Market Conditions in 32206>Question Details

Freedom Home…,  in Jacksonville, FL

Any opinions as to why folks will continue to invest in paper (not backed by anything, i.e stocks) instead of a hard asset like property?

Asked by Freedom Home Finders, Jacksonville, FL Mon Dec 7, 2009

People have lost money all over the place (i.e. stock market, retirement, real estate). Although it has lost value, real estate is the only tangible investment around. Prices are at all time lows.

Is it fear, laziness, or just plain ignorance of the great deals available in this buyers market?

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Good Evening,

Christian is right, but sometimes misguided. But i have always said that about him.

I am buying as much as I can. My brother is buying as much as he can. I have foreign and domestic investors now buying. So the folks you are talking about, i am not too much interested in them or their plans. i like 100% profit margins, and the gold like security. So we all buy, rehab, rent and don't plan to sell and I don't look back.

Blaine Rabe
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0 votes Thank Flag Link Mon Dec 7, 2009
Well, paper, as Dan points out, is liquid. And there's no debt service.

The returns in real estate, at least in Seattle, aren't all that great right now. Putting aside the fact that a six-plex costs over a million dollars, it also has a cap rate around five. So you really have to be an astute manager to make that work for you.
0 votes Thank Flag Link Tue Dec 8, 2009
Today's great deals in Jacksonville Florida, are tomorrow's underwater sellers. Ask the people who invested in a house in your developement a few years ago, if it was a good investment. How good of an investment is some 2 x 4's, some drywall, some plywood, some shingles, and some appliances? Good Luck
0 votes Thank Flag Link Tue Dec 8, 2009
When I buy stocks, bonds, t-bills, money cd's, mutual funds or other forms of paper ( including regular bank accounts) I can get out of that investment anytime I want. I might gain or lose money, but the liquidity is almost instantaneous.

If I buy the right stock I could double or triple my investment, or see it cut 2 or 3 times down from its original size. But if I pay attention to the market every day, or every hour, (only a pro would not me) I could get out before prices tanked to hard. I could put in a loss limit order to get out before I lost more than 5%.

If I buy real estate there is no guarantee that I could sell it in a short time (or ever) . It is about guaranteed it will take a minimum of a month to get my money if I find a buyer on day one. Plus no other (paper based) investment demands I pay taxes on it every year and that those taxes will go up just because I own (IBM, MS, gold bars, etc.) but real estate is guaranteed to take more money from me each and every year I own it. If I do not pay those taxes they take my property. Have you ever heard of someone getting their stock portfolio repossessed because they did not pay taxes on it without redeeming any stocks?

Now people seem to be buying hard assets, gold, silver, steel, oil, all kinds of commodities.

I think a lot of people buy based on fear (reasonable or not) expectations, and knowledge of what is going on in the market now or in the recent past. Gold is seen by many as going up, so is silver. Oil is seen as volatile. Real estate is seen as dropping.

Are those buying that way correct? Who knows, only time will tell. Once burned many will stay away forever from something they tried and lost money in. After the 30's many lost money and never got in the stock market ever again. Maybe some people now are having the same reality. The sad part is, none of the investments above are a guaranteed money maker. Some people will lose money if they buy in them now that those are being noticed by the media.

When we add in the 2.7 million foreclosures now in the pipeline. The 7 million to come from 2010-2012 many people are waiting because they know what is going on.
Look at the 3rd quarter 2009 foreclosure heat map. Notice florida is red hot? Not a smart time to buy, YET.…

I want to buy a house with land myself. I never trusted the stock market. When house prices drop to pre-bubble (1997-9) pricing (maybe even including 30% for inflation) I will buy. That may be another 1-3 years.
0 votes Thank Flag Link Tue Dec 8, 2009
Very few Americans are savy about investments at all. Most have no financial knowledge and few are able to actively manage a portfolio. The 401K industry was grabbed by the huge stock firms and although 401K money can be invested in real estate it isn't quite as convienent as using a payrolldeduction and a finance house to manage it.
The other part is obvioulsy access to credit. If lenders were handing money out all the "savy" real estate investors would snap up the properties available. But that would drive up demand and prices.
0 votes Thank Flag Link Tue Dec 8, 2009
Jed Lane, Real Estate Pro in San Francisco, CA
I agree with Blaine. The savvy investors ARE buying real estate. But so very many have been hit so hard by the simultaneous failure across multiple markets that fewer are positioned to invest. With all that inventory, all those foreclosures, the massive hit to the economy, and all those people who lost money in the market ... where are the millions to start buying homes in droves? Most can't afford it, especially with the return to more proper requirements in lending.

Also the masses tend to be very shy after a huge hit. Most people are not, by nature, bottom buyers. They buy when they see it really going up or near/at the top. My 2 cents anyway. I bought this year and would love to buy another property, just as soon as the right opportunity is identified.
0 votes Thank Flag Link Tue Dec 8, 2009

Do you really think there is someone that could possibly guide me? Or that I am guided by someone?
0 votes Thank Flag Link Mon Dec 7, 2009
I think most of it is investment mutual funds controlled by brokerage firms. There's still a lot of 401K types of investment vehicles that people cant cash out of without some severe penalties plus the buy low sell high crowd. Plus there will always be the commodities trade. It's a much quicker profit than real estate and the gains in real estate have historically been gradual (not counting the past few years of craziness of course). I have to agree that now is the time to buy and 2 years ago was the time to sell. There has been a modest gain in r/e values in the past month but again fueled buy the cash for shanties program and it seems that has slowed as well. All the quick turnaround investors have left and real estate is back to what it was before the madness. I would say the best would be buying distressed properties in owner occupied areas and making repairs for re-sale or rentals. Only problem with this is the capital gains tax and I guess we have a tax increase in store as if it werent bad enough already. Also I have noticed that these no money down/get rich in real estate students continue to buy these distressed properties well above reasonable value without regard to true restoration costs or holding and sales costs. The banks are no longer giving away money and everyone that has money is sitting on it. It seems that no one is buying raw land and I think that would be a good long term investment if you can get it at the right price and afford to pay taxes until things get moving in new construction. The bottom line is that there is only a very slight chance that real estate will ever be back to what it was 2 or 3 years ago. That was a fluke and only time in 50 years of being in the business have I ever seen it shoot up like that or drop like that for that matter in Jacksonville.
0 votes Thank Flag Link Mon Dec 7, 2009
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