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Old 04-03-2011, 11:47 PM
 
Location: Macao
16,265 posts, read 42,992,750 times
Reputation: 10231

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Here is an idea I've had from time to time. As I'm an American living abroad, at times I think it would be real nice to own something. Some piece of property that I could eventually pay off, and be guaranteed of having somewhere to go, when I become old.

Ideally, it would have to be low-cost (Pittsburgh would fit that), and convient. I want to be able to walk down the street to the doctors offices or whatever it is, this is way into the future though. I don't want to be car-dependent with losing sight and a revoked drivers license. (This is also very long-term thinking, I am nowhere near that now).

But my idea has been to find a reasonably nice solid brick home in Pittsburgh that is around $50,000 or so. Buy it, pay it off, and than just 'have something' for say, 25 years down the road, for somewhere to live regardless of what else I do with my life.

So, the question is, IS IT WORTH IT? Is buying a house like that, and not particularly living in it, worth it? I'd still have to find rental tenants, and pay property taxes. It would age another 25 years or so by the time I made a move - although technically I could make the move much sooner if events dictated as well. All very hypothetical.

I suppose there is also the other possibility that even 25 years could come and go, and I'd decide that retiring in another country that is warm and cheap wherever that may be at that time, is the best option for me.

Maybe this comes down to security, peace of mind, just in case all **** hits the fan anytime in my life, and especially in those 'too old to work' types of years.

The other possibility, I suppose, is just try to bank $50,000 instead...and alleviate all the headaches that might come with being a home owner in a far away city and all the exceptional costs that might come from that.

Just thought I'd see what the Pittsburgh thought was on that.

Last edited by Tiger Beer; 04-04-2011 at 12:10 AM..
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Old 04-04-2011, 12:51 AM
 
28 posts, read 59,441 times
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I think that it's worth it! I am looking into it right now!!! :0)
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Old 04-04-2011, 02:38 AM
 
Location: Perry South, Pittsburgh, PA
1,437 posts, read 2,861,004 times
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Sorry, I'm not psychic
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Old 04-04-2011, 06:13 AM
 
20,273 posts, read 32,891,955 times
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No. Invest that $50,000 in a diversified portfolio (with modern low-cost financial instruments, you can get a lot of diversity with that sum). Use the proceeds to buy a house if and when that becomes a good idea.

To expand just a bit: from an investment perspective, there are two relevant kinds of risk: diversifiable and non-diversifiable. Investors should be compensated with a higher expected return to the extent they take on non-diversifiable risk. In other words, relative to their expected returns, assets with higher non-diversifiable risk should be priced cheaper.

But there is no reason for investors to be compensated with a higher expected return for taking on diversifiable risk. In other words, you should assume financial assets are priced with the implicit assumption that investors will be diversifying their overall portfolio of investments, and assets won't be cheaper at all due to diversifiable risk.

A single rental property is going to represent both some non-diversifiable risk and some diversifiable risk. Again, you should assume you won't be compensated in the form of a higher expected return for the diversifiable risk. So, if you only invest in a single rental property as a financial asset, you will be taking on diversifiable risk for which you aren't being compensated. That is a bad deal. In other words, you will be paying too high a price for the property, given the diversifiable risk you are taking on.

If you do want to invest in real estate--which probably should be part of a well-diversified portfolio--there are now ways of doing that in a low-cost, diversified way. REITs in particular allow you to invest in a portfolio of properties (REIT stands for "real estate investment trust", and shares in REITs are traded on exchanges). If you invest in a well-diversified portfolio of REITs, you are investing in a very well-diversified portfolio of properties. And you can do that on a low-cost basis through various mutual funds or exchange-traded funds (we use the Vanguard REIT index fund for this purpose).

Note that very large investors (say a large university endowment) may not need to use this path to make well-diversified investments in real estate. But unless you have a couple billion sitting around, REIT funds are likely your best alternative.

To sum up: you should never make undiversified investments if you don't have to. Investing in just a single rental property is an undiversified investment, so typically is a bad idea. And you have alternatives available to you in the form of low-cost, diversified REIT funds.
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Old 04-04-2011, 06:40 AM
gg
 
Location: Pittsburgh
26,137 posts, read 25,799,462 times
Reputation: 17378
Quote:
Originally Posted by Tiger Beer View Post

But my idea has been to find a reasonably nice solid brick home in Pittsburgh that is around $50,000 or so. Buy it, pay it off, and than just 'have something' for say, 25 years down the road, for somewhere to live regardless of what else I do with my life.

