Real Estate Hot in 2003 (a little OT)
dollardude
Posts: 1,263
Okay, I thought I'd throw in a thread on real estate, since we've about beat to death investments in coins, precious metals, and stocks. This may be in the wrong forum, but I think more people will appreciate this here.
According to a CNBC special report that I just saw today, Barbara Corcoran, Corcoran Group Founder, believes that housing prices "have gone through the roof" in 2003. They have shot up roughly 9% this year. The reason, she believes, is because people want to invest in something they can trust. This has been as much a fuel to the market as cheap money (low interest rates).
Advice? For buyers, she recommends buying in an up and coming neighborhood. For sellers (and this really surprised me, since I'm a real estate investor), intentionally underprice your home and create a chaotic auction environment so that you have a lot of buyers look at it. Almost 20% of homes go for over ask price.
The bottom line? The best time to buy is right now because prices should go even higher in 2004.
According to a CNBC special report that I just saw today, Barbara Corcoran, Corcoran Group Founder, believes that housing prices "have gone through the roof" in 2003. They have shot up roughly 9% this year. The reason, she believes, is because people want to invest in something they can trust. This has been as much a fuel to the market as cheap money (low interest rates).
Advice? For buyers, she recommends buying in an up and coming neighborhood. For sellers (and this really surprised me, since I'm a real estate investor), intentionally underprice your home and create a chaotic auction environment so that you have a lot of buyers look at it. Almost 20% of homes go for over ask price.
The bottom line? The best time to buy is right now because prices should go even higher in 2004.
Author of MrKelso's official cheat thread words of wisdom on 5/30/04. 
Check out a Vanguard Roth IRA.
Check out a Vanguard Roth IRA.
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Comments
I don't now about anywhere else, but the California market is SUPERNOVA WHITE HOT!
Michael
<< <i>You really can't lose in the California real estate market. >>
Uh..huh. Just talk to some people who bought in 1990. heh
jom
Signed.... someone that was offered double for his house at one time, but wasn't ready to sell. When it was time and a must.... the market bottomed out in California, three different kinds of termites evolved, and didn't even get a kiss.
My point being, untill you sell you have nothing to count on.
You don't have to sell to realize financial gain. Do you think the top real estate developers only realize a profit when they sell?
Michael
<< <i>I guess the idea of leveraging your equity is lost on you guys! >>
Ah...nothing like the good old HELOC.
jom
When couples with combined incomes of no more than $80K/year are forced to either spend close to $400K for a house in a "decent" neighborhood close to work, or commute over an hour from the desert, that's not a good thing.
<< <i>I guess the idea of leveraging your equity is lost on you guys! >>
Well no I'm not lost just because I'm not a Lawyer
--------
Howdy from Houston...
Can't keep my eyes
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Tongue tied and twisted
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">my registry set
People are still moving here from all directions.I live about an hour outside of Sacramento and the lack of Real Estate on the market in town has drawn a lot of attention to my area. In My neighborhood houses have gone up 75-100k in three years!An hour or even an hour and half is the norm for cummuting to work in California.
I don't now about anywhere else, but the California market is SUPERNOVA WHITE HOT!
Michael >>
Good for you, Michael! However, I DON'T think prices will nearly double in 2 1/2 years, on average, in the long run. Remember that real estate is a LONG TERM investment. By this, I mean about a 10-year average. Look for some short-term corrections here and there. If you do invest in real estate (preferably AFTER you pay off your own home and have a fully funded 3-6 months' emergency fund as CASH in the bank ABOVE AND BEYOND the amount you want to invest), I strongly suggest you do so with CASH. PLEASE DO NOT BORROW TO INVEST!!!!! Also, I strongly suggest you do NOT go in as a partner with ANYONE. PERIOD!!!!! Take some wise advice from a real estate investor like myself. Trust me, you DON'T want to go into debt (i.e., the Carlton Sheets' plan), and you DON'T want a business partner of ANY kind.
