anger??

[no_such_reality]

Okay, it’s like the whopper commercial.

Today, the house is worth 700,000 whoppers.

tomorrow, the house is worth 350,000 whoppers.

[powayseller]

Dacounselor, this is where we disagree: I don’t believe we will see another real estate bubble like this in our lifetime. It will take decades to regain today’s prices, in my opinion. This is a once-in-a-lifetime opportunity to cash out, just as NASDAQ was in 1999.

In your lifetime, it is more likely that your homes will never recover to the peak prices, than it is that they will go back to it, or exceed it.

As I mentioned, many people say that real estate in CA always goes up and down, but each up cycle brings us higher than the previous cycle. That game is up.

The reason that prices cannot go higher is because the money to go so high came from export countries like China, Saudi Arabia, Singapore, Japan, that invested their surplus dollars into mortgages. They are losing interest in buying US assets. Americans’ highest productivity years are over, so we will not create another big boom on our own.

But if you think that the next up cycle will bring $ 1 million median homes, then you need to answer from where will come the money to fund these homes? High inflation leading to high wages (but then you’re not gaining anything in real terms). The Chinese are going to buy trillions in US mortgages (very unlikely). Where then?

I do thank you for your input on depreciation and tax deductions, and this may come in handy for me in 2010-2012, if I decide to buy real estate at that time. But I may decide that real estate in the US has a dismal fate, like that of Japan, and I can employ my capital better elsewhere.

People think there is such a thing as a high risk-free return. There is no such thing. So I think that people like you, who think that real estate buy and hold is the answer to riches, will be sorely disappointed, just like the buy and hold stock investors were left with empty pockets when all was said and done in 2001. Real estate’s glory days are gone for the next 5-10 years, maybe for the next 2 decades. I have no clue how long the downturn will be. Maybe it will be like Japan, where we go down for 15 years and then just flatten out.

[DaCounselor]

My situation is quite simple – I have bought and held onto 3 coastal properties and have amassed a large net worth as a result (and also due to buying and holding onto my stock purchases). It has worked for me. Period.

Powayseller, why do you insist on antagonizing me and jabbering that I will be “sorely disappointed” with my investment strategy, which over a 24 year span has worked tremendously for me? I’m not looking for an “answer to riches” because my strategy has achieved that goal.

Your prognostications, be they your own or merely cut-and-pasted from others’ opinions, are nothing more than outright guesses as to the nature and extent of future market movements. Your recent “guess” that there would be no Fall rally in the stock market, which put you in cash, was terribly off. You really do need to be right on these types of calls if you want your crystal ball opinions to be taken seriously.

[bob007]

NASDAQ bubble did burst in 2000.

Sprint and Nextel went up 900% from the lows of July 2003.

Google has gone up 500% since IPO.
San Disk had a 400% increase in 2005
Apple had a 700% increase over 3 years.

There is money to be made in the stock market

[powayseller]

DaCounselor, as I said before, people make the mistake of thinking that an investment or strategy which has worked before will continue to work, even when the conditions that allowed the good performance have totally changed. People also tend to extrapolate current conditions into the future.

Your advice of buy and hold real estate is bad advice for today’s times. You were fortunate that you were able to attain rental properties before this big bubble started, but from your comments and your own admission, it was pure luck and not any financial planning or genius on your part. You are also in complete denial of housing cycles, or you just don’t understand them.

If you are so sure about your real estate outlook, my ramblings should be either annoying, boring, amusing, or a challenge. Maybe you are the best person here to answer the question of why you are angry, and give some insight into the topic of this thread: why do people get angry when you say their house can lose value?

I’m sure everyone on this forum, and I especially, are eager for your thoughts on the future of San Diego housing. Do you think the next bubble will be even bigger than this one? Where will the money come from to fund it? How can housing prices go to 20x income, or 40x rental prices? In San Diego, in 2000, the price/rent ratio was about 13.5, and now we’re at 28.9. You think that in the future we will be at 40x rental income? That sounds impossible, but hey, you said the prices would go higher in the long run so the ball’s in your court if you care to take it. I look forward to your insights.

As far as my recession call, I was 1 or 2 quarters early. Let’s judge our results next spring, after the market has gone down, and see if those who rode it to the top were able to get out in time. Then we can see whether I made a mistake of earning 5% in CDs vs. your profit/loss by trying to hang on until the end.

By the way, a poster of similar delusion got mad at me too, last summer, and said he would still read piggington but never post again. I thought that was a whimpy response. If you guys think houses can grow to the sky and I challenge you, don’t run away, but tell me why I’m an idiot and you are right.

[DaCounselor]

My original input into this thread was merely to weigh in on whether to “rub it in” to current property owners as to the cooling real estate market. My point made was that there is nothing to “rub in” to the folks like me who are hundreds of thousands of dollars on the plus side and have locked in the lowest interest rate seen in our lifetime. Again, I would not trade my position with someone who is sitting on the sidelines cheering for a disasterous crash and who in fact needs a disasterous crash to occur to allow them to get in the game. That’s it.

