If you’re still long real estate you are making a HUGE mistake.
- Mar 02, 2006
- admin
- Investing
TODAY I’M GOING TO SKIP THE LANGUAGE AND CUT TO THE CHASE.
Especially those among us who are either a) about to buy a new
home; or b) who own multiple properties.
I think if you’re still “long” real estate you are making a HUGE
mistake.
I know what you’re thinking.
You’re thinking that I’ve said the same thing several times
during the past year.
And housing prices have gone up in some places as much
as 18 percent in the past year alone!
In my opinion you should have been selling into that
strength.
Before I get into what I think you should be doing to grow
your net worth to pay for your childs tuitiion in 10 years
let me break it down for you.
There are seven things happening in real estate that will
make the coming five years painful for home buyers:
1. MORE SELLERS THEN BUYERS: 2.8 million EXISTING homes are
now on the market for sale. Thats a 26.3% jump from last year.
2. BIGGER INVENTORY: It now takes 4.9 months to sell a new
home – THE HIGHEST AMOUNT OF TIME SINCE 1996.
3. VALUATION: Most homes are selling for 20% more then they
are worth. That means the $500,000 home you’re looking at
could be selling for $400,000 in two years.
4. INTEREST RATES: Interest Rates are headed higher. When that
happens, home prices drop.
Why do home prices drop?
Because if you can only AFFORD a $2,000 mortgage each month a
portion of that goes to pay interest and a portion of that
goes to pay the cost of the house.
If a bigger portion now goes to interest a smaller portion
is left for the house.
Suddenly that $400,000 house you’re looking for is out
of your price range. You have to look in the $350,000 area
because your interest costs have gone up by $250 each month.
5. SPECULATORS: That friend of yours bought 3 homes with
adjustable-rate mortgages is about to run into some serious
problems.
You see, right around the time interest rates start rising
one of his tenents is going to move out.
Now he’s going to have to cover the cost of that mortgage out
of his own pocket for a while.
In addition, he’s paying higher interest rates on his adjustable
mortgages so he’s really starting to feel the pain.
So what does he decide to do?
He decides to sell one of his homes.
But since interest rates have risen he’s going to get less for
the home then he thought.
In addition there are quite a few other people just like him
who are bneginning to feel the same kind of pain.
What do they all do?
They all begin to sell their 3rd home.
You know the rest of the story.
6: SALESPEOPLE: I can’t tell you how many times a friend of
mine has bought a home in one of these new communties in these
neighbordhoods in Flordia.
It’s almost disgusting.
You drive in and see a big sign that says “NEW HOMES: $300,000.”
Instead of buying on the spot you decide to wait for a few
days.
When you come back to show your friend the house a week later
the sign has changed.
Now it says “NEW HOMES: $330,000.”
You run into the sales office and ask what the heck happened.
They say that the prices are rising already so you better get
in.
You decide to buy.
A year later you see the last house sold in the development for
a whopping $450,000!!!!
You and your husband are thrilled.
Savvy investors you are – you just “made” over $200,000.
But who determined why that house sold for $450?
Was it the market? Yes and no.
You see, the “market” in a community like that is the ability
of the sales force to introduce the homes at a certain price
and move it up systematically.
They are experts at CREATING DEMAND.
In fact, I know entire neighborhoods in Florida who feel that they’re
rich because one of these killer sales teams “did a job” at one
of these communities.
Don’t fall for that please.
So, what should you do?
Follow the 3 Rules of Almost Every Savvy Investor I Know:
Rule #1. Do not buy any real estate right now: Rent for the next
year and see if prices drop more then the cost of your rent.
I have a feeling they will.
Rule #2. Sell any excess real estate: If you own a second or third
home and they have adjustable rate mortgages sell them now.
I even know some VERY WEALTHY folks who think prices are so outrageous
they’ve sold THEIR PRIMARY HOMES and are now renting!
Rule #3: Try Fallen Angel Stocks for 30 days.
You think I threw this in here as a shameless plug didn’t you?
We’ll you’re absolutely correct. I did!
And why shouldn’t I?
Had you followed my suggestions for the past five years you would
have made far bigger returns then you would have made in real
estate – even in the hottest of markets!
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–By Dylan P. Jovine