Also there is Innovis and LexisNexis (Sagestream).
Mike
Minimizing capital in the home can be accomplished by taking out a mortgage, which I view as an inflation hedge, as well as setting you up for a nice tax deduction if you later convert the property to a rental. With 20% down, our mortgage payment is about 2/3rds of what rent would have been when we bought the place in 2019, and about half what the rent would be today. In that short time frame, the house we bought for $485K recently went under contract for $840K. Happily that deal fell through, (though it appraised,) and we pulled it off the market, preferring to hold on to hard assets in these inflationary days, rather than add more cash to our holdings.
I pay attention to the local real estate markets and know when something is a bargain. Bargains can be had in real estate, and I have gotten them repeatedly, though it takes paying attention and being patient. There are inefficiencies to housing prices, for the simple reason that not all Realtors are equally talented, and some properties can be more difficult to price. If you are looking for a cookie cutter home in a neighborhood with lots of recent sales, it’s pretty easy to set the price, but if your property has unique features, on a lake in our case, with few sales, it’s more of an art. The listing agent who sold us the house failed to price our property as lakefront. We pounced on the purchase, because we understood that it was worth significantly more than the list price. We moved and placed the house we moved from on the rental market.
When I sell a property, as we did in 2022, I always interview at least three agents. It’s a great way to get data and check the assumptions based on the data you have collected through monitoring the market. In 2022, one of the agents, who was also a broker that had done a lot of business with a friend of ours, insisted that our asking price should be $425K, and that we should be prepared to lower it. We sold the property for $535K. He justified the $425K price with "you bought the house for this, your tax assessment is that, and then “backed it up” with “comps” from the direct neighborhood that were maybe 2/3 the finished square footage and fixer-uppers. Our area likes to depend on tax assessment, given the law that assessment should reflect market value. Since I tend to get good deals when I buy, and assessment has the largest change on sale of property, as the price you pay is tough to argue with as value, our properties typically are assessed below value. Of course I appreciate that when paying taxes, but it does require educating the professionals when it comes time to sell. Since we have many neighborhoods that are having a generational change, there are many houses out there that are priced based on a lower assessment of value than market value. These houses can have deferred maintenance and outdated features, but we have learned to be the second buyer after many updates have been made. I have no doubt that the property we bought in 2017 and sold in 2022, was sold to us at a loss, given the new gourmet kitchen and tiling around the tub that was put in. Develop a critical eye for modest improvements that can be done to unlock the potential in a home, as well as expensive or fatal flaws to avoid, and there are bargains to be had. We walked away with about $225K in profits on that property, after expenses and almost 3 years of renters paying our mortgage, 2 years of “expenses” from our living there, selling before losing capital gains exclusion. 2017-2022.
I am happy with these returns, though we view real estate as a bond alternative, not the next Dell, already having a significant amount in the stock market. Since one has to live somewhere, that expense may as well come with appreciation. There are strategies that I have gone into before in selecting an area to maximize potential for appreciation. Not all locations are ideal for buying.
And not all people should be buyers. It takes work to maintain a property. Frankly, even hiring others to do the work for you is frustrating hard work, and we often find it easier to do jobs ourselves. And if you can’t be flexible when picking the time to buy and sell, then you can be at the mercy of market ups and downs working against you. It is not an investment that is work free, but yes, it is an investment. I have several other examples of successful real estate investment that I could offer, but this post is long enough.
IP
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The only reason why a landlord will offer you a “bargain” is because he is (hopefully temporarily) stuck in a rental market that won’t bear higher prices. One rental we had when mortgage rates were so low that it was cheaper to buy than rent. Had to settle on a self employed tenant with a pending bankruptcy, who wouldn’t have been able to get a mortgage at any rate. We raised our credit score requirement after that. Didn’t lose money, but it sure didn’t always come in on time. Live and learn.
I think Mom and Pop rentals often are the better bargain in the long run. Much more sentimental than corporate run properties, and less likely to raise rents. I have seen this over and over again with friends who own 13 rental homes.
Strongly disagree. Leverage is a tool. Understand it’s limitations and take precautions to have a large enough emergency fund to cover contingencies, and it will work well for you. Misuse it, and it will cut you badly, just as misusing a chainsaw could take off a limb if not used properly.
GWM and I used to chat quite a bit off the boards. He had a lot of money tied up in speculative building of rural vacation homes in the N GA mountains. Then 2008 happened and he got burned. Some other issues I won’t get into also impeded landing on his feet. He overused leverage, which is never smart, and failed to keep contingency funds on hand, had sh!t hitting the fan in multiple ways, beyond investments. As with any investment, over reach is typically not a good thing, particularly without contingency plans in place. His demise was one of many revolving around the housing bubble in 2008. In the short term, housing doesn’t always go up. Long term, it does well, as long as you can survive the down drafts. This is one reason why we always go for the 30 year FRM, rather than adjustables, eliminating some uncertainty. Happily, last time I chatted with GWM he sounded pretty content, though it has been too long…
IP
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Favorable tax treatment and the fact that large institutions want diversified investment portfolios including real estate and bonds, even though both tend to underperform the S&P 500.
It was a wonder living in Houston after the 2000 stock market bust when all the money flooded into REITs and they started building large garden apartment complexes in West Houston for as far as the eye could see. Real estate developers are going to develop, and builders are going to build, as long as you keep throwing money at them. They get paid up front.
intercst
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