Check out a Vanguard Roth IRA.
Property taxes are going up 10% a year and people are baing taxed out of their homes. There are over 80,000 homes for sale in the area right now and the number is usually less than a third of that.
Home prices are dropping here at every level under the 3/4 million range.
In the last 4 years our county taxes have had to support 3 billion dollars, that's with a "B", just for illegal aliens in the county hospitals.
There is no end in sight to the tax increases, last fall I watched my neighbors loose their home due strictly to the taxes. The house never did sell and finally was scooped up at auction for roughly 2/3rds of it's value a year ago, by a firm in California and now is rented out.
We have Bill Clinton to thank for this unfunded mandate.
Real estate is NOT a wise investment in Houston right now and I would think the same would be true for any area being overrun by illegal aliens. The cost is breaking down the infrastructure.
John Marnard Keynes, The Economic Consequences of the Peace, 1920, page 235ff
<< <i> DON'T think prices will nearly double in 2 1/2 years >>
Agreed, but even if the prices retreat, I can always rent the properties and hold them for 10 years.
<< <i>If you do invest in real estate (preferably AFTER you pay off your own home and have a fully funded 3-6 months' emergency fund as CASH in the bank ABOVE AND BEYOND the amount you want to invest), I strongly suggest you do so with CASH. >>
Why would I do that? I don't want to own my home free and clear, not now, not ever. The tax implications as well as the liability implications are overwhelming. Granted I do agree with the 6 months emergency fund, but I would never invest with my own cash. Why would I? Do you think that's really a smart idea. Why lose my own money, when the bank is willing to let me use or lose theirs? As a lawyer, my advice is to have as little personal assets as necessary or some other lawyer will come along and take them if you do something which causes liability on your part, ie. auto accident, assault, ect.
<< <i>I strongly suggest you do NOT go in as a partner with ANYONE. PERIOD!!!!! >>
Why would you say this? Legal reasons, financial, or just personal experience because of a deal gone bad. Most large real estate transactions are partnerships between owners & developers. If I purchase an open lot and want to develop a strip mall, I really don't want to have to learn to become a developer, I'll bring in a partner. I'm not sure of the reasons of your adversity to partners.
Michael
<< <i> Do you think that's really a smart idea. Why lose my own money, when the bank is willing to let me use or lose theirs? As a lawyer, my advice is to have as little personal assets as necessary or some other lawyer will come along and take them if you do something which causes liability on your part, ie. auto accident, assault, ect. >>
Ahhh, the life of the paranoid. And IMO giving way too much power to your profession. If You lose the banks money that's it huh? Not trying to give you a hard time, but as a Lawyer your blanket statement below is very bad advice IMO And just not true whatsoever.
<< <i>You really can't lose in the California real estate market. >>
Those that speculate, either in coins, stocks or real estate are bound to lose more as well as potentially gain more. A buy and hold seems to work well. I know several attorneys who can now retire at the age of 45 because of the real estate holdings they posses. They did exactly what I am discussing. They are leveraged properties to increase their holdings and used the income generated to payoff exsisting loans. Now that they have been at for about 10 years, their income from all the properties provides them $40-$50,000 a month in income. I think I can live off of that.
And as far as losing the banks money, they aren't giving it to me for free. I pay interest on the loan and they absorb the risk. For commercial/investment properties, interest are higher and the risks are higher. The bank can always forclose and sell the property. Do you really think the banks lose money on these types of loans?
