5 ms·

A great example of how when you see an arbitrage opportunity, it probably isn't actually risk free (i.e it isn't actually arbitrage). Usually there is some risk

• ballenf 6y ago
  Reminds me of a personal rule I have about real estate: there are no undervalued properties, except those resulting from my personal value system differing substantially from the market and I'm planning to hold on to the property long enough to realize that value (because when I sell presumably the market's values won't have changed much). In reality, of course there are better and worse deals out there, but the rule keeps me from thinking I'm smarter than the market and being blind to risks or problems that others have seen.
  • beerandt 6y ago
    My personal rule: if it actually hits the market (ie gets listed on a mls or the seller has already signed a realtor) then 99.9% chance you're already beyond the point of getting a good deal. That is, a good enough deal to purchase strictly as an investment.
    • wahern 6y ago
      That reminds me of the story of the economist and the $20 bill.
    • mifreewil 6y ago
      Curious what you mean when you say strictly as an investment? In my worldview, if you are purchasing real estate as an investment, it means it generates income, meaning you plan to rent it out.
      • smabie 6y ago
        You could just keep it and sell it in the future without renting it out. Or you could flip it I guess.
        • mifreewil 6y ago
          I call this speculation. In most real estate markets, a normal house is a depreciating asset that requires upkeep, maintenance, property taxes, and other liabilities.
          • smabie 6y ago
            No, not really. It's very rare for a house to depreciate, even if no repairs are being done. Moreover, property taxes are almost always going to be lower than the rise in price of the property. And speculation and investing are the same thing, except the former is often used in a pejorative way.
      • majormajor 6y ago
        Real estate is the highest-leverage purchase most people can make, so even if you're living in it and plan to sell in the near-ish future, a 5% appreciation will yield you more net cash than a 5% appreciation on the same amount of down payment put into a "regular" investment. The obviously-oversimplified example is something like: put 20K down, buy a 100K place. Sell for 105K, your 20K is now 25K, assuming your mortgage payments were the same as what you would've paid for rent otherwise. Which is a 25% return on your 20K, even on just 5% appreciation.
        • rrdharan 6y ago
          Except transaction costs are a thing (e.g. the closing costs for the purchase, and the commissions on the sale), and often eat up a lot of the gains.
          • gowld 6y ago
            Or in parent's example, more than all of the gains.
    • gruez 6y ago
      >My personal rule: if it actually hits the market (ie gets listed on a mls or the seller has already signed a realtor) then 99.9% chance you're already beyond the point of getting a good deal. So basically you have to be one of those companies that put out "cash for your house" ads?
      • gen220 6y ago
        Or you buy distressed properties. A friend of mine invests directly in tax liens, and develops very good relationships with the people who were underwater. He usually works out an agreement with the homeowner to buy the house (lump sums are very valuable to these people) and rents it out to them for life, at a rate they can afford. Sometimes, the people take the lump sum and run (and he gets the property). In other circumstances, he has a super loyal renter-for-life. I might have gotten some subtle parts wrong, it's been a year since he last explained it to me. Obviously it's not for everybody, you really have to be a people person with a lot of empathy. :)
      • deleted 6y ago
        [deleted]
• taneq 6y ago
  So basically the markets aren't always perfectly rational, but they're not stupid either.