Is it really worth buying a real estate?

[GTM]

As we know in many areas of the United States real estate has skyrocketed over the last 5 years or so. I believe the reasons are:

1. people need a place to live
2. low mortgage rates make the monthly payment affordable.
3. money is becoming cheap due to the deprecation of the dollar and people want something tangible.

Alot of people say real estate is a great investment and over the years this has proven to be true.

My question is from today going forward

Is real estate really a good investment?

 

[John Galt]

"Is real estate really a good investment?" Assuming you are not just kidding around, the short answer is YES

John Galt

 

[Michael]

The slightly longer answer is that real estate is a good investment in some areas of the country, but a bad investment in others.

 

[bruce1]

If you think that interest rates are going to increase consider very carefully what effect increased interest rates would have on your real estate investment. That being said I will probably be buying a small investment property in the next year.

Bruce

 

[GTM]

The slightly longer answer is that real estate is a good investment in some areas of the country, but a bad investment in others.

I tend to agree with Michael's response. I can not see purchasing in Long Island or New Jersey where prices have at least doubled and taxes can be 15k per year.
These and other markets have gotten way out of hand and I do not see anymore upside. Interest rate increases and job losses can create more supply than demand and a decrease in value. If I owned a home there I would be a seller now not a buyer. That would really strengthen your nest egg for retirement.

Areas in the midwest and others that have not appreciated much if any I see as good values

 

[Jarhead*]

I tend to agree with Michael's response. I can not see purchasing in Long Island or New Jersey where prices have at least doubled and taxes can be 15k per year

Gtm: Assume you live in New Jersey, Long Island area.

My wife years ago used to live in Long Island.

Just curious, as I have heard horror stories about the property taxes there. What market value would a home be trigger off a $15,000.00 tax bill?

Regards

 

[GTM]

Jarhead I am more familiar with Jersey.

15,000 in taxes
A home in an area without much industry to generate revenue and a good school system may sell for 650-750k and have alittle property.
These are owned by working people many professional but not big earners.

I assume Long Island is similiar.

 

[Hyperborea]

Areas in the midwest and others that have not appreciated much if any I see as good values

You need to think about why some areas have appreciated more and many/most areas have stagnated or fallen. In those areas that you consider good value do they have a net inflow or outflow of people? If there is a net inflow is there so much raw land to build new houses that isn't much different from what is currently built on?

In pretty much all of the places that have risen in value there is usually a net inflow of people. If there isn't a net inflow it's because there is no new housing available while there still is demand for being let in (e.g. some high end California beach communities). These areas also usually have limits to development that make new places significantly worse than existing development (geographic barriers that force you to be far from the current centre, land use restrictions, only inferior quality land left, etc.).

For example, in Silicon Valley, despite the tech down turn, there still is a net inflow of people. There are multiple barriers to new development. There is some regulatory restrictions (land set aside for parks/green spaces by the cities and counties). There are geographic barriers such that if you go much further than the current edge you have to go over mountain ranges in some directions. There are traffic restrictions that make people want to live within a certain distance of the centre to avoid spending all day in the car (and there is no real public transit to alleviate that). What land that is left near the centre is in general sub-standard - it's old chip fab plants (with associated pollution concerns) or little triangles of land next to highway on-ramps.

That's not to say that land here will go up forever - it can't and hasn't. But there are enough factors to keep it moving up over the longer run. What's going to change to make the value of land in Nowheresville, Someflyover State increase?

 

[GTM]

I think a big reason some areas have appreciated at a greater rate than others is because people want to live in a nice area and still be close to their jobs.

Those who live in New York surburbs live there because they work in Manhattan. Families cannot or do not wish to live in Manhattan apartments so they choose the surburbs. (not that Manhattan apartments are cheap, they are more expensive).

Jobs are leaving New York, some to other states, some overseas.
If you are no longer working in Manhattan making big bucks a 650k home is Long Island with annual propery taxes as much as a Toyota Corolla may not be very attractive anymore. And tax write off's wont help if you do not have sufficient income.

My opinion

 

[Bill J.]

If I owned a home there I would be a seller now not a buyer. That would really strengthen your nest egg for retirement.

Then where would you live? Would you move into a rental, waiting for the market to even out? Would you buy a cheaper place further out and have a longer daily commute into work? Looking for some ideas since I'm facing just this very decision right now.

 

[GTM]

Bill, I would rent.

For less than $1000 a month I can rent more than I need.

No property taxes, no water bills, no insurance, no home maintenance, no mowing the lawn or shoveling snow.
I would not buy further out, I would not commute.

