Real Estate Investing or Stock Market Investing – Have A Plan
Whether investing in real estate or the stock market, one should not ignore losses because of an irrational belief in the mantra “I’m investing for the long term.”
Smart investors always set stop loss points to limit their downside risk. Yet, many neophyte investors, believing the majority of ‘feel good’ financial commentators, convince themselves that huge declines are past history and unlikely to occur during their investment term. These investors take comfort in the often repeated phrases such as “in the long run it will be ok,” “in time things will work out,” “you must think long term,” etc.
What were many San Diego real estate agents saying in 2006? What a great opportunity to buy, this is just a return to a normal market,” take advantage of today’s prices, look how much you are saving over what this home would have cost you just a year ago!
No one wants to be labeled negative. However, looking through rose colored glasses could, and has, cost many to lose 30% to 50% of their stock and real estate portfolios.
Look at the six month chart above. For the one month period from 5-19-08 to 6-19-08 the Dow lost approximately 1,000 points. What were the local and national media types advising then? Probably something very similar to what the real estate agents were saying in 2006.
Personally, I feel the buy and hold mentality of the past is antiquated. Here in San Diego, many prepare for the eventual large earthquake. We hope it will never happen, but just in case we have extra supplies on hand. Setting a rigid stop-loss point when first going in an investment is the key to avoiding a financial earthquake. I’d much rather take a loss that I can live with, compared to having my investment cut in half.
Am I too negative . . . or just realistic?
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This was a good post; I am not sure if I have anything positive to say. First off, growth in home prices over the past few years was unnatural too. There were things in the mix that caused the free market system not to work, or maybe better said, “balloon.” There was government trying to create more tax revenue by relaxing monetary guidelines, the fed was keeping interest rates low on an artificial basis and then there were the promoters- Realtors, Mortgage companies, builders and the media to name a few, who pushed the notion that you could get a home for free. The risk reward portion of the equation was taken out. Now we face an industry that is broken and may not recover for quite awhile.
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I look for the recovery to start right after the election. Why? Hope. We need hope as a nation. From there, give it about a year to win back the confidence needed. The economy is all about confidence.
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With the dollar strengthening, I see this as a good sign. It may help interest rates to subside a bit. BUT, we have so far to go to get back to anything like a normal market.
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I do see a slight decrease in inventory and an increase in sales over 90 days but I’m not buying it yet…it’s too early to see if the cycle continues.
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Recovery will start after the election. I do believe that you cannot expect rapid growth for a number of years, however normal growth on a smaller scale is very doable. I believe it will vary from region to region and even from neighborhood to neighborhood in many instances in large cities as this really is a local business.
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Most very well qualified buyers were unfairly priced out of the market due to abnormal home prices, inflated demand for most sub-par properties, and predatory lending practices didn’t help either. It’s time for us to go back to the basics. It’s only fair that hard working Americans have a fair shot at the American dream. Need I mention that the Iraq and Afghanistan wars aren’t helping either?
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The issue at the core of the recovery is how long it will take to get the number of qualified buyers back. We have lost many homebuyers. All the people in foreclosure can’t buy for at least 3 years because of bank guidelines. Then they will have to save the money too. Plus we have taken some investors out of the market. At what point will new home buyers equal the old foreclosed people is the answer to when the market will come back. My guess is 3 to 5 years.
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It’s a great time to buy rental properties. The pool of renters keeps getting bigger and bigger.
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We have seen several deals fall apart because the appraisal couldn’t find enough deals within a certain window and within a limited area!
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