Feeling them hot market real estate blues!

[Eric Bilderback]

I'm not saying that we are on a bubble that is about to burst.    I am just looking around and not seeing how any of these homes are that great of an investment.  I think that they could be decent investments over the long run but I am beginning to think that by the time you are done looking and analyzing all of the different properties you would be better off just working some overtime or more on your business (non-real estate).  I don't see a big drop coming just a stagnation that brings very little return.  Looking to the near and mid future I see interest rates going up which should have a negative effect on real estate prices, as investors that don't want to be in real estate can invest in something more liquid bonds etc.  At least where I am (and I think this goes for the majority of the coasts), I don't think renters could afford much higher rent.  

Here is a quick "typical" scenario would love to here your critiques.  

Invest 50k in buy 200k you get 4k in appreciation and in my area you will have a hard time cash flowing.   But I am going to assume for the sake of argument you are a super stud and found a deal that cashflows 2k per year, and you have about 2k in debt pay down.  Average stock market gets you 7% which is 3.5k without doing a damn thing.  Houses seem like a lot of trouble and risk for an extra 4k a year. 

I want to believe that I can still find financial freedom with buy and hold real estate in five years or so? But I have trouble believing the numbers support it any longer.

[David Faulkner]

Turn that frown upside-down. If you don't think that it is a good time to buy, then by definition it would be a good time to sell, no? So, don't buy, sell. You don't have to own it to sell it either ... that's what Real Estate Agents do, they sell properties they don't own.

The counter argument is that if you JUST look at cash flow when calculating your ROI, then pretty much no time in the past 30 years in Southern California (for example) has looked like a good time to buy, and yet somehow lot's of folks still managed to make a lot of money buying and holding real estate here, with much higher returns than they would've had in the stock market, and I'm sure most people were telling them then that prices were too high and there is no way they could go any higher. You still need to pick your entry points (both time and location) carefully in this scenario, and perhaps you are not in the right time and/or place. If you are ONLY getting $4k/yr long term historical average on a $200k house, that is 2%, so definitely not the right time or place to play that game. coastal SoCal historical average (going back 40 years) is around 6% ... with 20% down (5-to-1 leverage) that is a 30% average annual return; that is the example I use because that is the example I know, not sure about Oregon but suspect it may be better than the 2% in your example. Show me a stock that has had an average 30% return over the last 40 years and I would gladly buy it.