4 ms·

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 subs

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.
  - beerandt 6y ago
    Or develop it. Or combine or subdivide parcels. Or as an alternative/hedge store of wealth. Or even if you plan on living in it, if you want to make money when it comes time to sell, and not just break even, after accounting for total cost of ownership. Most people who think they sell their house for a modest profit are wrong.
    - gowld 6y ago
      This is only true in places where investment capital has taken over the market, not in places where individuals are scraping together funds to buy in an economically growing neighborhood.
      - beerandt 6y ago
        I meant more along the lines that people don't take into account all the costs that they should when calculating their break-even price. This is generally true regardless of the location, with the caveat that hot markets are more likely to have more professionals participating that know how to include those costs. Often people see those higher prices as greedy profit (or as artificially high in order to gentrify, etc.), and developers do need to make a profit, but often times a large part of the elevated price is just including hidden costs that homeowners don't account for. But looking at it from the other side, developers/investors are only going to enter markets where they believe there's a margin for profit. Which generally means those neighborhoods are a bit underpriced to begin with.
- 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]

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.
- beerandt 6y ago
  Or develop it. Or combine or subdivide parcels. Or as an alternative/hedge store of wealth. Or even if you plan on living in it, if you want to make money when it comes time to sell, and not just break even, after accounting for total cost of ownership. Most people who think they sell their house for a modest profit are wrong.
  - gowld 6y ago
    This is only true in places where investment capital has taken over the market, not in places where individuals are scraping together funds to buy in an economically growing neighborhood.
    - beerandt 6y ago
      I meant more along the lines that people don't take into account all the costs that they should when calculating their break-even price. This is generally true regardless of the location, with the caveat that hot markets are more likely to have more professionals participating that know how to include those costs. Often people see those higher prices as greedy profit (or as artificially high in order to gentrify, etc.), and developers do need to make a profit, but often times a large part of the elevated price is just including hidden costs that homeowners don't account for. But looking at it from the other side, developers/investors are only going to enter markets where they believe there's a margin for profit. Which generally means those neighborhoods are a bit underpriced to begin with.
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]