As for my thoughts on the future of San Diego real estate, I believe prices will continue to pull back throughout 2007 and possibly into 2008. It’s impossible for me to generalize by what percentage as SD is made up of far too many micro-markets. I do know the 3 areas where I own property (Mission Beach, Pacific Beach and Bay Ho) and I believe in the end I will see comps down about 15-20%. Just a guess. I don’t pretend to have some magical superhuman insight.

At this time, several of the major factors that can really impact real estate seem to be lined up against major-crash theorists. Builders are out in front of this thing and have dramatically scaled back or ceased production. Interest rates remain extremely low. Unemployment remains low. The stock market has performed extremely well (particularly since some folks proudly announced they were going to cash last summer). None of this helps the crash theory.

Over the long haul, I am very bullish on SD. I lived through the tough times of the early/mid 90’s and still recall many discussions with real estate investors then, who all opined that SD was eventually going to end up like San Francisco with respect to real estate valuation. I agreed with them then and still do. While SD real estate prices have run up too far too fast and will indeed pull back, over the long haul I believe the values are going up and we will maintain pricing that is among the highest in the nation.

[kewp]

DaCounselor,

I think its great that you are the (real) owner of multiple investment properties and should not have to defend yourself to anybody or anyone. My only comment is that I feel that fiscal bubbles are a ‘special case’ of investment cycles and really the best course long-term is to sell off near the peak and diversify into more stable holdings. I did this during the dot-com bubble with some stock I held in a tech company; which never returned to anywhere near its former frothy glory.

My question to you is; if you feel prices are going to drop so much in the short term, why not sell now, earn some interest on your cash and buy on the next up upswing? Do you really like the properties, or are you just not interested in the headache involved in getting them off the market?

I think the point of this thread is not to attack folks like you that have made sane, stable, long term investments. Especially for properties in prime locations. And you are correct that you are better off than folks like me that are priced-out and sitting on the sidelines (I’m not hoping for a crash btw, I just happen to think one is inevitable at this point).

However, we are definitely *both* better off than those folks whom have over-extended themselves during the run-up and are going to have to pay the piper if there is a significant drop in SD RE prices. Even if prices crash and stay low, you will still come out ahead. Myself, I’ll be able to (hopefully) purchase a home to live in. Those caught in the middle are going to be up that famous creek without a paddle.

To powayseller, while I agree with you in general on many of your points, I feel that going after a long-term owner of RE assets is counter-productive. There is really no way to lose other than destruction of the physical properties (which is admittedly a very real risk in so cal). Even then, provided the properties are properly insured it would not be a total loss.

[DaCounselor]

“My question to you is; if you feel prices are going to drop so much in the short term, why not sell now, earn some interest on your cash and buy on the next up upswing? Do you really like the properties, or are you just not interested in the headache involved in getting them off the market?”
___________________

I won’t sell for a variety of reasons, including tax implications, fantastic and ever-increasing rental income (which may be equated to “interest” on my investments), the necessity of maintaining a diversified investment portfolio of stocks and real estate, and a continuing belief that SoCal coastal real estate is among the premier real estate nationwide and will in the long run be priced accordingly.
__________________

“However, we are definitely *both* better off than those folks whom have over-extended themselves during the run-up”
__________________

Indeed we are.

[surveyor]

Crazy Talk

I choose not to sell right now even if the market goes down because:

a) the properties allow me to lower my income taxes and let me use my money in a more efficient manner (by using depreciation and the real estate professional tax deduction)

b) the properties themselves are cash flowing.

c) eventually, over the long run (and I am planning on keeping these properties for about 15 to 20 years, assuming I don’t pass it on to my kids) the value will go up.

d) real estate over a long period (10 years or more) gives a better return than the stock market (because of the tax advantages). By my calculations, a 20% to 30% return given by real estate is better than a 5% return given by CD’s and a 12% return given by the stock market.

[PerryChase]

Surveyor, real estate investing is a full time job and perhaps that’s what you’re doing. Just like any industry there’re some people who are good at what they do and can make money during ups and downs.

However, most homeowners will never see the 20-30% return you’re talking about. Historically, RE increases at the rate of inflation, including increases in square footage or better construction for the typical house. Like Robert Shiller said, if RE increased at 10% per year, the majority of us would not be able to afford a house. Look at houses in 1900 and compound that annually 10% and see what you get today! Look at $1000 invested in the Dow in 1900 and see what you have today.

The myth is that everyone can participate in real estate investing. But it’s a job for professionals.

[surveyor]

However, most homeowners will never see the 20-30% return you’re talking about. Historically, RE increases at the rate of inflation, including increases in square footage or better construction for the typical house.

Not true. You are thinking that I am trying to get 20% or 30% because of appreciation. That is not what real estate investors do. It is very possible to get a return of 20% or 30%. In my projections and calculations, I use only a 4% appreciation rate, which is about inflation. I do not use funny numbers like 10% appreciation. Still, you have to choose the properties that can give you this kind of return, and SFRs/condos are not going to do it for you.

Here is the calculation:

Return on real estate = (cash flow + appreciation + depreciation tax decrease)/downpayment

In my calculations, I strictly avoid using appreciation rates of more than 4%.

As for real estate investing being only for professionals, that is not entirely false, but it is not brain surgery either. All it takes is being able to educate yourself, being patient, and diligent. But yes it is basically a second job. My advice is don’t do the day to day management yourself, just hire property managers.

[Author]

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