Property Grunt

Tuesday, March 01, 2005

Seems like old times or Can we say bubble?

Reading this article reminds me of the dotcom boom when everything with .com at the end of it was burning up the stock market.

"It is much better than the stock market," Mr. Lidsky said. "This is an extraordinary, phenomenally good result."

What Mr Lidsky is discussing is the time honored tradition of flipping a property. Which is simply buying a property and finding another buyer to purchase it from you.

But this concerns me.

"Americans are treating real estate as a viable alternative to stocks and bonds," said David Lereah, chief economist at the Realtors association. And some are buying at least two properties at a time.

Like the day traders of the 1990's dot-com boom, people are investing in a market that seems to just go up. Promoters use Web sites to attract investors, promising quick profits. One site,, is run by a pair of investors who offer online training for $197. On their home page, they say people can earn over $100,000 in six months investing in unbuilt real estate.

I know I am going to sound like debbie downer but this is a very risky way to invest in real estate. There are many differences between real estate and the stock market. One key difference is the liquidity factor. If you own shares in a company that sells muffin stumps and you hear that next year that muffin stumps are not going to be as popular you can simply press a button on your computer and dump the stock.

However if you have just bought a condo that is in the stages of being built and you find out the land the condo is being built was the former home to a large meth lab and the waste from the lab has polluted the ground and requires a bio hazard team to clean it up you will have a harder time to sell the condo. Usually it takes time to find a qualified buyer and when you do it takes at 3-5 months to close deal depending on the parties involved. And the deal can fall apart at anytime. Worst case scenario you are stuck with a property that no one wants and you are left losing money on it.

Many homeowners are tapping the paper wealth in their own homes to buy more real estate. Mark Purnell, who manages internal technology for a software company in Southern California, said the four-bedroom house he bought eight years ago in Rancho Santa Margarita, south of Los Angeles, had quadrupled in value to $800,000. Last year he took out a $150,000 home equity loan and, with his brother, bought three houses in Phoenix.

This is really bad idea. Because this manner of investing is putting your own personal property in danger.

Hey, let's be careful out there.

-Sargeant Phil Esterhaus