So, the question is, IS IT WORTH IT?
The ol' if the **** hits the fan backup plan. I know a couple of people that have them in place. A piece of mind is part of the equation.

I feel real estate could be a good investment, but lets take a look at the numbers and your situation.

You buy a home for $50K, in Millvale or something similar. You can get a home in Lawrenceville for that on Poe St. Put down 20% ($10k). Have a tenant pay it off. You are a long distant landlord and need to have a property manager that takes 7% of your rent. They call you anytime there is an issue. Roof, plumbing and whatever else. You live in Japan and have a Skype account to deal with the little stuff. Sure you will pay it off. Paying taxes, maintenance and snow removal from sidewalks to name a few. Hoping to get a good tenant. If you are lucky and get a great tenant, you might be okay, but you live in Japan.

All this being said, don't do it. Pittsburgh gets pretty hyped up on this forum and it is nice, but don't kid yourself. It will NEVER be a boom town. Taxes are just too high for prices of real estate to move fast in the upward direction. Sure maybe fast if a property is worth $50 and it moves to $70 sometimes, but you are all the way in Japan. Not a good place to be if you are a landlord. If you were asking, "I am looking at buying a building with 20 units", this answer might read differently. That is a different kind of investment. One little home when you are in Japan. No, is the simple answer. Relax about a plan to have to leave Japan or you are coming to Western PA. There will always be cheap homes due to the crazy taxes here. If Pittsburgh really takes off over 20 years, you will still be able to find something a little further out, but I wouldn't worry about it. A home worth $100K has some pretty hefty carrying costs if it is in Pittsburgh. Your $50K invested in common stock will do much better than some real estate investment in this region.
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Old 04-04-2011, 06:29 PM
 
Location: Kittanning
4,692 posts, read 8,991,642 times
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No, this is a very bad idea. Having a home paid off does not really relieve you of many debts. There are still taxes, upkeep, maintenance, utilities, and other unplanned expenses.

Never buy anything that you have no intention of using. 25 years from now you may not even be alive, or your life goals may be completely different. Most people don't just say, "I'm old now, time to move to that house I bought in Pittsburgh for my old days." If you don't want to live in that house now, at this moment, do not buy it.
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Old 04-04-2011, 07:15 PM
gg
 
Location: Pittsburgh
26,137 posts, read 25,799,462 times
Reputation: 17378
Quote:
Originally Posted by alleghenyangel View Post
Never buy anything that you have no intention of using.
Shhh! Don't tell that to the real estate investors that make millions.

Seriously, in this case don't buy and be so far away.
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Old 04-04-2011, 07:21 PM
 
Location: Mid-Atlantic
12,529 posts, read 17,456,700 times
Reputation: 10629
Buy a duplex in Mt. Lebo, when it's paid off decide then if you want to live there.
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Old 04-04-2011, 07:55 PM
 
Location: Wilkinsburg
1,657 posts, read 2,679,536 times
Reputation: 994
Given your proposed scenario, I also think you could get similar exposure with better risk-adjusted returns by investing in REITs and various index funds and exchange traded funds. You'd still be investing in real estate, you just wouldn't need to hire a plumber.

I should note, however, that in my personal experience, it has been very difficult to analyze and value the REITs due to their use of swaps, repo agreements, and other complex financial instruments.
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Old 04-04-2011, 08:06 PM
 
Location: Kittanning
4,692 posts, read 8,991,642 times
Reputation: 3668
Quote:
Originally Posted by h_curtis View Post
Shhh! Don't tell that to the real estate investors that make millions.

Seriously, in this case don't buy and be so far away.
Those long term investors are the reason half of our city looks bombed-out. Take the Bluff/Uptown, for example. There are abandoned homes on every block, yet none of them are for sale. If you look them up on the county site, you can see that many of the properties are owned by investment firms and such, and were bought for pennies. And they just sit there and rot until the neighborhood improves, which it never does, and they have to be torn down. Then the neighborhood begins to look like California- Kirkbride.

If anything is to be done for neighborhoods like the Bluff, East Deutschtown, or other neighborhoods where this is happening, the property owners must take care to maintain the properties, not just sit on them and wait to cash in on other peoples' work.
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