Investing For Appreciation/advice?
My friend is a real estate agent in CA and knows of an area in the central valley that is dramatically appreciating. She bought a house a year ago and it has gone up 100% in a year. My situation is that I have good credit, alittle money but I am not employed and haven't been for five years due to an injury. We are looking to invest in the same area although prices have gone up. We would be slightly cash flow negative but if it continues to appreciate (as most college towns do) the appreciation far outweighs the negative cash flow. I want to invest this way so I can make some money (hold for aprox 4 yrs or so then sell) to be able to invest in more real estate. My question is does this sound like a good way to go? She's gung ho over the idea, although she's only invested in one home(which happens to have skyrocketed) she goes on what people tell her. How do we know it will keep going up and aprox when will it even out? Is there a way to estimate these things. Would it make more sense to invest in more houses that are less expensive and not appreciating as fast where you break even or to gain appreciation faster and then invest in other areas? I am a complete novice at this so any and all seasoned advice would be appreciated. Does anyone suggest and literature or seminars on the subject of investing? Thanks for your time.
cheers,
sro
why would buying the house make you cash flow negative? What do you plan to do with the property in the next 4 years? What about renting it so the rent covers the mortgage and maintenance?
Hi Sarah,
This is my opinion:
If you are investing primarily for appreciation, don't. Everyone has made money in r.e. the last few years. It actually would have been impossible to buy a property in almost all of California last year and not be able to sell for a nice profit this year.
Nothing goes up forever. Stocks, r.e., wages, etc. have cycles. We are headed into the 10th year of an appreciating market. That's quite a run.
Should you invest? Sure, that's all I do. But I have to be able to buy today at a good enough price to be able to sell and get out alive if there is a massive correction.
I don't buy and rent out. I buy for the sole purpose of reselling it. You mentioned you would like to resell in 4 years after it was worth more. I'm not sure you can do that. Someday you would be able to sell for a profit, but maybe not in 4 years. Maybe not for 10 years. Would you be ok with that?
California r.e. peaked in '69, '79 and '89. Basically a 10 year cycle. In fact we just got back to '89 prices about 3 yrs ago. A lot of people seem to have forgotten that. This means people couldn't sell the homes they bought in '89 until 2001 for as much money as they paid. That's a long time.
You can buy in any market and make money, but you have to buy under market value today. Hope this help.
Making it 3 for 3, don't do it. Appreciation is great. But the market can tank. There are investors around who remember the late 80's, when the LA area market dropped something like 25-30%. CNN and the like report every day on the record number of millionaires that there are now in the US, and how the overwhelming majority of them got that way through real estate over the last few years. Let's see what happens when individual markets like LA, San Fran., San Diego, NY, DC, etc. take a dive. There will still be plenty of investors around in those markets. But they'll be the smart ones, who invested in positive cashflow or at the very least purchased cashflow neutral properties. I'm sure that living in one of those areas makes it much more difficult to invest right now, but if you read through the posts in this site, and keep asking questions, you'll see that there are investors working in those areas who are making actual money today instead of potential money someday.