Finally! The real gamblers in real estate …
July 20th, 2005 | by mbhunter |FreeMoneyFinance commented yesterday on a CNN Money article:
Homes: Cashing Out Might Freeze You Out
A lot of homeowners, seeing a nice rise in the price of their homes and a stratospheric market, think about (gasp!) selling their homes and getting back in later when the market cools down. Not so fast, oh foolish profit seeker:
The biggest gamblers are even attempting an extremely tricky maneuver, according to Christian Coleman, district director for Zip Realty, a publicly traded real estate broker with offices in 10 states.
They’re selling their houses with the intention of buying back into the market at a lower price in a couple of years or so — after the bubble bursts, they believe.
The advice from the real estate industry pros is: Resist this temptation. It’s almost impossible to time this market.
Gamblers. Conjures up guys crowded around a roulette table in Las Vegas. So it’s the guy who already has nice appreciation and wants to lock it in who’s the gambler.
How is this a gamble? It seems like the outcome of the transaction is pretty clear to me: The guy sells at a nice profit, and walks away with a lot of money! That isn’t a gamble at all. Perhaps the “gamble” here is that he’ll not sell at the top, and won’t be able to get back in that market for a while. And this assumes that he wants to. But this kind of real estate transaction is not nearly the gamble that a lot of real estate investors are taking on: buying into an already hot market and counting on the market getting even hotter.
The real estate pros warn that “It’s almost impossible to time this market.” Well, yes, but that’s true of any market! And it’s also true that there are much bigger costs associated with selling real estate and moving than there are selling stocks. But nearly every investor will neither buy at the bottom nor sell at the top. But it’s hard to argue against the fact that some real estate markets are closer to their top than their bottom.
Mr. Coleman says later:
“I wouldn’t advise anyone to cash out … Real estate is for the long haul. Over a 25 to 30 year period, it has never gone down.”
I resent that real estate industry representatives cast a dark shadow over the thought of a temporary real estate exit strategy in a hot market, debasing it as a gamble. The writing on the wall is getting clearer and clearer — especially with Federal Reserve Chairman Alan Greenspan’s recent “showing signs of froth” observation — and the real estate industry would instead prefer that you not sell your house, thank you very much. Even chief economist Doug Duncan of the Mortgage Bankers Association weighs in with a prediction that the median house price will rise at least 16% by the end of 2007. His prediction: There’s still an upside for a little while!
It’s not hard to see where they’re coming from. Realtors’ and lenders’ bottom lines benefit from more buying, and are hurt if people sell and leave the market. Realtors lose a potential customer — the guy who sold his house and now rents. Lenders lose a loan — the old loan is paid off, but no new loan is initiated. Fewer buyers in the market puts downward pressure on home prices, reducing realtors’ commissions. So of course the prospects for the housing market are rosy, and of course they’ll steer you away from selling out.
I doubt that Wall Street was advising people to sell tech stocks in early 2000. Like the real estate industry now, they certainly didn’t want to indicate that the end of the good times were on the horizon. “Keep buying, folks, before your payments go up any more….” Those people that looked at how absurd the prices were and sold their internet stocks around 2000 did very well. Short-sellers did even better. They didn’t know for sure that the market was topping out, but they saw the writing on the wall, and acted. Only those with the keenest vision read the words before it was too late.
The same is true with the housing market today. The appreciation we’ve grown accustomed to over the past few years is not sustainable. If those who want to cash out wait until everyone’s selling, then they’re going to have a harder time of it. But if they’re ahead of the curve, they’ll have a line of eager buyers.
It’s a bit unsettling to see appreciation of your house that is well into six figures, and possibly into seven figures. Are you thinking that this appreciation would look good as a bunch of zeros on the right side of your bank balance? (Note: This is not personalized investing advice, as I am not licensed to give it.) Consider cashing out. Get your ducks in a row and run the numbers. If the numbers work (you can find another place and can handle the expense of the sale, the move, and possibly living in the new place for a while) then why not cash out? You may miss the top, but when sellers are a dime a dozen and there’s not a buyer to be found, you might be glad that you’re out of the market.
Right now, I think the person cashing out isn’t so much a gambler as he is a cherry-picker. Leave the gambling to the person who buys from him.
2 Responses to “Finally! The real gamblers in real estate …”
By Hollywood on Jul 20, 2005 | Reply
So what about this — I go down to the local courthouse with $15k and buy a home in a nice neighborhood that’s been foreclosed. Is that a risky real estate investment? I’ve been wondering for some time how this works, and where the bidding on these properties starts. Perhaps you could research this for your loyal readership and let us know. I’ve run into a brick wall.
By mbhunter on Jul 20, 2005 | Reply
Hi Hollywood — thanks for your comment. I haven’t gotten my feet wet in foreclosures yet but I’ll share what I know.
The short answer to your questions: I believe bidding usually starts at the amount owed on the property that’s being foreclosed, and highest bidder wins. The terms are usually as-is, with a fraction of the final bid due the day of the sale in certified funds, and the remainder due shortly after that (like 30 days).
Now, if you want a useful answer, I’d find a friend who does this in your area and pick his/her brain. See what s/he does to research potential properties. Maybe reduce his/her risk by going into a property together. Help him/her out. Attend a few foreclosure sales to get the feel for it.
Or try searching “foreclosure investing newsgroups” or “discussion boards” as a start of an internet investigation. Or pop into Borders or Barnes and Noble and leaf through a few real estate books.
As far as whether foreclosures are risky, it depends on everything in the deal. The more you can find out about what you’re bidding on, the more likely you’ll be to get a good deal, or at least recognize that the bidding has gone too high.
Good luck!