patrick.net

Mobi says

Power of the internet.

I'm sorry, but that is the point. This is all internet related.

I blog for business, and maintain a dozen, or so sites.

My business depends on internet presence which, you're right, should be my work today.

Mobi says

Patrick, would you stop a dog fight like this? We all like to argue on internet but this is a bit over IMO.

Once again, my fault no one elses. I made the mistake of visiting Robertos forums before I realized they were his. I mean I just read the comments, and the avatar didn't register.

My fault, sorry.

rob,
renters ability to pay higher rent is not fixed, is it?

robertoaribas says

Robert Shiller is DEAD WRONG when he quotes his famous "homes aren't a good investment, they only rise with inflation" quote. Really? if my home values and rents all rise with inflation over the next 10 years, I make an utter fortune.

from a classical investment POV .. RS is right since for many if RE is illiquid and extended time to sell. I can buy/sell a stock or bond on a moments notice.

Home as investment is too concentrated within its own economies... stock portfolios can be diversified across industries and locations. Your home is stuck in your location no matter how desirable or not.

Tax benefits favor securities.. can you take a loss provision on sale of residence. No!

God forbid you get a storm or earthquake wipes out your home.

You get the general picture...

robertoaribas says

My rent grows at twice the inflation rated, since half the expenses are fixed mortgage. the home value goes up at 2.5% a year, while the mortgage debt drops at $12,000 a year.

see you on midnight RE infomercial....

David Losh says

As for my investor clients they would sell to go into safer havens, like bonds, or dividend income. I would encourage them to invest in small business, but they just want a simplier life.

These investor clients of yours. I hope you are just cleaning their toilet and not giving investment advice. The housing market is just now bottoming. Selling now to go into bonds would be horrible timing.

toothfairy says

The housing market is just now bottoming.

That statement is contrary to the 20% price increases.

David Losh says

As for my investor clients they would sell to go into safer havens, like bonds, or dividend income.

You should read the comment.

Real Estate became volitile. For older investors there isn't a real reason to hold on if the price of property will fluctuate.

robertoaribas says

about advising your clients to "get out of homes, and get into bonds"

These guys are telling me what they will do. I've already made my choices.

David Losh says

Real Estate became volitile. For older investors there isn't a real reason to
hold on if the price of property will fluctuate.

It becomes relatively more volatile but it is not like it will crash next month. You do NOT have to hold on to properties. Just sell them before the next crash if you bought low enough.

@roberto,

Bap33 says

rob,
renters ability to pay higher rent is not fixed, is it?

valid or no?

The premise is entirely ridiculous. Most of LA(and SF for that matter) are unaffordable for most families.

Even if you accept the premise that the old 2.5-3.5x income calculation no longer applies due to low interest rates, you are still at something like 5-6x income. At an middle class/upper middle class income of $120-150K, you are still looking at homes in the max range of $600-900K. And looking at Redfin or similar in Los Angeles, you see a VERY small offering of complete renovated homes that contain schools with state test scores 780+.

And thats a pretty high household income. Along with that, at that price range, there MUST be fairly rapid real estate appreciation in order for it to work. Oh then theres that 20% downpayment of $120-300K which I doubt very much any people in that household income range possess.

Now I can't speak to the rest of the country other than to point out that even the most bearish here on Pat.net have conceeded that low real estate price areas such as Las Vegas, Florida, and Texas, have all bottomed out.

So you have a situation where:

1.) Housing prices must continue to rise
2.) Incomes must rise disproportionally faster(or additional government carrots must be added)
3.) Jobs must continue to be added.
4.) Inflation can't occur.

Eeesh.

Personally, and I think many people my age will be of the same mindset(GenX), what makes most sense at this point is to rent in an area I'm happy in, with a close commute to work. At this point, its far more likely that I'll inherit my 70's ish parents home with ocean view in coastal OC than mortgage a home before I retire. And as macabre as that might sound, things are what they are. The cool thing about that scenario would be the massive bank account my 457 will have produced by then. It won't even matter if prop 13 is repealed(In which case I'd likely sell, split the multi million dollar proceeds with my sibling, and retire as a King in Las Vegas)

dodgerfanjohn says

The premise is entirely ridiculous. Most of LA(and SF for that matter) are unaffordable for most families.

