They’re not making it any more
Buying real estate is a sure thing. Not only does a real property purchase come with its own collateral, it will never lose its value.
“Real estate is a great game for pros and a not-so-great game for amateurs ” Uh, not exactly. While it’s true that real estate is generally a good investment, there’s no such animal as a sure thing. That’s where a lot of would-be investors got into trouble when the recent housing bubble burst.
“Residential real estate composite values are down about 8 percent and they’re not through yet,” says Ben Jacoby, Certified Financial Planner and senior adviser with Brinton Eaton Wealth Advisors.
Jacoby says there is a four-year cycle of excesses. “Every four years or so the people who loan money do something stupid,” he says.
In this case, investors made real estate loans to people who couldn’t afford them, including speculators. Investors purchased run-down property, renovating and reselling or flipping it, acquired property for rental units and made pre-construction purchases — all in hopes they’d have a big return for their investments.
Problem was, most of the property purchased was overpriced in the first place, and when values tumbled, speculators in general couldn’t get their money back, much less the mammoth profits they’d anticipated. But even though real property investments can’t really be taken to the bank, Jacoby says property has always been an investment target in good times or bad. Individuals like the idea of owning something they can actually put their hands on, but it’s a much bigger gamble, even when prices are rising, for the uninitiated.
“Real estate is a great game for pros and a not-so-great game for amateurs,” Jacoby says.
Historically, investing in real estate during bear markets can yield some real bargains for those who can afford it. Since lenders are understandably skittish when the economy is less stable, financing property becomes much more difficult. Would-be investors who hope to take advantage of falling home prices need to have enough cash to reassure the bank that its loan will be money well-spent.(Bankrate.com)
