Posted on 08/20/2008 6:30:46 PM PDT by SeekAndFind
The statement above means: once people learn how to make money in residential real estate, there is no going back. Many people believe that real estate as an investment is dead, buried and never to be seen again, but I sincerely believe they are wrong. As I write this, there is a new class of millionaires-in-training who are preparing to get wealthy in real estate. They are buying all the foreclosures, in good areas, they can find. About 3% of the population is busy in this enterprise and about 30%, 10 times more, are people who will tell anyone who will listen that real estate investment should be talked about only in retrospect. Let them talk, while the smart ones are out there. Oh, by the way, not all the smart ones are Americans. Many from across the pond are here spending like they have 50% more money than they do…well actually they do as many currencies have a very positive exchange rate with the dollar.
Why am I so sure about real estate investment? During my early financial training in the securities business, I watched a small-business environment become a mega-industry, showing how great wealth can come from inauspicious beginnings. When I was active as a stockbroker in the 1960s, the number of shares traded in a day would not quite equal the number of shares traded in a minute today. A billion shares change hands each day the markets are open now; about 6 million changed hands then. The ‘60s even had a mini stock market crash and managed to get up to 28 million shares May of 1962. How could this almost 100-year-old business become a giant in its most recent decades? I will be happy to give you my eyewitness account.
The mutual fund industry came to life in those swinging ‘60s. The growth of the Fidelity Group of Funds, for instance, was so phenomenal that one of the fund managers, Gerald Tsai, became a superstar and launched his own fund that was oversubscribed upon the offering. How could this happen? Thanks to mutual funds, ordinary people, not just bankers and corporate presidents, could take advantage of the stock market by making small investments, and they did in droves. In turn, the mutual funds would buy the common stock offered on the stock exchanges and volume started to build. From here, Congressman Keough authored the House of Representatives HR-10 bill which became law and the Keough accounts for retirement were born. Today they are better known as IRAs. Once the ball got rolling, there wasn’t any stopping it and people found the stock market a fine place to invest their money thanks to the new-found security and simplicity of mutual funds and IRAs.
The stock market had its setbacks as well and people lost money, swearing that not only would they never invest again, that the stock market would never rise again. Wrong! But it does sound familiar. As volume grew, the brokerage houses began inventing some of wildest investments commonly known as derivatives and the rest is history. A billion shares a day is nothing to sneeze at and we are only just beginning. In the 1990s, the Internet craze hit Wall Street and the “new economy” pushed even the poorest of Americans to find a way into the market and receive riches beyond their wildest dreams.
At the dawn of the 21st century, Wall Street ran out of steam and all the riches started to look like “fool’s gold.” People pulled out, gains turned into losses, and the stock market came down. Again the thought was “it’s over and it isn’t coming back.” For the general public, “never” lasted only about four or five years. That’s when investors and stock market gains returned.
Now let’s take a look at real estate. I bought my first house in 1968 for $37,500, and five years later I sold it for $43,000. It took 6 months to sell, which wasn’t unusual at the time, and the profit was about right. I bought a bigger house for $44,000 and 3 years later I sold it for $72,000 over a weekend. Wow! How did I yield that tremendous return? Inflation, inflation, inflation! What got it going? Believe it or not: oil. It came with an embargo that drove prices up. Houses couldn’t be built for the same costs because building materials were spiking. Sound familiar? Starting in the early ‘70s, everything went up in real estate in Southern California until the late ‘80s and early ‘90s when the aerospace industry, one of the largest employers in the state, stalled with the end of the Cold War and moved to less-expensive states, triggering a mini-recession. Prices fell and didn’t return until the middle ‘90s. What helped bring the market back was the Federal Reserve cutting interest rates and ushering in 30-year lows in rates in 1993. By now you must be getting the picture.