But I am single and I only plan on being in the area for another couple of years. Someone who has a big family and plans on working in the same place for a long while may have a different viewpoint.

I do believe the market will come down in the areas that appreciated at the speed of light so taking the money now may be suitable regardless of ones situation.

 

[thebacchus]

Personally, real estate is one of my favorite invesments, has added more to our future ER ability than anything else and will remain a part time business in ER.

If you are handy in the least, and have some motivation, a significant amount can be made in remodeling properties for resale. We look for repo properties, or properties that need some cosmetic work, redo and sell them after 1 year of ownership. (Take the long term cap gain instead of the added expense of a 1031.) Most of the first time buyers today are too lazy to purchase a property that needs a little "elbow grease." They would rather pay much more and make the monthly payment.

This assumes you want to work on a property. If you repeat this model and you live in the property, after two years you can seel the property and take a gain of up to 250/500K tax free (single/married.) Buy another property and repeat in two years.

We started small with a small commercial property that a non profit needed to sell quickly as they were winding the non profit down. (About 4 years ago.) We originally were going to rent the property (wanted the recurring income) but instead sold the property in six months and made 20K after expenses for no work. (This property needed no work. All we did was sign on the dotted line for a loan. Profit is after all expenses.) We were hooked.

We now have several realtors that watch for properties for us and are invested in several properties. (Although most of the good properties we have found on our own.)

Further, one of the items that a FICO score takes into consideration is the TYPE of debt you have. Real Estate debt, demonstrating ownership of real estate, can significantly improve your credit score. (Balanced with other FICO score affecting factors.)

It takes a lot of analysis and homework to find a winning property. But, in a bizarre way, I find the work to be fun and quite a change from my normal work. I consider it a part time job.

Although I'm sure it isn't for everyone, it works for me.

Best wishes,

TheBacchus

 

[Cut-Throat]

Most of the first time buyers today are too lazy to purchase a property that needs a little "elbow grease." They would rather pay much more and make the monthly payment.  

It takes a lot of analysis and homework to find a winning property. But, in a bizarre way, I find the work to be fun and quite a change from my normal work. I consider it a part time job.

Don't underestimate the amount of skill, talent, know-how, tools, time etc. to do what you do.

I would not leap to the conclusion that first time buyers are too lazy :

 

[thebacchus]

Don't underestimate the amount of skill, talent, know-how, tools, time etc. to do what you do.

I would not leap to the conclusion that first time buyers are too lazy :

Time is an important factor. I used to underestimate the amount of time a project would take me. Experience certainly helps. This is not nuclear/rocket science.   But it still has to be something you want to do.

As to first time buyers: while this might not be true of all first time buyers, discussion with  busy realtors in your area will give you an idea of what buyers are like and what they expect. In our area they tend to be lazy/entiltled and many will not buy a property unless everything is perfect. Works well for those of us who are willing to do the "dirty work."  

Like I said, might not work for all, but works for us.

-TB

 

[Cut-Throat]

In our area they tend to be lazy/entiltled

This is absolute Crappola! - This is the kind of thinking that drives racism! - People in Your area are like people everywhere.

 

[John Galt]

Hey Cut-Throat! Spoken like a true liberal.....................
thebacchus made not even an oblique reference to race
and yet you get all out of sorts and shout "Racism"!
It would be pretty funny if there were not so many of you running around out there. And, I can assure you that people in his area are not "like people everywhere".
That's the kind of thinking that drives liberal PC
"crappola"

John Galt

 

[Cut-Throat]

That's the kind of thinking that drives liberal PC
"crappola"  

You mean liberal stuff like the Emancipation proclamation?

After all, you say you would have done just fine the way things were 150 years ago. As long as you were White and Male. Then the 'Liberals' got in the way and gave everyone equal rights!

 

[John Galt]

Hey Cut-Throat....Glad you brought that up as that is
one more thing
I intend to repeal when I take over

John Galt

 

[Jarhead*]

This is absolute Crappola! - This is the kind of thinking that drives racism! - People in Your area are like people everywhere.

Cutthroat:

Let's see, you posted this at 7:00 PM. Cocktail hour at 6:00. PM. Hell, I understand

Regards, Jarhead

 

[Hyperborea]

Jobs are leaving New York, some to other states, some overseas.
If you are no longer working in Manhattan making big bucks a 650k home is Long Island with annual propery taxes as much as a Toyota Corolla may not be very attractive anymore. And tax write off's wont help if you do not have sufficient income.

