patrick.net

SKBUM, you are right .....there are a lot of IFs....it can stay flat for 20 years.....or even go down in 20 years........but as an investor I take historical data and act according to it......and you are right SKIBUM it may not be 5%, it may be 1% or 6%......you just make educated guess. And there will be inflation but I started with 30K......if you take inflation adjusted return on 30k in 20 years that will be more than any other investment....... atleast history says that.

SFWOMAN, that's why I am talking about long long time. I have enough staying power to keep them for loooooooooooong time...20 years or more and if you calculate return on the asset over a longer period you would be fine......now SFWOMAN tell me where can you make positive cash flow on rent now in USA on 10% down payment.....I know some areas but I will not invest there as I don't have faith in the long term visibility of those areas.

OT: So, the Fed "Beige Book" is out, and surprise, surprise, local reports are benign. No massive credit crunch beyond what's already in the news, no massive job losses, no massive ratcheting back on production. So how can the Fed continue to justify a likely FFR rate cut? Hmmm...

Bernanke is not in an enviable position.

Again, WTF?

and SFWOMAN, I live in Marin (I would love to meet you guys in the next blog party in Marin brewing Co) but I invested in Vegas and Scottsdale, AZ as I still stink they have the best prospects in terms of future prospects. I am not talking about 1, 2 or 5 years but 10 or more years. That's my prediction and that's why I chose those 2 areas. Time will tell once this dust settles down in 3-5 years.

stink=think

StuckInBA,

I am fine with what you said. You are your best judge and at the end of the day it's your call. Do whatever is best for you.

HiThere,

You still miss a major point. Long-term appreciation for housing generally is barely above inflation. Sure, some areas will have spurts of significant appreciation for short periods. But this is all about timing. If you bought in 2004-2007, you bought at or near the peak of the cycle. You could have taken that 10% down payment on each of your "investment properties", put them into a better investment vehicle, and bought after the bottom of the RE cycle. It's difficult to time the RE market, but on the other hand, buying at the absolute top is idiotic, if you can help it.

HiThere isn't wrong per se. In time, the rent will presumably go up and fully cover his/her carrying cost (though property taxes, maintenance, insurance, and renter vacancy will seriously bite into the benefits). However, the opportunity cost of that initial $30K + annual out of pocket costs + time expended, he's likely to do much better elsewhere, even with 90% leverage.

On the other hand, some people just love investing in RE because it's concrete and they feel in control. That's fine, but they should realize that they're likely to have a suboptimal return, especially if they are long distance landlords and non-professional.

SKIBUM,
One saying about Market (it can be stock or Real Estate) is nobody can predit absolute top or bottom. It's called timing the market. You can hedge agaiinst that by investing in a longer time frame.

I am giving you a classic example.

I have 30k. If I invest that in CD at today's rate it's 5% return. If it's stocks it's around 8% for next 20 years. (I am taking historical S&P average). Calculate return on that.

Now, take the example I cited above....300k property appreciating 5% per year for next 20 year on an average with a 30k down payment minus $48000 loss (I lose $200 a month for 20 years, I am ruling out the tax deduction from my W2).

Now tell me SKIBUM which one will be more in 20 years?????

If you tell there is RISK, I agree....there is always risks associated with any kind of investment.

predit=predict

Astrid, how was Finland?

Peter P, are you bored? we can talk about food instead :)

[i]No offense to Mo-Town, but the place is an armpit.[/i]

Can't imagine anyone taking offense to a comment like that. lol. Seriously though, nobody living in the Central Valley pretends the scenery's nicer than it is in the Bay Area or along the Central Coast. The Valley's got a few advantages though, and for those who can live with the summer heat, the cost of living is significantly less than the Bay Area. For example, you can buy a 2000 sq/ft home on 5+ acreas bordering a river or stream in Stanislaus or San Joaquin Counties for the price of an average sized tract home in Alameda County.

[i]The only reason Stockton and Modesto saw major increases in value were due to their proximity to the BA and the fact that people with lower incomes were able to leverage their way (temporarily) into homes there.[/i]

I suspect leverage played a bigger role for Stockton and Modesto. Most of the Bay Area people trading commute time for affordability tended to buy in Tracy/Manteca or Los Banos. Still, I agree with you that both of these factors are now a thing of the past. The newer lending standards significantly limit home prices in Central Valley communities where the average household income is in the $50K range, and as prices begin to decline in the less desireable parts of the Bay Area, people will have less and less of an incentive to seek housing so far away.

astrid :

I agree. Else real estate investing wouldn't have been possible. It CAN be a good investment. HiThere is presenting a very simplistic scenario and a very optimistic model. But I have no energy and patience to deal with trolls now. Unlike POS, who ran away when challenged for hard numbers, he is sticking around and defending his case. So good luck to him.

