10/11/2005

Real Estate - Now Is Not The Right Time

People that have recently invested in real estate (2005), or are thinking about real estate as a possible investment plan for the future should carefully access their asset portfolio. As Geordie Crossan states that if your investment portfolio is 75% real estate holdings then you are overexposed to the current market trend possibilities. He compared our current situation to the 99' tech stock problem that arose due to many people being overexposed in those areas as well. Many analysts state the real estate boom will not crash but there is a strong possibility the market will retreat. The article Real Estate: Avoiding the Burn, states a few strategies that investors may want to consider if investing in the real estate market. Do not finance with adjustable rate mortgages, interest rates are increasing. In 2004, 64% of homes sold were second homes purchased as an investment. Some analyst’s say that those people "missed the train," the prime time to invest in real estate was 3-5 years ago. Along the same lines those people whom are buying these so called investments are actually using them as vacation homes rather than rental properties (if that is the purpose), the deficit can be tremendously unfavorable on the outcome of their investment. There is much more to this article, those points were just a few that stuck out. Personally, unless you are planning to use your home as a long-term investment, (which they say not to consider your home an investment) now is not the best time to jump into the real estate market.

8 comments:

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Chloe said...

I agree with you for the most part. A year ago, and even up to a few months ago, putting your money in real estate could definitely turn a profit. There are still a few good deals out there and some land that hasn't hit the real estate boom yet, if you find one of those I say go for it. If you're just barely getting into real estate, it's still possible to make a profit but it requires a pretty steep up front cost.

Logan said...

I couldn't agree with you more! So many people are jumping on the real estate band wagon hoping to get rich quick, when in reality; they are more likely to just break-even. I just spoke with a friend of mine this morning who told me that he was involved in real estate. I said, "Seems like that is everyone,s plan these days." He said, "I can't help it, its to good!" This isn't the only thing in the world right now that is a sure way of making money, in fact, there are so many people involved in it right now, I would just as soon put my efforts toward something not so saturated.

Bob said...

I agree that the real-estate market is becoming fairly saturated, but there is still a lot of opportunity to make money. Real-estate experts have been preaching for the past few years that the real-estate bubble will burst before to long. A few years ago almost anyone with basic real-estate knowledge could make money in this type of investment, but because of the saturation it's not so easy anymore. Just like most investments the less you know the more of a gamble you are taking. I feel that if you know the right people or are fairly knowledgable you shouldn't have a problem making money in real-estate for quite a while. You may not make that money anywhere in this area, but with a little homework and some effort there will be money to be made in this type of investment.

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Bree said...

I agree people should be more aware of the risks they're exposed to when investing in real estate. But, because interest rates are increasing still for mortgage loans, now above 6%, now more than ever may be the time to buy to lock in a fixed rate before things get worse. I completely agree that adjustable rate loans are a bad idea because they may result in increasing payments while the value of the home is going down. Also, people need to get away from the idea that "my home is an investment", it is but you need to be prepared for the worst and plan to live in your home for the long haul. I think the trend of buying and selling and buying and selling may be coming to an end due to the rise in prices and interest rates.

Dr. Tufte said...

-1 on Tyler's post - I think you mean assess not access.

I'm torn about this topic. Certainly there is some speculation and "flipping" going on. Further, "experts" have been saying this can't last.

But, I'm one of those people who is supposed to be an "expert" and I'm not so sure. Here's some things that make me think this is not a bubble.

1) Interest rates are not done with a generation-long downward trend. Real rates on mortgages are still higher than they should be, because banks are cautious after getting burned so badly in the 1970s.

2) The average age of a house in the U.S. is older than it has ever been - believe it or not.

3) Our affluence gets turned into stuff, and the best place to store your stuff is in your own house. I'd be a lot more convinced there was a bubble if all these new houses were empty, and the old houses weren't overflowing with stuff. But ... they are.

FWIW: Our home in New Orleans was 40% the size of our home in Cedar City. In New Orleans, we had to have 7 climate controlled 4x6x6 storage lockers to hold all the stuff that wouldn't fit in our house. To me, the self-storage business seems like a leading indicator of the residential real estate market, and if anything the self-storage market is still in the midst of a protracted boom.