patrick.net

High risk, high reward.

So much uncertainty out there, nothing is safe.

The cost of absolute safety is infinite.

Failure to take calculated risks is not much better than taking wild risks.

That was a well-written article with some good points. I could definitely see raising property taxes on "the rich" at least. There is already talk of reducing the mortgage deduction on the rich.

I really think low interest rates are why a lot of people are hesitant to buy now, and thus, they aren't selling either. They realize when the interest rates go up, RE value will go down. It's just common sense!!

Interest rate in Japan is even lower (2.6% 30y. fixed). Did they also jump on RE purchases vigorously? Anyone…?

REpro says

Interest rate in Japan is even lower (2.6% 30y. fixed). Did they also jump on RE purchases vigorously? Anyone…?

Their interest rate structure overall is a lot lower than ours (look at their 10/30 year government note rate) probably due to the fact that a lot of the domestic savings (yes they did have savings) are directed toward domestic investment. The better way is to plot the the 30y fixed rate as a function of time. FYI, believe it or not, you can get even lower rate in Japan by getting a 100y mortgage!

Well I have been at same job here in bay area for 2 years but see no reason to buy even with high six figure income. Renting is still far cheaper when you consider down payment required, maintenance, taxes, etc. compared to rent.

SJ says

Well I have been at same job here in bay area for 2 years but see no reason to buy even with high six figure income. Renting is still far cheaper when you consider down payment required, maintenance, taxes, etc. compared to rent.

WHY DO YOU HATE AMERICA????

His assumption that rates must rise is false. Due to bankrupt goverment rates simply will never be allowed to rise. Ever. Now if you want to borrow money and dont fit into gov lending rules those rates will be high- like try to borrow money for a mmj grow house, those would be tony soprano rates!

SJ,

I have been in the bay area for 11 years and I concur with your strategy. I will be very interested to see what happens to property values when the Democrats roll over proposition 13.

Peter P says

Failure to take calculated risks is not much better than taking wild risks.

When passbook savings accounts gave 5.25%, and CDs gave more THIS WAS NOT THE CASE.

We are being forced to take risks to have any hope of maintaining a standard of living.

Sad, really.

SJ says

maintenance

This one is real doozy. I know home owners, and they of course have made out quite well in RE, but they also have to service the beast. Its as if all the gains are wiped out by the cost of feeding the beast.

Popsicle stick houses with single pane windows and 60 year old everything cost a lot to make liveable.

And with the inflation making the building materials murderously expensive, its just getting worse and worse.

I dont get people who live in million dollar homes which are unpleasant to be in, but in SFBA its common. And the psychosis is back. Bubble2time.

His assumption that rates must rise is false.PockyClipsNow says

His assumption that rates must rise is false.

Since the author qualified that statement by indicating a 30 year time horizon, it seems more rather than less reasonable. Note that he didn't say by how much they'd rise or that they'd rise tomorrow, simply that at some point they'd head up.

Contra that, two things:

First, he seemed curiously unwilling to acknowledge that there is such a thing as a "fixed rate" mortgage. And as what seems to be about every third ad on AM radio reminds us, "borrow now, while rates are at historic lows*" said borrower of such a mortgage is I suppose creating a crude sort of interest rate swap, with the lender on the other side of the "trade." I suppose a rise in interest rates would retard any sort of appreciation on an investment property, but the effect of that would be more indirect than immediate. Meaning the check written each month from borrower to lender isn't going to change, at least as to the mortgage payment. (As to the potentially escrowed stuff like taxes and insurance, well who can say?)

Second, he either would not or could not say by how much interest rates would have to rise to render an investment property a poor investment, never mind a toxic one, as he seems to imply. By implication it seems he's saying "by not very much," but there's a curious unwillingness to provide specifics here that bothers me. At least acknowledge it is a moving target. Yes, he couples a "three percent rise" with a "twenty percent decline," but never actually says the former will lead to the latter.

And, globally, I must admit I'm no huge fan of Austrian economics. Why? To my mind, the entire school of thought seems as framed in ideology as Marxism. As in this article, where there's no acknowledgment at all that a whole lot of people might actually want to live in a community with decent schools, public libraries, a fire department and so on. And -- gasp -- be willing to pay for it. Nope, instead we get the government as vulture meme trotted out. A rather curious thing to behold at an "Institute" that itself is an adjunct to a state-run school (Auburn University), but I suppose par for the course among libertarians, who seem to "vote with their feet" when the issue is government provided university positions.

* - How mighty nice of those altruists at Flatulence Financing or wherever, to advise consumers to do something that at first blush seems against their own financial interest, but that I suppose is a discussion for another time.

****EDIT****EDIT****EDIT****

Just re-read all that drivel I typed, and in all honesty my train of thought is much, much closer to his than what what was entered would indicate, even as long-winded as it was. I stand by my criticism of the article, certainly, but can't disagree with the broader conclusions the article draws. Even, unfortunately, the coming crisis in municipal budgets. Or that perhaps has even already arrived.

Excellent article and enjoyable read. I wonder what Realtors would say...but first they must learn to read and be critical thinkers. This is not going to happen. Most Realtards are in it because they have no other skills than bamboozling others.

It's a great idea if you think hyper-inflation is on the way.

it's neither stupid or smart. question is framed improperly.

re investing is, however, more risky than in the past just because government and fed reserve are influencing re prices.

it is difficult, if not impossible to predict the behavior of these organizations on re prices in the coming years/decades.

How does a graduate student graduating in 2005 make more sense than Krugman? I think this takes into consideration root cause, and is more quantitative in facts than most articles about causation of the bubble.

