Do home values ever rise above 6%?

Question

http://www.cbsnews.com/media/the-10-hottest-real-e...

Here's an article that says that Orlando will see the largest rise in home prices this year, at 5.7%.

Considering real estate as an investment, these returns are very low compared to the stock market.

According to this, one should never invest in the value of real estate because there money would be much better in stocks or even municipal bonds. Do you agree?

I am not talking about forcing appreciation through renovating and flipping.

I also did notice that this article says that home values for homes between $500,000-$1,000,000 have doubled since 2000, but only risen 10% for homes valued under $100,000. I take this as evidence of the great volatility of more expensive real estate that much fewer people can afford to get into (and why the rich can indeed get richer).

What are your thoughts on this post? I'm not even sure there's an actual question here, more of an opening statement for debate.

Account Closed · Answer

I guess you haven't read my Profile (not that you should have ;-). Anyway, I make about $25,000 per house immediately, when I buy Subject To and sell on a Wrap. I am getting $750 a month on one positive cash flow, $450 on one $525 one one and So on and So on etc etc. I've been buying "Subject To" for twenty years now. I buy with little $ down & sell to a Tenant Buyer who gives me $15,000 to $40,000 down. I don't have to pay for roofs, AC Units, toilets etc. Some people don't like Subject To because they don't understand them. Their loss, but I am not here to judge. You asked a question and I shall answer ;-)

The Stock Market, last I heard, requires spending $200,000 cash to buy $200,000 in stock in Microsoft or a Mutual Fund or whatever. Your broker takes his 10% or $20,000 and invests the remaining $180,000. I can use leverage backed by real estate (the property I am Buying provides the leverage). I take $25,000 and buy a house worth $250,000 and get $25,000 back immediately from the Tenant Buyer's down payment. I also get monthly cash flow and then I get the back end equity when my Tenant Buyer refinances or sells sometime down the road. That equity is guaranteed and built into my sale price to the Tenant Buyer.

When the Stock Market takes a big hit, like the "flash crashes", you can't get your money out faster than the "big boys" because the brokers are tied into them and clear their "sell calls" first. You are left holding the bag and suffer huge loses. AND, you can't sleep in Stock Market Certificates. Tho', they have been know to be used in the bathroom once they are worthless. Real estate however can be rented out to cover the payment if necessary, and can provide housing if things get really bad.

I am about safety, cash flow and preservation of capital. Those are some of the differences. regards, Ken

Account Closed · Answer

Hmmm, I don't buy for appreciation, I buy for safety (financing backed by real estate) and cash flow. The Stock Market gives me neither safety nor cash flow.

Patrick Philip · Answer

Yea I've heard of a lot of people making good money on subject 2.

Unfortunately, I don't have the money for a down payment right now.

Patrick Philip · Answer

How is the real estate safer than the stock market? And don't you only make a few hundred per month per house?

Patrick Philip · Answer

How do I not have to sell my position to see gains?

Alexander Felice · Answer

the stock market might beat 6% appreciation, but it won't beat appreciation, depreciation, cash flow, amortization, and value-add profits combined!

you might make 8% in the market, but I'll still make 15% on cash flow (and 0% in appreciation). Also with real estate you don't have to sell your position to realize gains.

also, as brent said, you can use leverage to buy much more in real estate (and at hilariously low interest rates)

as for volatility in real estate, while accounting for normal debt cycles and some worse than intended negative consequences that happen infrequently and expectedly, real estate is extremely safe; depending on your approach.

Brent Coombs · Answer

@Patrick Philip, yes, BRRRR (done right)!...

Patrick Philip · Answer

You're right. I never thought of it that way. Even better, if you bought with a 20% down payment, that's a 30%/year growth. Also, it is slightly more because you are gaining equity as the mortgage is being paid off every month.

As far as those investors who specialize in sub-$100k's, are you referring to BRRRR? They take all their money out when they refinance?

Brent Coombs · Answer

@Patrick Philip, it doesn't matter that your real estate investments aren't likely to average better than 6%/y, because if you're a normal leveraging investor, you only have say 25% of your own money in each of them, meaning that a 6% increase in value is a whopping 24%/y on your outlay!

Compounded!

And even those investors who specialize in sub-$100k properties that don't go up in value, are able to source Bargains in such a way that leaves them with NONE of their own money left in the deal, meaning that even a SMALL positive cash flow represents: INFINITE returns!

ie. The number ONE has an infinite number of incremental increases over the number ZERO!...

Do home values ever rise above 6%?

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