Real Estate Investing

There’s a new movie about to hit titled “2012.”  It’s about the doomsday of Earth on December 21, 2012 - as predicted by The Mesoamerican Long Count Calendar (according to Wikipedia):

The Long Count sets its “time zero” at a point in the past marking the end of the previous world and the beginning of the current one, which corresponds to either 11 or 13 August 3114 BC in the Gregorian calendar, depending on the formula used.

Others  believe that there will be a shift in our global consciousness.  What I’m hoping is for a shift from a shaky housing market to one that can stand on its own legs (NOT sealegs!).

Business Week just published an article called “What Will Your Home Be Worth in 2012?”

… we weighed historical data against current trends to get a bead on which way the markets might jump at one-year increments. By combining data, we were able to get a pretty good idea of what home prices would be in three years’ time. Across the board, real estate prices will continue to drop before rising slightly by the fourth quarter of 2011. Why is that important? Given the wretched state of the real estate market today, both homeowners and potential buyers might be better able to make an informed decision about when, and whether, they should move or stay put.

It looks like in my own area, the value will be 1.4 percent less than it is now, but nationwide the projected value increases by 1.7 percent.  I would suggest that it’s time to move, but clearly that wouldn’t be a good decision! O.o

Check out the data in your area here.

For a link to the upcoming movie titled 2012, go here (where I pulled the image for this post).

I’ve been extremely fortunate lately to tour homes that have been nicely staged, cleaned, and smell fresh.  Well except for one that I’d rank high on the gross-ometer thanks to the weird smell and dirty bathrooms and complete lack of landscaping.  That said, I’ve walked through PLENTY of homes that I should’ve RUN through…. most notably those where pets have full use of the house as a “facility” or the ones where sellers don’t vacate the home but choose that time to bathe.

Agent Clint Miller from Missoula, Montana shares his list that names The Sins of a Seller.  I laugh instead of crying.

“I collect them” – No kidding, really???  Nothing would have made me realize you collect dolls were it not for the fact that Im now suddenly very aware of the fact that 226 eyes are now following me through your house like Chucky with an ax to grind.  Yeah, I couldn’t tell that you collect Vegas casino ash trays since they are on every flat surface in your entire house including 4 separate 6-ft tall bookshelves, your coffee table, the top of your TV, the end-tables,  and the extra two shelves that you put up encircling the entire living room.  But, worse than that, you have them on your toilet tank, your dresser…and in an amazing twist, you have drilled holes in them and replaced half of the doorknobs in your house with them.  In case your agent hasn’t told you this….PACK THIS CRAP UP!

Clint’s whole post is right on the money.

Photo by Sharkey in Colo via Flickr Creative Commons.

For the longest time, I didn’t get that.  But the brutality of the housing market these last two years should be enough for home owners to have that realization sink in.  Unless you’re an investor who buys, flips, rents homes for a living … when you buy a house, do so as a home not an investment.

“But Kathy!” you might argue “when we find the place to live, shouldn’t we be looking at resale value?”

Yes, BUT that shouldn’t be your only factor.  Because resale value may or may not hold up in one year, five years, ten years.  The neighborhood may go downhill, the economy may boom or bust, the world may end.  You can’t predict what the future will hold.  You can make your educated decision to buy based on the pattern of the past and what’s happening in the present, but don’t bank on the future.

Buy based on where you will be happiest raising your children, watering your flowers, taking your dog for a walk, letting your cat sharpen her claws on the privacy fence, where the kitchen is biggest for Thanksgiving meals, where you feel safe.  Your house is not an investment.  It is a home.

But enough of the squishy talk.  Let’s look at it in black and white numbers.  Generation X Finance gets low down and dirty on what a house actually costs you - when you buy AND when you sell.

All said and done, when you factor in the down payment plus 10 years worth of mortgage payments, you’ve invested over $146,000 into your home. When you subtract the outstanding mortgage balance with the sale proceeds you’re left with just a $22,684 return. That comes out to only a 15.5% cumulative return over 10 years, or just a percent or two average annual return on your total investment. And you thought savings account and CD rates were bad… Here you just had your home increase in value by 50% in ten years that only nets you a 15.5% real return.

This may be disturbing to people, but it’s reality.  If after you sell your home you DO make a profit, then fantastic!  Just don’t be lulled into thinking that you will automatically make money when you sell.  Go into home ownership for the right reasons - shelter and enjoyment.

Photo by ellie via Flickr Creative Commons.