Bubble?

[Jason Merchey]

Does anyone sense risk in the housing market? I was thinking lately about taking out a loan or two for rental properties, but I have some concerns about the federal government/politicians/partisanship, a tech bubble in the stock market, shadow inventory held by the banks, economic problems on the part of the country that could affect the housing market, the drastic increase planed for the flood insurance industry (and I'm coastal) and the fact that the banks haven't really been brought to heel since 2008. There are probably a couple other risk factors I haven't thought of. I was thinking about non-real estate investing, such as holding cash, buying gold, municipal bonds, foreign stocks, or perhaps a mutual fund that deals in alternative energy or something along those lines. My question is, what do you think about the safety of taking out loans on a couple houses that would probably be purchased at or just slightly below market value, 25% down, 30 year amortization, etc. Is the time to buy like two years ago, or is getting deeply invested in the real estate market a wise move?

[Mike Roy]

I tend to classify Buyers of Assets into two categories: 1) Investors and 2) Speculators.  I think this applies to real estate, stocks, buying a business, etc.  Investors are generally looking to purchases a stream of income - i.e. cash-flowing real estate and dividend stocks.  Speculators are generally looking to purchase with the expectation that the asset will increase in value - i.e. house appreciation or growth stocks.  

In my humble opinion, Investors can generally weather ups and downs of business cycles much better than Speculators.

Getting back to your question about a real estate bubble, if you can find a deal that's generating stable cash on cash, it really doesn't matter a whole lot if you didn't time the market perfectly.  There is, of course, the opportunity cost that you might have gotten a better deal if a bubble pops in a couple of years, but that would make you a speculator.