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Have been under water here for quite some time and enjoyed reading lots of thoughtful posts here. I have been lucky and accumulated a few houses during last few years. Now just like to share a little bit of my thoughts on current RE market.
1. I totally agree with Little Rock\'s recommendation on now it\'s time to buy rental properties. The biggest reason? rental property has better cash flow than single family houses. In a down market, you can\'t flip a house in a couple months, instead it\'s the best time to accumulate RE with cheaper price. Let renter help you to shoulder the bill, and then you can wait for next high and sell it. This, in my opinion, is the biggest difference between stock and RE markets. As long as there is renter and cash flow, you can wait till housing market comes back. And the leverage will make a 10% gain become 100%. Leverage itself isn\'t the big advantage though --- if market down 10%, it may wipe out all your down payment for a 100% loss. However, as long as renters stay, you do not realize the loss and for the worst case, a 3% inflation may get your house doubled in 20 years and you are pretty much debt free.
2. I don\'t think US RE is overpriced, China\'s is. From 2000 to now, US$ depreciate ~100% on buying power, which is the real reason house prices doubled in most areas. Remember, it\'s REAL ESTATE (just like gold) so it will just keep the value with inflation --- unless the area is losing massive numbers of jobs, like Detroit. For the last 7 years, there is no point to argue RE or stock market gives better returns: RE kept the value (on paper a 100% value gain and the leverage 10x your investment (downpayment), everyone in stock market lost money (even if you thought you gained 75%). China\'s RE market is very different from US, but a lot like Hongkong and Taiwan --- both are very fragile and bursted several times in the last 30 years or so. Chinese people intend to gamble, that\'s the driving force for that. I want to congratulate those bought houses in China though, mainly because they transfered money out of US$ and avoided the depreciation. Everyone should read BayFamily\'s Money can run ..., it\'s a classic.
3. It\'s still very difficult to find a below-market deal: the market is full of properties --- but you don\'t have cash flow w/o 30% down (bay area). And there are lots of sharks there so good properties go very fast. There is one thing as a rental property buyer should pay attention: As interest rate goes up, price goes down to maintain same CAP rate. The best way may be buying REO property on auction, i.e. my recent buy is a las vegas new 2000sq house: sold in 2006 365k, current market price 260k, bought on auction 205k, rent it out 1350 with cash flow. It\'s new and nothing to worry about.
4. For those who think better school area appreciate better, think again. If you look at data for the last 7 years in Silicon valley: SJ appreciate about double than cupertino in percentage, which is why SJ has space to drop price. For investing property, safe area is important, but good school area is usually bad, due to lower CAP ratio.
Just my two cents, run out of battery now ...
1. I totally agree with Little Rock\'s recommendation on now it\'s time to buy rental properties. The biggest reason? rental property has better cash flow than single family houses. In a down market, you can\'t flip a house in a couple months, instead it\'s the best time to accumulate RE with cheaper price. Let renter help you to shoulder the bill, and then you can wait for next high and sell it. This, in my opinion, is the biggest difference between stock and RE markets. As long as there is renter and cash flow, you can wait till housing market comes back. And the leverage will make a 10% gain become 100%. Leverage itself isn\'t the big advantage though --- if market down 10%, it may wipe out all your down payment for a 100% loss. However, as long as renters stay, you do not realize the loss and for the worst case, a 3% inflation may get your house doubled in 20 years and you are pretty much debt free.
2. I don\'t think US RE is overpriced, China\'s is. From 2000 to now, US$ depreciate ~100% on buying power, which is the real reason house prices doubled in most areas. Remember, it\'s REAL ESTATE (just like gold) so it will just keep the value with inflation --- unless the area is losing massive numbers of jobs, like Detroit. For the last 7 years, there is no point to argue RE or stock market gives better returns: RE kept the value (on paper a 100% value gain and the leverage 10x your investment (downpayment), everyone in stock market lost money (even if you thought you gained 75%). China\'s RE market is very different from US, but a lot like Hongkong and Taiwan --- both are very fragile and bursted several times in the last 30 years or so. Chinese people intend to gamble, that\'s the driving force for that. I want to congratulate those bought houses in China though, mainly because they transfered money out of US$ and avoided the depreciation. Everyone should read BayFamily\'s Money can run ..., it\'s a classic.
3. It\'s still very difficult to find a below-market deal: the market is full of properties --- but you don\'t have cash flow w/o 30% down (bay area). And there are lots of sharks there so good properties go very fast. There is one thing as a rental property buyer should pay attention: As interest rate goes up, price goes down to maintain same CAP rate. The best way may be buying REO property on auction, i.e. my recent buy is a las vegas new 2000sq house: sold in 2006 365k, current market price 260k, bought on auction 205k, rent it out 1350 with cash flow. It\'s new and nothing to worry about.
4. For those who think better school area appreciate better, think again. If you look at data for the last 7 years in Silicon valley: SJ appreciate about double than cupertino in percentage, which is why SJ has space to drop price. For investing property, safe area is important, but good school area is usually bad, due to lower CAP ratio.
Just my two cents, run out of battery now ...
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