There is a big truth in what he is saying though. There were many opportunities in the "good old days of easy credit" to take full advantage of it. Forget creative mortgage structures. Even 30yr FRM had great rates. But the problem is, this opportunity was smartly used in extremely rare cases. I know EXACTLY ONE person who locked in a low low 30yr fixed rate. Everyone else went for howmuchamonth low amount ARM and maxed out the payment.

Do you have energy to talk about food StuckInBA? Do you like Sneha Indian Buffet?

HiThere,

I have two friends plus my little brother who immediately make money with 10% down on investment properties in upstate NY. No bubble there. They aren't betting on appreciation, they just invest in properties (one has lots of section 8 properties and makes a very good income from them after expenses) that provide them with an income after all expenses/taxes/maintenance, etc.. I would consider those investment, rather than speculative, properties. They own apartment complexes, not one off houses or condos here and there, because there is also an efficiency with economies of scale.

Pheonix, Scottsdale, Las Vegas and other bubble areas will have such a glut of rentals in about, oh, 10 minutes, that I wouldn't be sure of being able to keep a place rented. An empty rental unit is even more of a money pit and decays faster than having good tenants. Perhaps the people who are forclosed upon will fill these spec houses?

What is resale like on a new unit that has been rented for several years? Does it seriously diminish the value of a property at resale (seriously, I suspect it does but have no clue)?

SFWoman, you are right about Upstate New York but I wouldn't invest there as I don't believe in the long term prospects of those areas.

In terms of future of Vegas and Phoenix we have to agree to disagree.....time will tell....one thing I can tell that I never had vacancy in last 3 years....I bought in good areas.....we can talk about food now :)

Holy crap, look at the inventory numbers in Phoenix and Las Vegas!

http://www.housingtracker.net/

Of course, you can't easily time any market, including real estate. On the other hand, you CAN say that buying now or anytime in the last few years was perhaps the WORST time in recorded history to buy RE investment properties, especially for buy and hold.

SFWoman, et. al.

Can we wait a couple of weeks until Hell Week (city charity fundraisers) and school re-entry coffees are over? September is the month from hell in the city (but has great weather at least).

Yes. I was thinking the end of September. I'd like to wait until we can get a good turnout. The gang on the Peninsula will need some warning so they can plan to get through the amazing highwayless city at rush hour.

Pulled from the Zillow boards (where I'm currently stirring up some action, along with a couple other Patrick regulars, I assume since there is a sudden influx of really smart people):

I work at Countrywide headquarters and have access to LOTS of data...it's all bad and its gonna get a lot worse before it gets better. Seeing private money coming in with 65%-75% (weighted avg) bids on large blocks ($1b +) based on TODAY's appraisal/BPO values...which means they are pricing in a retail decline of at least 15% - 25% over the next 1-2 yrs. My advice: start to watch sales/closings closely starting in 9-12 months for bottoming out around 20% - 30% off highs from 2006. If the FED and Gov't intervention doesn't stem a deep recessionary/depressionary period in the next 12 mons, look for further declines in home prices before buying. Good luck.

RANDY, I never asked you before where you live in Marin? Have you ever been to Perrys at Francis Drake?

I suspect leverage played a bigger role for Stockton and Modesto. Most of the Bay Area people trading commute time for affordability tended to buy in Tracy/Manteca or Los Banos.

Yeah, I know people who did the commute from Tracy. Heck, I know people who commute all the way from Roseville. Crazy!

I just think people who couldn't afford to live in the BA ended up in Stockton, Modesto, Tracy etc. with the income level determining where they ended up. Which probably fueled the beginning of the market run-up, but I doubt it really got going until the speculators jumped in. That's what happened here (Roseville). I can't believe all the foreclosures I'm seeing around here.

I can discuss food anytime. But I don't really like Indian Food Buffets. When I want to eat Indian food in BA, I go to Pakistani restaurants.

One of the heads of Countrywide lives here part of the time. He's very nice. I wonder if that's him.