Michael
<< I strongly suggest you do NOT go in as a partner with ANYONE. PERIOD!!!!! >>
Why would you say this? Legal reasons, financial, or just personal experience because of a deal gone bad. Most large real estate transactions are partnerships between owners & developers. If I purchase an open lot and want to develop a strip mall, I really don't want to have to learn to become a developer, I'll bring in a partner. I'm not sure of the reasons of your adversity to partners. >>
Michael, I used to believe this myself for many years. Now, I've actually done the math for myself. Keeping a mortgage on a piece of real estate just to get the tax deduction is not wise. Let me explain why through a simple example. Let's suppose you buy a $250,000 house, put $50,000 down, and borrow $200,000 at 5% interest on a 15-year fixed rate conventional mortgage with 0 points and 0 origination fee (which is the only type of mortgage I recommend, by the way). This is not exactly correct, since you pay in monthly installments, but let's just round off for simplicity. Let's say you pay $10,000 in interest ($200,000 x 5% = $10,000) over the course of 1 year. Okay, let's say you're in a 30% tax bracket. So, you have a $10,000 tax deduction. In other words, you don't pay taxes on that $10,000 that you would have normally paid had you not had a mortgage. So, you save $3,000 on your taxes, right? That's 30% x $10,000 = $3,000. So, you sent the bank $10,000 to keep from sending the government $3,000. I'm a simple guy, Michael, and this just don't work!!!!!
As far as partners go, I have invested in real estate for many years. I have also spoken to many people in the business full-time. All of them LOUDLY warned me against taking on a partner of ANY kind. PERIOD. This is one lesson I learned the easy way. I have not had a partner, and have been fortunate to have done very well thus far. As I said, I learned this from other people, i.e., most partnerships in business spell DISASTER. Stay away from them!!!!!
Investing into ANYTHING should be done with CASH only. PERIOD. I don't care if you want to invest in gold, stocks, rental houses, strip malls, or a small business. The reason is very simple. Any investment (or business) that uses debt increases the risk of something that may already have high risk to begin with. Let's suppose you borrow money to start a business. Now you are stuck with trying to run a marathon with ankle weights on! This just makes the risk even higher. If the business fails (and that sometimes can happen, right?!?!), you are stuck with a pile of debt and nothing to show for it.
I think your idea and my idea of "partner" might be slightly different. I'm talking about a single business in one particular line of business. If you have your own business or real estate deal, you may have to take on other "partners", but they serve other functions. For example, in real estate, one person is the owner, another is the insurance person, another is the lawyer, another is one of the contractors, etc.
As far as liability is concerned, I recommend an "umbrella" liability policy for those real estate investors who get into larger amounts of real estate. You can take out one of these fairly inexpensively to protect your assets without going into debt or trying to hide your assets.
Good luck to your business endeavors, and I hope I've given you some decent things to think about. I tried it the old way that our culture used to teach, i.e., use debt as a "tool" to "leverage" your investments. This just doesn't work in the real world. When you look at the potential downside to an investment, business, or other opportunity, you see the risk involved. Debt makes that risk even worse. Yes, I used to think the way our culture and our colleges teach, and I have a graduate degree. I've had to learn what really works.
Dan
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I know nothing about the California market but here in SE Florida there seems to be no end to the highs of the RE market. Property taxes here are relatively low and with the homestead exemption they can not raise your taxes more than 3% a year, which they never do. For those that only own one home which they live in, the comment about not be able to take advantage of the price increases has some merit. But for those that wish to invest in RE that they do not live in, harvesting equity every couple of years is a wonderful thing. Being orignally from Iowa, I always wanted to be a farmer, Now I am. A farmer of equity!! Every couple of years I cash out equity and buy more. I love being on the receiving end of rents!!!
In the tri-county area here (Miami-Dade, Broward, and West Palm Beach) there are an estimated 1 million more people moving here in the next 5 years. And this figuire does not account for the baby-boomers who have yet to retire in masses. With at least the last 5 years being a sellers market, this has got to continue. As for land.....Broward county land prices has increased 5 fold in the last year!!!
If anyone is interested in investing in SE Florida RE give me a holler. I am in the business of putting investors into income producing properties, residential and commercial. Income plus appreciation!! I do it and I love it!!
