No longer a speculator’s market


OK, so this is technically old news, (the article I’m quoting below is from 7/30/06), but I still find news about the movement of the housing market interesting. I’m happy that the current swing of the housing market is making the rental market more in my favor (even though I just signed my tenants into another year lease). Owning a duplex kind of puts me in a good place regardless of which way the housing market swings — if appreciation goes way up, and it’s a seller’s market, I’m in a good position to cash out and sell my duplex. If prices slow down, and so does appreciation, it becomes more attractive to rent than to buy, and my rental market goes up (lower vacancy rate = higher rents and more tenants to choose from).

from “The New Investing Game:It is going to take more work to make money in real estate,” US News & World Report

…as is typical of housing downturns, investors able to hang on may find an upside: rising rents that could eventually turn negative cash flows positive. Current tight supplies of rentals in places like Los Angeles and Washington, D.C., aren’t just driving up rents; “they also let you be more picky about who you rent to,” notes syndicated real-estate columnist Robert Bruss.

Those who really want a high-quality tenant–and the chance to sell down the road–can also look for a renter interested in a lease-with-option-to-buy arrangement, in which renters who want to buy can lock in a price in exchange for an additional monthly payment or deposit. “They’ll treat it like they own it,” says Bruss. “And if they end up buying it from you after two years, you’ll save yourself the hassle of putting it on the market and paying a sales commission.”

That’s not to say investors should plan on turning over a property so quickly. If your time horizon is much less than that, “you’re not an investor; you’re a speculator,” says Bruss, who notes that typical real-estate cycles run seven years or longer. “And you’ll get what you deserve.”

For those willing to buy and hold, he says the surest way to make money in real estate in the current market is to find a fixer-upper that needs minor improvements. “Don’t just buy a house and hope it goes up in value,” says Bruss. “Buy one, and force it to go up in value.”

Full article is at the US News & World Report

Really, it’s not that the housing market has gone bad, it’s just returning to more of a normal state. Traditionally, buying a fixer-upper (and then fixing it up) was a more reliable way to make money in the housing market than flipping condos, after all.


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