Buying a house, looking to find a place for appreciation. (Austin: foreclosure, renting)

[austin-steve]

Originally Posted by sliverbox

....Perhaps some people have done better over the past 10 years in real estate than some who in invested in stocks, which isn't exactly proving much since that's a short term time period..

Hmmm

A perfect example is if those same people had taken whatever money they had tied up in real estate and instead invested it in the stock market in February of 2009 when the DOW was at around 7,000 their investments would now be worth about 50% more as of today with the DOW at 12,217 ( as of last check). I've yet to see housing anywhere appreciate 50% in two years even in the housing boom and especially over the last 4-5 years.

You contradict yourself. 10 years is too short a time period when talking about real estate but going back less than two years to March 2009 is ok when talking about stocks? Please. Decide whether short time spans are valid examples or not.

OK, I guess I can't give up just yet.

Another way to cut to the chase on stocks vs. real estate is to consider someone who owns a rental home free and clear. Let's say it's a $150K home in Cedar Park that rents for $1250/mo., or $15,000 a year.

And let's say they don't need the money to live on, but want to grow their net worth.

Option A - sell the home and invest all the proceeds in the stock market. Let's even assume the entire amount of $150K invested, and that it earns 8% return that is reinvested into the same account. The value of the account at the end of the year will be $150K + $12K = $162K.

Option B - Keep the home. Collect the $15K annual rent, out of which must be paid $4K in property taxes, $750 in insurance, and $1,250 in repairs and maintenance. At the end of the year, assuming 3.5% appreciation (which in fact is the historic norm for Texas), the home will be worth $155,250 and the owner will have $9K additional cash, resulting in a net worth of $164,250.

If you were to inherit this house, would you sell it and invest the proceeds, or keep the property as an investment?

Which would be better from a tax return standpoint, future inheritance for kids, etc? Your accountant would have to answer that, but those are very real factors to consider.

The "correct" answer could be either A or B depending on the specific financial and lifestyle circumstances and risk tolerance of the investor.

But I will say this, present to me an Austin renter who has foregone real estate and only invested in the stock market for the past decade and I'll show you someone with no additional net worth. Way to go.

This isn't hypothetical, this is the actual decade we just lived through. This is real life. Some investors made decisions that increased their net worth, others made decisions that cost them money.

Argue till you're blue in the face about stocks vs. real estate, but the indisputable fact is that real estate won in Austin in the 2000s, looking at the entire decade. I made the right decision as an investor to stake my bet on Austin real estate. As a result, my 12th grade daughter can go to whatever college she wants because we can afford it. Same for my younger kid in a few years. Had I invested in stocks only, she'd have fewer options because we'd have less resources.

There are long term implications to that outcome as well, for my kids and grandkids. So quit telling me how great stocks are and what a dummy I've been for investing in real estate instead of stocks.

And don't tell the OP that buying a home with appreciation potential is fruitless. You don't know what you're talking about.

Steve

[LittleCityATX]

There is risk inherent to all investing. The last 10 years in housing in Austin (and the US) was a fluke, likely never to be repeated (lots of caveats). Also, the DOW and S&P indexes are not representative of returns that can be made in the stock market. There is a whole world of things that can be invested in through stocks and ETFs. When you naively compare the return of those indexes to the return on housing, then yes, housing looks good over the last 10 years, but any sophisticated investor would be choosing their horses more selectively.

If you had purchased Apple stock just 5 years ago, you'd be sitting on 7x returns today.

I know a fair number of wealthy people and not a single one of them made their money from the house they lived in.

Nobody is calling you dumb for not being in the stock market btw. You might have different needs and comfort levels with risk than another person.

[sliverbox]

You contradict yourself. 10 years is too short a time period when talking about real estate but going back less than two years to March 2009 is ok when talking about stocks? Please. Decide whether short time spans are valid examples or not.

No- I don't contradict myself at all. I was using the 2 year stock market as an example. As mentioned- do you know of any real estate investments that will give you a 50% return in less than 2 years? Didn't think so. My point being that stocks almost always snap back a lot quicker than real estate. This was true in the 1930's and its true today.

I still maintain that investing in stocks over the long term will give you better returns over the same period in housing. This is a fact proven repeatedly and over the last 100 years. The numbers don't lie. I have family members who've done nothing but invested in plain, boring, conservative 401k's and mutual funds. Most of them retired comfortably by the age of 60. They didn't go to seminars or buy books about such-and-such trade secrets or whatnot or buy up tons of rental property. All they did was stick a little of their income in a few funds and let the market do its work. Perhaps that's why most people refuse to believe that something as simple and boring could basically provide for their retirement and do so faster than most any other investment.