Agreed. While I usually always pay cash, given the extreme low interest rates (and piss poor savings rates) I took a 5 year loan (paid off within 3) to invest more in my portfolio. I'd never buy anything tat takes longer than 5 years to pay off. The home affordability index is utter bullshit, nobody knows if they will be alive and able to pay for 30 years. Most homes (esp. in CA/bay area) are not affordable for the average buyer. Now I don't have an issue if they default (and a lot will again) and the bank gets stuck with it, but we all know that they will get bailed out again and so in the end everyone but the bank and the agent is picking up the tab for the defaulters 30 year wet dream.

David Losh says

Which reminds me, Real Estate is a 24/7 business. My side business was
directly related to my Real Estate business, school teaching doesn't match that.

If Real Estate is 24/7, you either owned too many rentals or did it wrong. Yes, your tenant may call you midnight when the house gets flooded but that should not happen very often unless you bought the wrong house. For me, real estate is the perfect side business b/c averagely, I had to visit each property less than once per month (except when looking for tenants.) For a small business like your cleaning company, it can be nice side business when it is all established. But I think you pretty much need to put in full time when getting it started. That is not realy viable for a school teacher unless he quits his job.

@roberto - thanks!

robertoaribas says

Not really. In many parts of the world with lower wages, more people share a home, to the point of dorm style rooms. You'd be pretty shocked if you looked at property rents versus renter incomes in Thailand, Phillipines, etc.

that is why we have good old govt regulations which impose occupancy limits.. your state however may vary... It has been found numerous times, landlords charging above market rates and cramming multiple families into one SFHs. In San Jose, there have been cases found where tool sheds rented to illegal aliens ( at very high rents).

http://www.ehow.com/facts_7465091_california-maximum-occupancy-law.html

thomaswong.1986 says

robertoaribas says

Not really. In many parts of the world with lower wages, more people share a home, to the point of dorm style rooms. You'd be pretty shocked if you looked at property rents versus renter incomes in Thailand, Phillipines, etc.

that is why we have good old govt regulations which impose occupancy limits.. your state however may vary... It has been found numerous times, landlords charging above market rates and cramming multiple families into one SFHs. In San Jose, there have been cases found where tool sheds rented to illegal aliens ( at very high rents).

http://www.ehow.com/facts_7465091_california-maximum-occupancy-law.html

This is whats happening in DTLA, even with rents falling since late October. An average income....I believe its $82K per household here....supports rents in the $1400-2K range. But all rents had been pushing the higher end of that or higher(very few last September under $1600 and those were all tiny), and surprise surprise, buildings got super crowded as people doubled up with bf/gf and others illegally sublet.

Now rents came crumbling down rather quickly and finding a decent size place between $1400-1600 is fairly easy and under $1400 exists in decent enough numbers.

I still don't get what corporate owners achieve by raising rents too high. All that happens is more people break leases and theres more wear and tear on their units due to increased number of people per unit. Plus you tend to drive out your people with stable finances who never wanted to pay the higher amounts.

Mobi says

Just sell them before the next crash if you bought low enough.

For some people, like myself, the Real Estate market has already crashed, and will continue along to equilibrium.

Watch the stock markets, because any week where you have both the Secratary of the Treasury, and Allen Greenspan saying there is no stock market bubble you know something is coming.

Mobi says

For me, real estate is the perfect side business

For many people owning rental property is the perfect part time business. That isn't what we are talking about.

Real Estate, the business of Real Estate, is where that is your sole source on income.

I've had rentals, and provided services to other Real Estate Professionals who also had rentals. My biggest business was preparing properties for sale. As a Real Estate agent I had an advantage, and marketing tool. My original web site was for my company A Spring Cleaning; catchy name, huh? The other great thing was that a local cleaning company with the domain name of house cleaning.com would refer clients to us. They stopped that when I bought the domain names of seattle house cleaning, and the combinations there of.

There was a point in 2005, 2006, when I, along with many others, realized the Real Estate market place was highly manipulated. Some big players sold big properties in 2005 in anticipation of a Real Estate market crash. I began selling in 2006, and sold the last property, that I owned with a partner, in August of 2007.

The property in Atlanta was a Trust that was in a mix of other investments.

I'll continue to sell, now, that the market is in it's highs, for Seattle, and will invest in our cleaning business. What I wouldn't do is invest in more properties. Those are my choices.