The turn of the century also brought an unprecedented attack on our shores that changed a stock market recession into the beginnings of another bull market in both the stock market and the real estate market. What facilitated this was another drop in interest rates by the Federal Reserve to 40-year lows in the early 2000s and we took off, full speed ahead, until we hit the wall. Is everything the same as it was in all the earlier times? Not exactly, but we are a pretty smart nation and we will figure out how to get rolling again. If it doesn’t appear to be happening, check the underlying data and you will see that we could be close to or have already hit the bottom in a number of real estate markets. The fact that real estate is more a local phenomenon and the stock market a national one should be noted as some real estate markets will soar from this point and some may never rebound.
Five to ten years from now, we will look back, wonder what the fuss was all about, and ask why we all didn’t take advantage of the opportunities. That also never changes because as they say, hindsight is 20/20.
I have tried to paint a picture of the investment world and why we always say it’s changing while it basically remains the same. At least now you can tell the “naysayers” to take a hike and feel confident, based on history. Like I said, the genie is now out of the bottle. I’ve told you why you should be investing in real estate. There is no going back. Time to make your wishes come true!
The scammers in South FLA got busted for creating credit history and charging folks for each line they made up. The fed played their game, the bankers bought the myth, builders raked it in, and house flippers thought they could play real estate tycoon.
This article reads like an infomercial: "I bought my first house for X, and I made thousands..."
If I listened to those who were saying “best time to buy ever!” when they were saying that year ago, a year and a half ago, I would be out $50,000 or certainly more. Yep, just keep saying “best time to buy, EVER!” and one of these days, you will be right! Maybe...
Best time to buy, EVER — when prices are going up.
Best time to buy, EVER — when prices are dropping like a rock
Best time to buy, EVER — when prices are stagnant.
People are programmed to “buy the dips” that occur in normal cyclical corrections. That is why so many people catch falling knives when we are in less normal cyclical corrections, such as this one. We are unwinding an extreme credit bubble manifesting itself a housing bubble. Prices drop 20% from peak and some people leap in thinking they got a 2% discount. They don’t realize the peak was 50% over affordable market. So all they did was buy in at a lower premium, not at the bargain they think they did.
A lot of people have bought in Calfornia in the last year and most all of them have lost money as house prices continue to trend strongly down. Nope, no bottom yet. This crash can’t go on forever. it has to stop. But it won’t stop until affordability comes into line with rents (either prices keep falling or wages and rents must rise), and until the massive inventory of homes is reduced to about 8 months — this despite foreclosure repossessions occurring about as fast as the sales of them, and the HUGE shadow inventory of vacant homes and defaulted loans that has yet to be liquidated.
We aren’t close to a bottom. No way. No how. But I enjoy watching those ignorant of that fact catching falling knives. You have to learn somehow...
When there is dark, coagulated blood on the streets, it's time to buy.
When there is fresh, bright red blood flowing down the streets, it's time to keep eating your popcorn.
You got it. Best time to buy EVER, every day. It is never NOT the best time to buy. EVER.
Just you wait. As sure as we have a dwindling parade of Freepyannas proclaiming “best time to buy ever”, there will eventually be a similar parade of “housing will never be a good investment ever again.” In Sacramento, I head that long and loud back in 1992. That the housing boom was a freak phenomenon and would never occur again in our lifetimes.
I heard this from many coworkers, and I could no more convince them that the cycle HAD to turn up, than I could convince a new cast of coworkers in 2004 that the boom cycle HAD to turn down.
Watch and see. Before this crisis has completely run its course, as housing bottoms, we will see posts on this very forum saying that housing is a lousy investment, it is just for living in, and the change in demographics, etc. means houses will appreciate below inflation for decades. Mark my words. People will post this. Then I will know we have hit bottom. Yet, by 2020, we will probably be in another housing boom.
Probably. However, this is complex stuff. A lot of variables. Folks expect to read a book or even a pamphlet to get an idea of the cycles. And it just don’t work that way.
I gotta tell ya, I was shocked by the number of people — seemingly intelligent people — who jumped on the real estate bandwagon.
btt
Maybe, maybe not.
If I can get 5% per year appreciation on a house, I can become very wealthy. Why? The reason is that I can borrow 80% of the house price, and that is being very conservative.
