The Reality of Real Estate (BlueRoof Blog)

Thoughts, opinions, and truths about real estate and life as I see it...

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Location: Salt Lake City, Utah, United States

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Sunday, July 09, 2006

Real Estate is Not Like the Stock Market

In every city across America right now there are people investing in real estate. In markets where the so called bubble has burst (dumb cliche) there are people buying up the land, bidding at the sheriff's auctions, and making offers on run down homes. These are investors who understand real state. Real estate is always a safe investment if you own for more than a decade. Always.

The real estate market goes up and sometimes creeps down, but it is not like the stock market. It doesn't have the huge upswings and downswings that the stock market has. And real estate investors aren't nearly as sensitive about things. A stock investor sees the CEO of a company wearing the wrong color tie and they freak out and it's SELL! SELL! SELL! A real estate investor looks at the cycle the market is in and buys, sells, or holds accordingly, but it's not a right now or you lose everything proposition.

And real estate never goes out of business. No matter how bad things get with a local market the land is always worth something. After Katrina hit New Orleans the whole place was devastated, but now, even with everything destroyed, people are snatching up as much land as they can get their hands on because they understand that in ten years that land is going to be worth a lot of money. More money than ever before.

There is no place in America where the land is not worth more today than it was ten years ago. Nowhere. When California crashed in the early 90's a ton of people bought up property and waited. By 2000 that property had doubled in value and by 2005 it had doubled twice more. And now that the market is cooling it will still never be less valuable than it was in 2000.

And when the real estate market does come down it comes down much slower than the stock market so people have plenty of time to sell if that's what they are going to do. If interest goes up it won't go from 6.5% to 13%- it will be much more gradual ad there are many indicators that can tell when a local real estate market is heading up fast or slowing down. Job growth, interest rates, the commercial market, availability of land, and other factors all gives us an idea of where the market is going.

The "Bubble" is the stock broker's way of projecting their bad hype on to real estate. And it makes for good reading so of course the media loves it.

In markets like Utah is going through right now people are buying run down homes to fix up and flip for profit. And they're making a ton of mone. My sister-in-law just bought a new build home here for $1Million and sold it when it was completed for $2Million. Not a bad way to make some money, figuring they didn't have to do any of the work.

And with our job growth we're looking pretty good for a while. And even if interest rates go through the roof and a tornado rips the city apart people will still be making a lot of money investing in the local real estate market.

28 Comments:

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12:44 AM  
Anonymous Anonymous said...

"Real estate is always a safe investment if you own for more than a decade. Always."

I'm surprised to see someone who claims to have a lot of experience in real estate make such an ignorant statement.

What I think you're trying to say is this; "If you make a bad purchase, ten years should be long enough to dig yourself out of the hole." What a dismal approach to investing.

To paraphrase Robert Kiyosaki, "You cash out when you sell real estate, but you actually make the money when you buy." In other words, make a conscientious choice. Values DO go down, there ARE bad real estate investments, and you may not have ten years to waste making up lost ground.

7:13 PM  
Anonymous Anonymous said...

But real estate doesn't go out of business like a traded company- it's a good point

10:58 AM  
Blogger gt242 said...

I appreciate your point of view, "Anonymous". You may or may not have an in-depth knowledge of the real estate market, but if you do then you probably realize that, while of course there are bad investments in real estate, it is a safe investment if you plan on keeping your invesment for at least ten years.

So argumentative... get some ice cream or something.

11:01 AM  
Anonymous Anonymous said...

gt242 said...
"Real estate is always a safe investment if you own for more than a decade. Always."

"while of course there are bad investments in real estate, it is a safe investment if you plan on keeping your invesment for at least ten years. "



"Real estate investment" is a very broad term. What specifically are you talking about? If you're talking about paying cash for raw land to hold for ten years then I agree with you 99%. That's a pretty safe bet.

But most people don't invest that way. First you're not using the most important advantage of real estate, leverage. Second, most investors would prefer cash flow plus appreciation over just the latter. Now your assertion flies right out the window. If you can't handle the mortgage on your duplex because you paid too much for it and rents are low, or because your inspector missed a fatal flaw and it can't be occupied, it doesn't matter how long you PLAN on keeping it, because the bank's going to take it away in three months.

Now, to get back to main point of your entry, real estate is not like the stock market. You have direct control over your investment, the ability to leverage and insure your assets, and the assurance that the property will never be completely destroyed (assuming you own the land and not just the building sitting on it, and also assuming that you're not on the coast or the shore of a river, or on top of a major fault!). Of course the old saying, "God ain't makin' any more of it!" is a misnomer because the amount of AVAILABLE land is constantly growing due to subdivision of large farms and ranches, the privitization of government land, and the opening up of investment opportunities in other countries; however, the increased demand for domestic residential property due to immigration into the United States and the expanding human population in general will continue to drive up prices. And while real estate can get very complicated in some instances, it is a lot less technical to analyze than stocks, and easier to compare similar investments side-by-side. Overall real estate is considered by many to be superior over stocks for the average investor.

But to say it's always safe? C'mon. You're just making an ass of yourself.

Ben and Jerry's Cherry Garcia. Thanks for the suggestion.

10:38 AM  
Blogger gt242 said...

I appreciate you putting me in my place...

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4:02 PM  
Anonymous Anonymous said...

Well said. People need to realize this. It's ok. Feel free to check out a blog I did on the subject at Cape Coral Real Estate Market

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