Buying Real Estate in This Market

[Anonymous]

Many locations around the USA have crashed over the past few years and many experts believe prices will continue to fall. With that in mind, prices will not fall forever and there are great deals out there. People have to live somewhere and the population will continue to grow. With this premis in mind, what is the best approache to buying property today?

If you have cash - pay 100% cash on a highly discounted property? Is anyone out there buying real estate? If so what is the best buying strategy now?

 

[I Love America]

Many locations around the USA have crashed over the past few years and many experts believe prices will continue to fall. With that in mind, prices will not fall forever and there are great deals out there. People have to live somewhere and the population will continue to grow. With this premis in mind, what is the best approache to buying property today?

If you have cash - pay 100% cash on a highly discounted property? Is anyone out there buying real estate? If so what is the best buying strategy now?

While this will not be a popular opinion among the faithful believers, I believe that you need to look at real estate in two ways.

1) If you are buying for your personal living, then you should not treat it as an investment. You should treat it like purchasing a car.

2) If you want to invest in real estate, then buy rental properties.

 

[Anonymous]

What is the best way to get a deal on rentals like buying condos today?

 

[Anonymous]

Many locations around the USA have crashed over the past few years and many experts believe prices will continue to fall. With that in mind, prices will not fall forever and there are great deals out there. People have to live somewhere and the population will continue to grow. With this premis in mind, what is the best approache to buying property today?

If you have cash - pay 100% cash on a highly discounted property? Is anyone out there buying real estate? If so what is the best buying strategy now?

It sounds like you are buying as an investment and not buying to provide your own living quarters.

Real estate is not a good thing to buy as an investment. A key to investing is diversification. Real estate takes up much capital for only one investment. You aren't diversified.

Second, why all cash? At what cost? If rates are low and you can use the money to invest elsewhere, why give all you cash away? What do you have in emergency funds? What do you have in the event you get laid off?

What other investments do you have that you could sell if things go downhill? You can't sell a house quickly when you need cash. You can sell stocks immediately.

If you want to invest in real estate why not buy a REIT rather than an individual property? That way you can diversify and sell quickly if you need to.

Also, buying a rental property isn't the best investment for everybody. Do you want the burden of getting calls in the middle of the night about flooding toilets? If you hire a management company, now you've lost a healthy percentage of the return on the investment you were hoping for.

If rental properties are a good investment, that means current owners can charge more to sell them which means it costs you more to purchase it, which means you need it to appreciate more to get the return you want.

 

[Anonymous]

It has to be a cash deal to be worth it. But you might to get great deals today if you have the cash.

 

[Anonymous]

It sounds like you are buying as an investment and not buying to provide your own living quarters.

Real estate is not a good thing to buy as an investment. A key to investing is diversification. Real estate takes up much capital for only one investment. You aren't diversified.

Second, why all cash? At what cost? If rates are low and you can use the money to invest elsewhere, why give all you cash away? What do you have in emergency funds? What do you have in the event you get laid off?

What other investments do you have that you could sell if things go downhill? You can't sell a house quickly when you need cash. You can sell stocks immediately.

If you want to invest in real estate why not buy a REIT rather than an individual property? That way you can diversify and sell quickly if you need to.

Also, buying a rental property isn't the best investment for everybody. Do you want the burden of getting calls in the middle of the night about flooding toilets? If you hire a management company, now you've lost a healthy percentage of the return on the investment you were hoping for.

If rental properties are a good investment, that means current owners can charge more to sell them which means it costs you more to purchase it, which means you need it to appreciate more to get the return you want.

Thanks for your reply.

You make many good points here.

Let me explain my situation- I have 1 million in cash sitting in CDs. I believe the feds are quickly devaluing the dollar and it will lose much of its value. Stocks are too risky for me and too volitile. I believe gold will continue to rise but could fall and the losses may be great without making income as a holding.
Living in a good metropolitan area where there is good demand for housing although prices are down. I can buy 2 or 3 condos and still have 500K in cash. the condos could generate 5% or more after expenses in income. It may take years but I can wait it out until the market returns.
I want to buy in cash since I believe cash will be greatly devalued by the US Goverment since the total debt of the country and individuals is just too high. If my cash is in condos/ real estate this will prevent the loss of value cash will suffer for years to come.
Also in a few years I will collect about 800K in a lump sum from my employer retirement plan and will have more cash available. by buying condos now I will be diversifed out of cash.

This is why I believe buying condos that are currently depressed in price will work for me.

Comments are welcomed.

 

[Anonymous]

Thanks for your reply.

You make many good points here.

Let me explain my situation- I have 1 million in cash sitting in CDs. I believe the feds are quickly devaluing the dollar and it will lose much of its value. Stocks are too risky for me and too volitile. I believe gold will continue to rise but could fall and the losses may be great without making income as a holding.
Living in a good metropolitan area where there is good demand for housing although prices are down. I can buy 2 or 3 condos and still have 500K in cash. the condos could generate 5% or more after expenses in income. It may take years but I can wait it out until the market returns.
I want to buy in cash since I believe cash will be greatly devalued by the US Goverment since the total debt of the country and individuals is just too high. If my cash is in condos/ real estate this will prevent the loss of value cash will suffer for years to come.
Also in a few years I will collect about 800K in a lump sum from my employer retirement plan and will have more cash available. by buying condos now I will be diversifed out of cash.

This is why I believe buying condos that are currently depressed in price will work for me.

Comments are welcomed.

It's good to hear you are wealthy enough to take real estate risks and you are wealthy enough that real estate wouldn't take up all your money.

Still, what you are not getting is diversification. Read William Sharpe's work on how diversification gives you upside while seriously protecting the downside.

You mention stocks are too volatile. You could find a low risk REIT (low volatility). There are funds out there for every level of risk tolerance. This would get you out of cash.

Moreover, it appears you are somewhat close to retirement. Real estate is a long-term investment which may not be as suitable for someone in your position.

A low risk REIT, or a diversified corporate bond fund, would give you a return and you could sell the assets at any time. That allows you to invest in real estate without losing liquidity.

Finally, you are basing some of your analysis based purely on guesswork of what assets will appreciate or what assets will lose value. The truth is you don't know what will happen to gold or cash.

Your guesswork could change at any time but if your money is tied up in real estate you can't move your assets as your opinion changes. That said, you shouldn't invest based on guesswork (market timing) anyway.

 

[Anonymous]

In my local market area many people want to buy. The problem is they can't get a loan. In fact a broker told me someone wanted to put 25% down on a investment/ rental condo and could not get a loan. There is much pent up demand for homes but 22% of all mortgages in the USA are under water. many forclosures should be hitting the market.