Foreclosures

Real Estate goes up and it goes down just like the stock market, but real estate rarely drops below the beginning of each rise during every cycle. Another words generally if you hold on to it long enough it will always be worth way may then you originally paid for it.

Only the amateur investors or anyone without enough cash reserves can get killed real bad. Just like day trading. Just like gambling in Vegas they could not build those billion dollar babies if people were winning. It is all gambling especially to the amateur.

Lee j

 

way more? not always, depends on the market! you guys help me do the math here. how much appreciation would you need on a home purchased for, say, $500,000 today to make it worth it in 8 years?

With $6k a year in property taxes (reflecting the deduction off income taxes), that's roughly $50,000 down the drain. Add to that capital improvements and maintenance during that time (painting, upgrading counters/kitchen, new rooof, etc) plus the real estate commissions, and you've easily rotted away well over $100,000 in any gains. Is that math correct?

Now consider the opportunity costs--what else could your money be doing during that time? You guys are smart with this stuff, show me the math!

 

I think I saw something in the Wall Street Journal not too long ago that said over the last 40 years the stock market has outperformed real estate. That's probably something a lot of people don't realize.

 

Interesting persepctive here relating to what you said, Rob.
http://finance.yahoo.com/expert/article/yourlife/21845

I read that one financial guru prefers to rent and use his money elsewhere. Anyway, this has satisfied my question about whether to hop in now around here. Thanks.

 

Wow...It seems the stock market greatly outperforms real estate.

 

good point... but then you are talking about a totally different kind of investor and one with a specialized skill for flipping houses...and i assume that carries a higher risk?

so would you then have to compare "dynamic" real estate investing with "dynamic" stock trading or investing in high risk/higher return stock investments?

 

Flynn,

Interesting thoughts. I tend to agree with what you say. Maybe we should compare the appreciation of a single house over time vs. a long term treasurey bond. Wouldn't that be somewhat closer to apples? On another note, I know a lot of people stretch themselves and buy the most house that they can afford thinking that it is an investment equal to or better than investing in the stock market. I guess my point would be that your home isn't as good of an investment as your 401K (especially if you have a company match) so you should not stretch yourself beyond being able to contribute to it.

-Rob

 

I think the market only outperforms real estate if you assume no debt was used. Real estate is usually purchased with, say, 80% debt (20% down payment), but only the adventurous stock market players use debt to any degree at all.

That's a quote from the Ben Stein article. If we assume that house was purchased with 20% down, that's $120K out of pocket, and a 150% gain gives the house a value of $600K * 2.5 = $1,500K. Pay off the original debt, and you have turned $120K into over a million dollars (1500 - 480 = $1,020K). That's a gain of over 8x.

Compare that to a $120K cash investment in the stock market. If it triples, that's $360K, for a gain of $240K. That's pretty good, but it's $780K less than what you got from the house.

Yes, the house has maintenance costs and real estate taxes which need to be figured in. But you also get a tax deduction on the property taxes and mortgage interest. And the stock market investments have their own costs in the form of loads, brokerage fees, and capital gains taxes. With a decent accountant you will pay zero taxes on the gain on a home.

No way the market outperforms real estate.

 

Depends on your assumptions and which market you are in, I suppose. Interesting, as I was searching for articles, I found this one.
http://forums.industryweek.com/showthread.php?t=23

Here's what this guy predicted on January 10, 2006:
"The stock market is now fully priced, and over the next decade or so will generate rates of return well below the 1950-2000 average. On the other hand, real estate prices will continue to rise, and will continue to carry not inconsiderable tax benefits."

It's funny because this is supposedly an expert fully confident about what he was saying. Of course, the Dow is now at 13,500, up almost 23% in the two years since he wrote that (Dow was at 11,000) so apparently the stock market wasn't fully priced!

I don't know, but I assume if you put $125,000 into the stock market two years ago versus buying a home here, you'd be in much better shape.

Let's say you have a 5-year window of staying in the local area. Would you purchase a single family home with $125k down or put it in the market?

 

Well, I was referring to over the long term. We are in a real estate slump now (which was well predicted, despite a few people with blinders like the author of the article you linked), which sucks for the present, but it is not the long term trend.

Personally I'm a bit leery of the stock market. Maybe I have been burned too many times, but I think it is too detached from reality. As for real estate, my wife and I did just drop a good amount of money into a house in Broadlands this past March, and I think we would probably still make that decision today. Would I buy a second property as an investment over investing in the stock market? Yes, I think I would, but it would have to be a long term investment, as it doesn't seem like we're in for a quick rebound in housing. If we stick to your 5-year window -- I think it would be hard to see a meaningful gain in that time. I'd probably stick to something conservative like treasury bonds.

If I'm allowed to go outside the box, I would invest the money in myself by using it as funding for a new business venture. Got $125K for me?

 

Detached from reality? Check home prices and property taxes for this area (where, by the way, you get no property!), ha ha.

Long term, the stock market has been ridiculously consistent. But to each his own!

Ding ding ding. You hit the magic button there. That's what my wife and I have been discussing--maybe we should invest the money in expanding our business or starting a new venture. More risk, but definitely good upside.

You have a good business plan?!

 

Ok, good point on real estate values being detached from reality. I didn't mean to suggest the stock market was overvalued, rather that individual stocks don't seem to respond appropriately to the company's success. Or, perhaps more accurately, they do until I invest in them.

I do have a startup business (check my profile for URL), but I'm not really looking for outside money just yet. I do think the 'risk' in running your own business is very different from the risk in the stock market -- I have no control over whether Google stock goes up or down, but if my own business tanks, well then it is my own fault, and I can only blame myself.

 

BTW, to get back to the real estate topic.. it seems to me that the long-term future for the Broadlands area is very bright, assuming the silver line gets here. I think a lot of development money around here has already been bet on that happening, and perhaps some of those bets were placed a little too early, but once metro arrives I expect we will see a lot of positive activity around here.

 

Our immediate area of Loudoun is just not bright but mind boggling. The metro will spur the highest concentration of development mostly commercial and retail by far in the county. A lot of is has already been approved and it will total much more then reston. Property values will soar beyond belief in the long term.

We are talking 10 to 15 years away at least. The only serious problem is the regional roads and how to fund them. Schools in our immediate area will by then will have matured and the new high rise residential will be more for empty nester's and singles so it will not put as much a burden on the school system if any by then. The immediate area will not appeal as much by then to families with kids because of the serious urban character this area will take on. Phenomenal property values around here in 2017 and beyond

Real Estate is all about location location location location and design design design design. Both are very important . Some of the homes I designed around here in the late eighties still command the highest prices per sq ft and compared to what they sold for back then even compared to the new ones of today in the immediate resale market.

Lee j

Lee j

 

Have you consider not trying to pick individual stock and instead investing in index funds? The thing you have to remember is that when the shares fall in value, you're buying them on sale. Dollar cost averaging. Gotta stay in for the long haul.

 

Lee, your comments are music to my soon-to-be-settling-in-Hedgewood ears. Despite current conditions, waves of foreclosures.....I'm STILL settling on my house this March. There's only so long you can put off life and wait until "rock bottom".
And don't worry about funding roads.....the Grantor's tax I didn't think twice about paying for when I signed the contract should help out a good deal when it grows 5x after Jan. 1! But, so goes it!

 

We shall be long gone from this area before that rosy picture in 10 or 15 years develops, Lee!

 

Lee - well said, some of us are truly in this for the long haul and are putting our roots down in the area.