Speaking of CFC, over at CR there are rumors of impending massive layoffs at Countrwide, likely 6K-10K of their 60K workforce.

Skibum,

That would make sense, by what percentage have the number of mortgages given out declined? You wouldn't pay people just to process 'no way on earth' applications.

Randy H,

I took a gander at your thread and a couple others over on zillow. You're on a roll, man. Keep up the good work.

It's a bit funny seeing you debating a Realtor (Sandy) who writes as though she barely got her GED.

The periphery is definitely in trouble. It has also spread to the deeper reaches of East Bay.

In Palo Alto itself, I see an interesting dichotomy. Stuff is not moving above the $2 million range in the hills (the 1 acre+ lot houses). But the "middle-class" range of $1.2-1.5 million still is moving. The difference is stark enough that I have often wondered why someone would pay $1.2 million for an ugly house in a relatively tree-less seedy looking (for Palo Alto anyway) neighborhood, when the houses on the hills with nice views and big lots aren't moving.

A friend explained it as: there are still people who can put down $300-400K (usually from bubble gain on a previous home sale in San Jose etc). They may have family incomes of $200K, and borrow $700-800K. But they can't afford to go beyond the $1.2 million, so houses in the hills sit.

renter_paloalto,

Background: Most of these "middle-class" PA houses are in South PA. Most are either crappy ranch boxes or Eichlers.

You're friend's theory is probably one factor. Another major factor is that those wanting to buy into the low mil price range are reaching to get into a Palo Alto (TM) home, with the privelege of having their kids attend Gunn High School to compete with all the other kids Gunn-ing for a Harvard acceptance letter.

For the life of me I can't understand why else anyone would pay that money for South Palo Alto. It's generally ugly, treeless, and the house you buy could at any time all of a sudden be surrounded by newly built McMansion from all sides blocking any sunlight you had before.

All this so your kid can get an ulcer by age 20.

In Palo Alto itself, I see an interesting dichotomy.

There is another dichotomy in the entire Fortress but in another direction. A lot of houses are available for lot less but don't sell and the houses in Fortress are (or were) going over asking.

http://www.zillow.com/HomeDetails.htm?zprop=19619210

I remember visiting the open house for this one earlier in this Spring. The asking was 999888 or something like that. Say 1M.

This was sold for 1.2M, 200K over asking. And all this for a 1500sqft typical Cupertino sh1tbox.

You have to wonder how bad the school fetish must be. Even with some IPO money, why would you overbid 200K and pay a cool 1.2M for this shack ? Why this desperation to own in Cupertino ? Unless you have something like 10 kids, buying a much nicer home anywhere else and sending kids to a private school will be much cheaper. Even before the sh1t hit the fan in August, there were cheaper and better homes available in good areas of Sunnyvale.

If you are not from BA it's near impossible to understand this behavior. Not that people in BA actually understand it, but they are not shocked by this common pattern. This is Cupertino, they say. The Holy Land where The Never Ending Fountain of Equity Appreciation runs in the backyard of every home.

We will see.

I see other's obsession on their kids' education as my competitive advantage. More sushi for me. :)

I don't like sushi at all :(

Why?

My best friend doesn't like sushi. I got him to try it about three times saying "Maybe you just haven't had GOOD sushi", even though I knew he'd had good sushi each time. The man has defective genes, as far as I'm concerned. It's so sad.

Hmm... Toro... flavor bursting in my mouth... Yum...

Good sushi must be eaten with eyes closed.

I firmly believe that good food can bring world piece. Once those Iraqi insurgents just try a nice 9-course dinner, they will start to question what they have been fighting for.

Yum. Pork belly. Deep fried. Then stewed.

A very-good friend of ours finally abandoned vegetarianism. Rejoice!

peace...

Food IS erotic, isn't it? ;)

Depends on how... and on what... you serve it.

I'm betting that Peter eats a lot of donuts and bananas to go with that sexy sushi. ;)

RANDY, I never asked you before where you live in Marin? Have you ever been to Perrys at Francis Drake?

No, not yet. I've heard great things about the burgers, though. I don't make it out that far unless we're heading up to Lagunitas to hike with the little one, which is more often of late.

I'm in Mill Valley, Tam Valley, right in the McCrapsion Fog Belt. I really really really hate the tourist season climax with all the Stintson and Muir traffic.