Real Estate blog

Archive for the ‘Buy home’ Category

Real estate investing is a long term play, and a few days ago I introduced five ideas that I feel are key to being successful as a buy-and-hold landlord.

Those of you who watched this week’s Democratic Party debate will note that the current foreclosure mess was an oft repeated theme. The candidates are trumpeting what they’ll do if they win in November, but two bills are already before Congress that will impact lenders and consumers.

The somewhat awkwardly named Emergency Home Ownership and Mortgage Equity Protection Act of 2007 and the Foreclosure Protection Act of 2008

It’s resolution time for me, something I always undertake around this time of year – a couple of weeks after welcoming the New Year. I find that promises made while the confetti is still falling tend to be long on champagne fueled optimism and short on realism. So I usually wait a couple of weeks to commit.

My fun resolution is tied to my interest in photography – create a history of 2008 in 52 photos by selecting a photograph each week that I think is good enough to show, and spend a few minutes writing about why I picked the picture and what the moment meant. If you look around you’ll see a lot of photo-a-week galleries on the internet, but this will be a private project for my family. So no downloads for me…

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I’ve often mentioned that real estate investing is all about people. Here are three ways in which this general principle manifests itself.

Information wants to be free: Real estate investing certainly has an element of secrecy, as does any business endeavor that involves negotiations. For example, when you’re on the buy leg of a 1031 exchange you don’t want the seller and you’re running short on time you don’t want the seller to know that you’re under pressure to make a deal work. And when you’re selling a property that you just bought FSBO you don’t want the buyer to know that you purchased it for a song.

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A reader who goes by the handle “Max” made a comment the other day that got me thinking. There’s a concept in pop business theory called the Peter Principle which states that managers tend to get promoted to their point of incompetence – taking on bigger and bigger responsibilities until they eventually get to the point where they’re over their head. And this, ironically, is the point where they tend to stick.

In discussing the concept of leverage, where an investor builds a profitable portfolio of investment properties over the year by occasionally executing a 1031 exchange, the Peter Principle might be relevant. As Max points out, you don’t want to get in over your head.

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This just in from the “who am I going to blame file”….

There is an interesting article in today’s New York Times about a California woman who is suing her real estate agent because she feels she paid too much for her $1.2 million home.

The woman claims that her agent “ordered an appraisal of the house” for her and her husband but “…did not respond to the couple’s request to see it.” Shortly after moving in they got a flier from another realty agent showing a house just up the street sold for $105k less than theirs.

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Lots of ink has been spilled on how our jittery market is impacting homeowners. But it’s hard to find anyone writing on the question that looms largest in the minds of most investors: what do I do now?

There, of course, is no single right answer to this questions – it will depend you’re your risk appetite, your local market, your time horizon, and your view of what the market is going to do next. But from where I sit I see five basic paths forward for investors in 2008:

1: Rebalance in the same market. This is what I’ll be doing this year. Investors who have (more…)

Roof. Heating/ventilation/air conditioning (HVAC). Plumbing. Foundation. These are the four big ticket items when you’re evaluating a the structural integrity of a potential purchase.

Most of us investors are part timers. And lots of us are somewhat handy and know something about houses (we live in houses ourselves, don’t we?) So those first three items are things we can generally get our collective heads around. We see roof jobs every day. We change the filters on our own AC system. Most of us have replaced a faucet or two in your time. So problems, both big and small, might not phase us when it comes to the roof, the AC system, or pipes.

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As investors we’re not out there spinning the roulette wheel; we’re looking at the underlying fundamentals and taking measured risks. That said, investors do need to take a view of the future in order to make decisions in real time – and BusinessWeek’s recent cover story gives the housing market a timely and even-handed overview.

You’ll see some of the boilerplate that you’ve read before, but pay attention to a reference to an influential paper written by Harvard economist Gregory Mankiw which back in 1989 predicted a precipitous decline in housing prices. The premise was that a shrinking body of first-time buyers along with a glut of downsizing baby boomers will collectively pull lots of demand out of the market, leading to an excess of supply and a sticky plunge in prices.

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Successful real estate investing is a long term game. Following the right strategy with discipline and perseverance will allow smart investors to weather the market’s cycles and build equity. Time and leverage are your friends.

But don’t underestimate the importance of the time part of the equation. In the past I’ve compared the performance of the real estate market with the stock market. For the disciplined investor, real estate performs favorably to the stock market over any reasonable period of time, but you’ll need a few years for the strategy to be effective. If you’re only going to stay in the game a year or two you might as well buy a mutual fund and call it a day. But investors with perseverance will see their wealth grow much faster by pursuing a prudent real estate strategy than they will betting on the stock market.