Speculative Real Estate is "Risky Business"

WASHINGTON (March 17, 2005) – Recent media stories on investment real estate have implied that speculative home buying is widespread, and quote a recent study by the National Association of Realtors® on second homes that showed 23 percent of homes sold in 2004 were purchased by investors.

However, if speculative buying is defined as reselling within a short time span, survey data doesn’t support that premise. One of the surveys used in the NAR study shows that only 3 percent of all homebuyers sell their home in a year or less.

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What comments do seasoned investors have on this article?

I thought it was good food for thought ???

Happy Investing!

Personally I have noticed that most of the NEWBIES that I talk to are interested in real estate because they “can’t go wrong” they tell me. They think that even if they have a negative cash flow for a year, they will be able to recoup their losses at the end of the year by selling - they are banking on the appreciation. While this is a legitimate strategy if planned correctly, these people do not understand that counting on appreciation is a glorified form of gambling.

If you are just getting into real estate, don’t be silly - buy a house with enough equity in it to flip it quickly or one that cashflows well. Don’t buy something with 5% down on a 1 year ARM that cashflows negatively and think you’re going to sell it in 1 year for a hefty profit because you’re in a “HOT MARKET” that has high appreciation - chances are you’re in an overinflated market and there’s a good chance you’ll lose your shorts if the market cools off. Again, gambling is not the route I would recommend in real estate.