If I put down 20% the return on my money (as opposed to the bank's money) is 25%. Now I have to be able to pay the mortgage until I can sell the house, but unlike other investments the loan can not be called if the value of the house drops.
The sure clue that the market is turning around and heading up is when real estate agents start buying houses for their own portfolios. We are seeing a little of that now. I have to see it continue for another 6 months before I put any more money in, but I haven't sold anything in the past 3 years either.
The sure clue that the market is turning around and heading up is when real estate agents start buying houses for their own portfolios.
Yes, they are financial whiz kids, intellectual paragons beyond comparison. They only wear those gold polyester jackets as an ironic affectation.
Hemet, California, you say?
Let me know when you have property for sale in some place where people actually want to live and where they are not risking heat stroke when they walk their dog. I might buy something from you.
If you have something in San Diego County west of Santee that generates a positive rental cash flow, let me know and I will buy a second San Diego County property.
I can’t say I was shocked.
People know to buy low and sell high, but most people can’t find the emotional disassociation to do so. They just aren’t cold-blooded enough to deny their greed or fear and follow core economic principals.
If you told people homes that were $150,000 and are $300,000 today won’t go up much more, nobody would buy one. They are logical enough to follow the buy low/sell high rules when they seem them. The problem is, after watching houses go from $150,000 to $300,000, they can’t control their emotions and they FEAR they will be priced out of the market, while they jealously watch friends, neighbors and family grow rich. They doubt themselves and buy at peak, then are shocked to their own blindness when prices fall.
I have posted repeatedly that stocks were going to fall and stated I took my money out of stocks in Dec. 2006 (a little too early — I admit). For months afterward, as the market dipped, people posted that the dips were wonderful buying opportunities. By the time the markets hit bear market territory, we were starting to see people post here “I moved all my investments into cash” or “should I get out of the market and move to cash”.
So the same was true here. If I could prove that the S&P was going to decline from 1550 to 1100, people would have sold out 1550. If I could have proved that Fannie and Freddie and Citi and Wamu were going to lose 80+% of their value, people would have sold. They aren’t dumb. They KNOW to buy low and sell high.
Yet, if you read the posts here, you read that people were getting out of stocks and into cash when we hit bear market territory, and obviously that was somewhat too late. (I say somewhat, because I still expect the S&P to hit 1100 or even 1000 before turning around and heading back up). But the point is, those people were selling low. Emotion got to them. The lost 20% and feared greater losses, so they sold out. So far it hasn’t hurt them. They can buy back most stocks for the prices they sold. Most haven’t exactly “wowed” the markets since then.
My point is, I’m not at all surprised people bought homes at peak and sold stocks at the interim low. People know academically to buy low and sell high. But we are emotional creatures and most people tend to get greedy during upswings and buy at peaks, and get fearful during crashes and sell at troughs. Just human nature...
Either one. Both are "fresh" which means that the bleeding is still active. If you jump in now, you too will bleed.
Well, there are some great indicators that housing has bottomed. Inventories reduce to the mean. Home prices conform to proper ratios to rents or incomes. Foreclosure rates stabilize and come down.
Just like there are indicators a boom is about to happen. Watch inventory. When inventory starts to drop to say 4 months for example, you are the cusp of another boom. It shows that demand for housing outpaces existing supply as houses are gobbled up faster than current sales + new homes.
The indicators are there, but people choose to ignore them and just say, “Best time to buy. EVER! every time we see a month to month increase in sales, even when NOT seasonally adjusted. Just mind boggling behavior.
Maybe you need to develop a better grade of contact in the RE profession.
The people I deal with own 10 - 100 houses each, with portfolio loan-to-value ratios of well under 50%.
I crack wise a good deal of the time, but I genuinely feel sorry for a good many of the people who got caught in this mess.
Many of them are very, very decent folks who were only doing what they thought they should be doing to succeed.
And many of them are folks who played by the rules and got screwed in a royal fashion.
marker
My take: if I see every investment banker, hedge fund kid, and sov fund running out of a burning building, I don’t go wandering in to see how hot it is.
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