My opinion

Ok, so you might have a reason that you think will cause housing prices to go down in New York.  Why do you also think that they will go up in somewhere else?  Much of the real estate in much of the US just keeps up with inflation (or at least the land does - the buildings depreciate) unless there is some factor that is in demand - i.e. lakefront or oceanfront property.  I wouldn't want to be buying some house in a big flat town in the praries and then be expecting to make money off the appreciation when it's just too easy to go another 300 feet and plunk down another new house.  If you're buying it to live in the small town that's one thing or you expect to make money off the rental income but making money off the appreciation?

 

[JOhn Galt]

I count on making money from the appreciation, even if
I don't hold the property a long time. But, I try real
hard to buy so low that I have appreciated property
in a sense at the closing. Carlton Sheets and others
teach this stuff. It's really not that hard. I call them
"no brainer" deals and see them everywhere. Oh to be
50 again

John Galt

 

[Jarhead*]

Ok, so you might have a reason that you think will cause housing prices to go down in New York.  Why do you also think that they will go up in somewhere else?  Much of the real estate in much of the US just keeps up with inflation (or at least the land does - the buildings depreciate) unless there is some factor that is in demand - i.e. lakefront or oceanfront property.  I wouldn't want to be buying some house in a big flat town in the praries and then be expecting to make money off the appreciation when it's just too easy to go another 300 feet and plunk down another new house.  If you're buying it to live in the small town that's one thing or you expect to make money off the rental income but making money off the appreciation?

Right on the money with that observation.
Historically, the property in Las Vegas has been dirt cheap compared to Calif.
The population increased to well over l,000,000 from less than 200,000 over about a 10 year period.
Along with the influx, and the demands of the infrastructure, with that type of growth, they tightened up their areas of buildability. The property has doubled in value in last two years alone.
The high rollers in real estate understand this, and even though the original cost of admission may appear out of whack with what's going on in the middle part of the country, the fact is that as long as the demand exceeds the supply, (Bay Area of Calif. for instance), there may be periods of flatness, but the general trend will exceed most of the country. (Of course a major earthquake would have an unsettling effect)
As Hyperborea pointed out, if you are looking for appreciation, you'll have to pony up. If you are looking for a quality of life area, with minimum upside, as many are, nothing wrong with treating your house as a paid up security blanket.

 

[Hyperborea]

I count on making money from the appreciation, even if
I don't hold the property a long time.  But, I try real
hard to buy so low that I have appreciated  property
in a sense at the closing.

Right, so you are buying special property with certain special restrictions or problems that bring it below the current market price and then you remove or alleviate those problems to allow the property to sell at market price.  That is much different than there being general price appreciation in a market nor does it mean that the average home buyer is going to be able or willing to do it.  There's also a limit to the amount that this returning to market value brings and the longer that you hold the property the less the annualized return it brings because you are spreading this jump back to "normal" price over multiple years.

When I purchased my home I was able to get the place below the current market value but that was due to the ineptitude of the seller.  There were a few problems.  None of them were serious but generally cosmetic and I was able to look past them and was also willing to accept the place as not "move in ready".  It really helped that I'm reasonably handy and  just about all of the work was done by my wife or myself.  Even with that the bulk of my gains in the property have been due to the increasing market prices rather than my work to return the property to "market value".

 

[John Galt]

Hello Hyperborea. Good post!

You are correct that I was talking about special
circumstances (seller ineptitude, seller desperation,
divorce, foreclosure, etc) as opposed to normal
ppreciation over time. Also, I have a lot more time to
find these deals since I no longer work. Ironically, now
that I have the time and knowledge to take advantage of this,
I no longer want the hassle nor do I have the energy
to deal with it (irony?). Anyway, a younger person with
some knowledge and drive can make a fortune. It's
no pipe dream. I don't know if those Carlton Sheets
success stories are overdone or not. I do know those results are entirely possible to achieve, and having
"appreciation at closing" is a good start.

John Galt

 

[GTM]

[quote
Ok, so you might have a reason that you think will cause housing prices to go ink down in New York.  Why do you also think that they will go up in somewhere else? [quote  

I think real estate and property values will rise in many areas of the US in the future. It is a matter of finding the "new" hot areas for whatever the reason may be.
General Electric can build a major plant in Kansas and watch how prices in that area fly.
Alot of the country has seen hardly any appreciation at all while others have trippled.
Also buying fixer uppers will allow for a profit but that is a job as well as an investment.

In general the biggest negative factor contributing to real estate appreciation is interest rates. If they become high, prices will not rise as quickly (almost everywhere).