hy real estate little as $650 per month. Even
speculation? You can make small apartment buildings were so
a lot of profit in a year overpriced that actually getting
or less if you have your timing cash flow was just a dream.
right, especially if you have
There were hundreds of
your cash split into small down investors who were buying
payments on many properties. Of properties like these that made
course it is easy to guess wrong no financial sense. Upon
when it comes to future price purchasing them, they immediately
appreciation, and this can mean had to start shelling out
you get eaten alive by expenses hundreds of dollars per month to
on properties that don't go up in hold onto them. Why did they do
value fast enough. it? Because they could sell the
This is a common method of home for $50,000 more within a
investing when times are good. It year or so.
is also very risky. The idea is
Of course, by 2006 prices
simply to buy at a reasonable stopped going up. What do you do
price and count on rising values when you bought a property that
to make you some money within a has a negative cash flow of
few months or a year. Often hundreds of dollars per month,
people who invest this way are and the value stops rising? Well,
losing money from month to month hopefully you find a creative
on their investments, planning on solution, but most often, you
the profit when they sell to simply lose money. This is a
easily cover those losses.
risky game.
When we moved to Tucson in
On the other hand, it is hard
2004, the prices of homes had to convince those that made money
been going up by more than 20% this way that it was a bad idea.
annually for several years. Homes The real question, then, is how
that cost $200,000 rented for as do you predict a fast rise in
values? At the time we moved from almost identical payments. This
Tucson (2006), everyone in our is because my parents bought at a
real estate investing club, time when interest rates were
including all the wealthiest and over 13%, and the new buyer was
most experienced investors, were borrowing at 6%.
convinced that prices would
Of course the opposite is true
continue to rise, so this may not as well. It is much less likely
be an easy task.
that people can continue to pay
One way is to stop looking at higher prices if interest rates
the trend, which after all, can are rising. This is certainly
change starting next month, and part of the reason why home
is only a trend after it happens. prices are dropping in many areas
More important may be a look at as I write this.
the job creation in the area,
The bottom line? Do your
which drives the demand for homework before you count on
housing and other real estate. A rising prices as an investment
real estate boom may pass a city strategy - and even then remember
by if there is no growth in jobs, that real estate speculation is
and therefore no growth in closer to gambling than
population.
investing.
Another important thing to
watch is the direction of
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Article Tags: estate, month, prices
