No longer content to look in their own backyards for housing investment opportunities, amateur real estate investors are beginning to look out of state at quickly appreciating markets, but are they missing the point of houses as homes? That there's quality of life associated with homes that are owner-occupied?
A San Diego business developer writes Realty Times looking for advice on the next hot market:
One of the first rules of buying a home is to understand the risks -VS- the rewards. As an investor, only you can decide what your tolerance level is.
As you know, real estate isn't like other investments. Each home is unique, and homes aren't as liquid as stocks and other instruments. It's only been recently that homes have experienced outrageous gains in areas like Las Vegas. Usually, real estate only appreciates enough to stay ahead of inflation, which makes buying property more of a quality of life issue than one of investment -- if you are planning to live there.
Real estate affords some benefits that you can't get with other kinds of investments. For example, you can live in a home while it is appreciating in value, whereas you can't hold stock certificates over your head to keep out the rain. The risk, of course, is that the home could depreciate in value due to local economic factors or lack of maintenance on your part.
A lot depends on how much you view the property as a home -VS- an investment. Price appreciation doesn't always correlate with lifestyle or quality of life. For example, a lot of people want to live in California, but nobody likes the traffic.
Think long and hard about how you want to spend your days in the home. How do you want to live on a daily basis? Do you like digging in a big yard, or would you prefer a no-maintenance high-rise with views of the clouds? There's a vast difference in types of homes so imagine yourself in various homes. Do you want a large kitchen because you like to cook? Do you need a guest room because you have friends who will come stay with you? What amenities are must-haves?
If you like to swim laps every day, a home with a pool is a smart buy for you because you will derive enjoyment, but don't expect to make money on a pool because the next buyer may want to fill it in with dirt. So you have to consider how much do you want certain features and how much do you think they will add or subtract from the value of the home.
It's those differences in lifestyle that make real estate so interesting.
Think about what else you value. Do you value being back in Seattle because you'd be close to friends and family, or activities you are fond of doing? Do you like the desert climate of Las Vegas? What kind of weather do you prefer? Where would you live regardless of appreciation if you were choosing a community just based on your personal criteria for happiness?
You seem to be planning to live in the property, but for how long? Real estate appreciates over time -- very few markets report double digit gains as some have in the past few years. So if you are looking for a quick flip, most markets will do as well as the next. You could conceivably make as much money turning an older home into a showplace as you could relying on double-digit gains on newer housing in another city. Most buyers today do not want to do work on homes and would appreciate a property that has been well-maintained and updated.
Even if you are planning not to live in the home you buy, there are still a number of considerations, among them, becoming an expert in an area where you don't live. Historical data on the area and future possibilities for growth are essential to know, but it's also equally important to know the individual pockets of homes in your city. Real estate is directly related to jobs because it is jobs that secure most mortgage loans, but it is also related to how locals view certain neighborhoods.
If you are looking at buying a home purely for investment, and quality of life is not so important, then don't look at areas that are already appreciating in the double digits that have already priced you out of their markets. Consider that boat sailed and look instead, at areas that are emerging that are more affordable.
In most places, inner city gentrification is a good bet because the cost of housing has depreciated enough to be attractive for redevelopment. There's a ready market because people are tired of driving to the suburbs and new housing is so costly. This is especially true of families that don't need to be in a certain school system because their kids are grown, or they don't have any. Quality of life can also depend on your stage of life.
A good example is Dallas, which has been depressed for years, while the suburbs have grown like weeds. In fact, city mismanagement drove money out of the city at such a rate, that it was left with nothing but warring cultures (black, white, and hispanic) fighting over the remaining fiscal scraps and an overburdened underfunded school system that is the shame of the southwest. With corporations relocating to Dallas' suburbs instead of the city, Dallas was soon upside down, relying on homeowners to pay for fewer and fewer city services. It's pockmarked streets look like a war zone, so it is little wonder that the city's homes barely met inflation gains over the last few years. Double digit housing gains? Not now, but recent improvements suggest that this nadir of the investment cycle may soon be over.
Historically, Dallas grows in times of bad economies because other towns are even more depressed, so people will usually always move to Dallas looking for jobs. It's still a mediocre buy in many neighborhoods, but there is also tremendous growth in and near downtown as a 10-year plan to renovate the inner city and a nearby river get more serious this year. City management has smartened up and realized that it has to attract money back to the inner city, so you'll soon see $500,000 condos all over the place.
Will it work? Who knows, but at least Dallas is aware of its stagnation and is attempting to do something about it. However, before you hop a plane to check it out, there isn't a mountain or an ocean in sight, so if geographical attractions are important to you, then Dallas will be a disappointment. Even the lakes are man-made, but the area also has more golf courses per capita than either of the coasts, and the weather is jacket-light or better most of the year.
Those are the kinds of things you'll need to know. Why is a city growing and in which pockets? Think about the total experience that will make you happy and you'll make the right move. And, the money will come.
Blanche is a renowned author of five real estate books. Her newest, Bubbles, Booms and Busts: Make Money In Any Real Estate Market, McGraw-Hill, was rave-reviewed by The New York Times. She was also selected from hundreds of real estate experts to contribute to Donald Trump's book, Trump: The Best Real Estate Advice I Ever Received: 100 Top Experts Share Their Strategies, Rutledge Hill Press, and is featured on page 68.
