Long term investing....Real...... Long term

[Chinmay J.]

Happy Fourth of July everyone ! 

So the other day, a friend of mine came up to me. He knows that I am real estate investor and realtor, and he always likes to pick my brain over this and that....usually something very silly.

But this one was good, and it got me thinking.  So this friend of mine is in his late 30s, and has another 30 yrs of career left ahead of him before he wants to retire.  He lives on the east coast in the DC area, and plans to retire out in the Phoenix, AZ area as he has lot of friends and family on the west coast. 

So he wants to buy a property in Phoenix area which can be rented out, for another 25-30 yrs before he retires and can be his retirement home.  

I suggested him a TK model in parts of the country where TK business is a viable business model, but as far as I know there aren't any TK providers in Phoenix. Secondly, a lot can change in a given area when we are talking about 30 yr time frame. Even in Northern VA (where I am) areas have changed drastically in 30 yrs. The time frame is the major drawback in his analysis. Additionally, I suggested that he might not make a whole of profit, to which he responded that as long as he breaks even, he is happy.

The positives in his analysis, is that since the pouring of California residents and retirees in the AZ market, it seems lot of people are bullish on AZ (especially Phoenix), so as long as the demand keeps going up, he can buy the property relatively cheaper.

Has anyone done this kind of investment?

[Lauren Kormylo]

I’ve lived in Phoenix for 38 years. I think it’s a bad idea to buy here for the purpose of retiring to that exact house in 30 years.  

The heat is getting worse year after year because of global warming and the “ heat island effect”, where more concrete and roads that hold heat mean the temperature stays hotter at night.  It’s noticeable in the time I’ve been here.  

Your friend may not want to live in the Phoenix area at all.  He may decide to retire where his grandkids are, which is common. 

Neighborhoods in Phoenix and surrounding cities change over time, and a good one today may not be desirable in 30 years.  The house will be old by Phoenix standards then, and outdated in looks and technology.  

Why would he want to buy a house for 350K or more and only break even over 30 years?  I would advise him to invest that money in the stock market.  In 30 years, he’ll be able to buy a much nicer brand new house, with lots of money left over.  And no worries about being a long distance landlord all that time.