Michael
can't contribute so that is no help when you are talking
about these income levels.
tim
is only $9500, should not be hard to surpass that
tim
Good point. I didn't consider it from this angle. By the way, only about 1 in 4 tax-filers actually itemize anyway, so this discussion only applies to a small minority of people. I STILL think you would come out WAY ahead if you paid off your mortgage as quickly as possible. Come on now, do you REALLY think this is going to matter? Okay, let's say the difference, using the above example, in your tax bill for the year 2003 is $10,000 vs. $5,000, or HALF. You STILL come out ahead by NOT having a mortgage because you STILL paid the bank $10,000 in interest! How do you think all of those banks out there paid for their fancy buildings? Think about it! I really don't see how this would make much of a difference. Yes, THEORETICALLY, you could borrow money at, say, 5% on a piece of real estate, and invest it in, say, the S&P 500 stock index that has AVERAGED about 12% over the past 50 years (20% this past year, yes, but this has been an above-average year), and make the 7% spread on your money. I also used to believe this myself until I factored in something called RISK into the equation. You are only looking at the best-case scenario, and I keep SCREAMING (can you hear me?!?!) to you guys and gals to consider the downside also! What if you lost your job, 9/11 happened again, we got into a war, there was another recession (remember the one in 1991? I do -- that was the one I was COMPLETELY wiped out in), or any number of other things. Yes, best-case, you could make the spread on your investment. Worst-case, you could go bankrupt or lose your home.
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<< <i>and the standard deduction for 2003 married filing jointly
is only $9500, should not be hard to surpass that
tim >>
WithOUT a mortgage interest deduction?? Hardly!!
<< <i>You really can't lose in the California real estate market.
I don't now about anywhere else, but the California market is SUPERNOVA WHITE HOT!
Michael >>
I thought they put out all the fires in California ?
<< <i>
<< <i>and the standard deduction for 2003 married filing jointly
is only $9500, should not be hard to surpass that
tim >>
WithOUT a mortgage interest deduction?? Hardly!!
LoL
Property tax $4,000
Sewer Tax $150
Car tax $350
Food $100 a week x52 weeks.
then there are more possible deductions
tim
a lot more than just real estate prices will come crashing down.
My home is a liability, not an asset. Why tie up funds in it? I have an equity line of credit at 5%.
This gives me the down money for any new investment property. The amount of the down payment is based on making the property cash flow in the worst case rental market with the least amount tied up in the deal. As you pay off the loan on a property the return on investment goes down. That's not what I wish to see. I cash out when the equity is too high and use this to buy another property.
Someone brought up Carleton Sheets. It's a great way to learn the rental investment game. I don't care for the no money down deal because in a down rental market the cash flow goes down the toilet. I have made more than a million from his program. The education it offers is great.
Cash flow is the game. This is where wealth is built.
Text
Ahhh, yes. Don't forget the fees paid to foreclose and sell in a "forced sell" enviroment. IMHO, the only ones not losing money are the attorneys.
By the way, I was thinking about the above example. Suppose you borrowed on your house at 5%, invested the money in an S&P 500 equity index fund averaging 12%, and made the 7% spread (best-case scenario). Okay, fine. Now, factor in RISK because you BORROWED money. Most business owners looking for "seed capital" usually have to pay 20% or more. Okay, if you wanted to make the spread, CONSERVATIVELY, you should add 10% for RISK. So, you are LOSING 3%!!!!!
Check out a Vanguard Roth IRA.
<< <i>the only ones not losing money are the attorneys. >>
In California, as well as many states, lawyers aren't needed at all in regards to home sales/purchases.
Michael
Commodities are a good place to be. When commodities are going up 20-40% a year, that's the time to not be into home ownership, or at least not fully invested into your home. It may be "safe," but you won't get wealthy doing it.
roadrunner
I feel somewhere in the middle is where I want to be. If you finance 95% of a property it is risky.
At about 70% I feel really safe. Even if the rental market goes down the toilet again (and it will) the cash flow will keep the banker away.
I can't say any method is wrong. I guess it's a matter of how much risk one cares to take.