If 20-30% of higher value homeowners are having a tough time, one must consider the possibility of a Ponzi scheme where the overvalued stock market, and the banks dragging their feet on foreclosures are inter-related more than ever.

I wouldn't invest in real estate to begin with. It has never performed as well as plain ol fashioned stocks and bonds.

investor90 says

Excellent article and enjoyable read. I wonder what Realtors would say...but first they must learn to read and be critical thinkers. This is not going to happen. Most Realtards are in it because they have no other skills than bamboozling others.

"It is difficult to get a man to understand something, when his salary depends upon his not understanding it!

Upton Sinclair

New Renter says

"It is difficult to get a man to understand something, when his salary depends upon his not understanding it!

Upton Sinclair

So fucking true. Explains climate change deniers as well.

Another flaw: he assumes governments can raise property tax to levels that bankrupt all landlords. This just cant happen we do actually have a kind of democracy at the local level. I remember when Jarvis luanched the p13 campaign in CA which was a direct response to inflation causing higher prop tax rates/assesments.

Looking back, the people who bought rentals and home pre p13 in CA did REALLY well (a purchase before 1977 or there abouts cannot ever get an increase - my parents pay $400 a year in prop tax, i pay $11k a year!!)

So if they do try to double prop tax then it would probably be for new purchases like with p13 - thus it could be now is the time to lock in a low rate. Predicting future is impossible but making money now is probably ok.

Mandy Lifeboats says

Is It Exceptionally Smart or Insanely Stupid To Invest in Real Estate Today?

you could have bought up acres and acres of land in nowhere land middle America..
right on top of a huge natural gas repository ... and reaped millions $$$ in royalty revenue.. certainly will not find in Menlo Park.

It could have been you...

Gas boom mints instant millionaires

TOWANDA, Pa. (CNNMoney.com) -- In the hills of northeast Pennsylvania, the boom in natural gas production turned mechanic Chris Sutton into a millionaire practically overnight.

Sutton recently leased his 154 acres of land on the Marcellus Shale to Talisman Energy for a $900,000 up front check, plus a 20% cut of the revenue of the natural gas extracted from his land.

Drillers snapping up rights leases in Ohio | The Columbus Dispatch
www.dispatch.com › Home › News › Environment
Nov 10, 2011 – Rumors of rich payouts creating overnight millionaires are rampant. ... The amount of money a landowner is offered in bonus payments isn't ... In these areas, natural gas is pumped from pipelines into old gas wells and kept ..

The housing market is in an iffy state right now, but there isn't any more land being made.

Like with anything else, if you research diligently and try to make a sound investment, you'll likely be ok.

ElenaMo313 says

The housing market is in an iffy state right now, but there isn't any more land being made.

ElenaMo313 says

there isn't any more land being made.

It's like i've been sleeping for 6 years.

ElenaMo313 says

The housing market is in an iffy state right now, but there isn't any more land being made.

The statement you've made has always been true in the way you mean it. So do you understand that can't be anywhere near the sole explanation for house prices going up and down over recent centuries? Throw that idea out of your head and move on to others.

Investing in houses to rent out requires local knowledge. Now “robertoaribas” has this local knowledge and Arizona has some advantages that California lacks. First is that if you follow the rules you can evict a tenant who stops paying rent or is destroying your property in as little as 30 days, while in California it could take you as much as 30 months if you face a rent squatter who knows how to play the game.

Both Arizona and California have low property tax rates that are difficult to raise, however if you have a mortgage on the property you may find yourself in a situation that you are required to buy an expensive flood insurance policy if FEMA redraws a flood map. This can also require that you cannot rebuild if your property suffers fire damage greater than a certain amount. That is you pay the flood insurance and the fire insurance but your property can still be non-repairable.

http://reason.com/reasontv/2013/01/21/fema-wont-let-us-rebuild-our-home

Being a landlord is not for everyone, especially in California. Arizona is much better, but you should then live in Arizona close to your rentals.

Is It Exceptionally Smart or Insanely Stupid To Invest in Real Estate Today?

Anything purchased at the right price is always a good investment.

Well I do not hate America in fact I am a patriot. What is sad is that prices are so sky high in bay area that even I cannot realistically afford to risk a 200k downpayment on a crapshack that would still eat half of my income. By the way maintenance really is a doozy that most realtards fail to disclose to prospective buyers.

Case in point, recently my colleague at work had to spend 15k to replace heaters that died in his home. Thats serious change folks to have to dump at a moment notice in dead of winter to avoid freezing your butt off. Me I just call apartment maintenance guy to fix it.

FunTime says

ElenaMo313 says

The housing market is in an iffy state right now, but there isn't any more land being made.

The statement you've made has always been true in the way you mean it. So do you understand that can't be anywhere near the sole explanation for house prices going up and down over recent centuries? Throw that idea out of your head and move on to others.

As another poster has said: Investments only pay off if you can get them at a good price...not just for today, but something with bonafide potential. Housing prices have so many variables--you can't say that my statement has no merit. Location is a big factor, wealth accumulation, demographics, etc.

Facebooksux says

WHY DO YOU HATE AMERICA????

Land of the ignorant. Home of the moronic. Love stupidity or leave it.

zzyzzx says

Anything purchased at the right price is always a good investment.

Anything purchased at the right price AND TIME is a good investment.

SJ says

I am a patriot.

When I hear that these days it scares me.

SJ says

By the way maintenance really is a doozy that most realtards fail to disclose to prospective buyers.

Most buyers are too stupid or in denial to figure it out themselves.