As was mentioned above by LittlecityATX, the past 10 years are not at all representative of how real estate behaves. It was the largest asset bubble in US history and it in turn created the worst recession since the 1930's. The creative loan products that enabled the bubble to have an extended run are now all long-gone. I seriously doubt that anything like it will be seen again in our lifetimes. I don't doubt that Austin will probably continue to have a somewhat healthy market mainly because the word has apparently gotten out to every other person in NJ, NYC, and LA that Austin is "the" cool place to move to. Then again the primary reason they move here is because its affordable and as such that reputation will need to be upheld. If it suddenly becomes known as an unaffordable city, people will move to other cities- like Nashville maybe. Or- who knows? Huntsville AL.

[riaelise]

Based on my personal experience, true bada bing appreciation is all about the timing and location. In NYC, I purchased a 2/2 condo in the boroughs for 85K - a fixer upper - in 1997. I sold it for at least 2.5 that amount in 2003. If I held onto it, it would have appreciated to 400K. I bought at the right time (in a down market), and sold at the right time. The only people who are gonna get that type of appreciation here, I think, are those who purchased prime properties at the right time, or who seize the moment and have money to snatch some really good deals. Spending 400K-500K I think isn't going to net you double any time soon. Sure, it'll go up maybe incrementally..though it's probably your property tax bill that's going up and I don't think that's a good thing.

Real estate as a pure investment just isn't my thing. Neither are stocks. Though I've made money in RE, I believe my home is just that, a home. I just want to get my money back, or if I'm lucky a little bit over to put towards the next dwelling. If you are going to use RE as an investment, I think it should be viewed as long term and with the understanding that depreciation will happen at some point.

[ROY DUBOSE]

not unusual but it appears the conversation has gotten off track (imho) and become a discussion of forms of investing and the relative benefits of one vs. the other -- these folks are looking for a 'hood that is likely to appreciate not whether some think stocks are better than property --

[jobert]

Sure. What time frame are we talking here? 2 years, 5, 10?

Long term, I would recommend buying up land along the 130 tollroad, along the Colorado River downstream between here and Bastrop, and areas east of 35 and along far south Congress, where the housing stock is cheap enough to tear down (less than 100K). The last situation mentioned is a developer's dream - I would look in 78741 and for a longer (10 year)outlook, I would recommend 78744.

[grakk]

Originally Posted by ROY DUBOSE

not unusual but it appears the conversation has gotten off track (imho) and become a discussion of forms of investing and the relative benefits of one vs. the other -- these folks are looking for a 'hood that is likely to appreciate not whether some think stocks are better than property --

Yes - I guess to clarify I'm more worried about losing money.

The reason I'm interested in appreciation is not to get rich or to retire early on the money made back - I'm planning on doing that with my 401k and Roth IRA.

I'm hoping that I can find a place where I get most/all of the money back that I'm paying on interest, insurance and taxes on top of the mortgage as well as my down payment when I sell.

I understand this is hard to predict - I'm just looking to give myself the best possible shot. As far as timeframe I'm not sure.. I don't see us leaving the Austin area anytime soon. But who knows what will happens with jobs etc.

[Bo]

The larger issue of whether other investments are better than real estate is off topic in this thread, since the OP intends to invest in real estate. Please end that tangent now.

You are welcome to discuss those issues in City-Data's Real Estate and Investing forums. There are plenty of folks there from all over the country who will share your interest and their opinions.

[atxcio]

I'd stick with central neighborhoods for price protection and likelihood of appreciation. That's the safest bet, if you can afford entry, because inventory is so limited. Central Austin is "THE Austin" that you read about in the media, and the limited availability + population boom in the metro will keep those properties desirable.

If you want to get speculative and can handle a little more risk, then Jobert's suggestions seem like a decent bet. Along with other east Austin areas, you are looking at the last frontier in gentrification of "city proper" areas of Austin.

A key point made in all that investment argument, though, is that you stand the best chance (esp. in this market) making your money on the "buy" not the sell. Don't get suckered into a premium price right now; find the motivated seller, and get the property at discount initially. You can do it now, but it won't always be this easy.

Motivated Seller + Central Austin = Very good likelihood of appreciation within 5 years. IMO.

[muti6000]

Originally Posted by atxcio

I'd stick with central neighborhoods for price protection and likelihood of appreciation. That's the safest bet, if you can afford entry, because inventory is so limited. Central Austin is "THE Austin" that you read about in the media, and the limited availability + population boom in the metro will keep those properties desirable.

Quoted for truth. Buy Central. Period.