doubled in value in 16 years, less than a 5% APY and, after-tax & after cap expenses, less than inflation. I shudder to think what would have happened to our lives if we'd managed to sell into the peak of 1990-- we would have "upgraded" into a much more expensive home, a huge mortgage, a tenant necessary for cash flow, and an hour's gridlocked commute each way. (We probably wouldn't have become parents either!) The '00 home purchase has also doubled but it remains to be seen whether the landing is soft or hard-- irrelevant outcomes since we're not selling. Neither of those smart purchase decisions had anything to do with a quantitative unemotional financial analysis, but rather with expecting to be able to live there a while and wanting stability from landlords & rent increases. The '00 purchase was also our "dream house" bought from a very distressed seller-- more like Ben Graham rather than Peter Lynch. As workerbees & parents we certainly weren't in any position to be able to move (and it was a painful move!), let alone flip.
We sat out the runups in commodities and REITs because we felt the first has essentially been a currency play on a declining dollar and the second would have exposed us to way too much RE in our asset allocation. However if another real estate bloodbath happens sometime in the next 10 years, then we'd consider selling a chunk of equities to buy a distressed property for a cash-flow tenant. (It'd still be an over-allocation to RE but this time I have enough ER time to work our way out of the situation.) Landlording is a much different proposition than being a homeowner, it's not one to be entered into lightly, and those making money off it have basically done so by EARNING it with sweat equity.
So I don't feel that I'm missing out. I do feel that if another opportunity comes our way, we'll be ready. But unless our daughter wants a sweat-equity stake of her own, I might be too busy surfing to exploit an "opportunity".
Hmmm, time for another cup of coffee. Looks like a heckuva rush hour from our back lanai!
