naples

Upside to Falling Prices: Housing Affordabilty Index Reaches 4-Year High

the only way to ensure you don't get hosed in RE is do buy such that the owner's equivalent rent per month (tax adjusted) is below market rent.

for weighted avg cost of capital (7% debt at 80% of purchase price vs 15% cost of equity at 20% of purchase price) -- or me i use 8% for debt got give me what i think is normalized interest rate. the WACC is 8.6%. so calculate the tax adjusted (you have to adjust also for the std exemptions on federal taxes) cost of capital, property tax, insurance, and maintenance per month. if this is lower than a conservative market rent for the house or condo then you are guaranteed to make money in RE over time.

this doesn't mean idiots wont bid the mkt up BUT i have seen time and time again, the mkt trade below mkt rent providing tremendous oppty for home buyers -- investors and homeowners. It WILL happen. RE is long cycle so anyone who thinks the mkt will rebound like a "V" is an idiot. also, we have seen this countless times. Home prices bottom after starts (4-5 yrs after top) and stays down for another 3-5 yrs before income and inflation pushes prices higher.

if you use the method i outlined above, you will be guarantee yourself a profit (assuming there isnt problems with house or changes in the neighborhood). the other methods of using affordability index or mkt comps exposes yourself to abnormal conditions.

i can tell you that pretty much the coastal regions have a ways to go down. West coast has so much pain left, its ridiculous -- as well as FL. I have heard even ridiculous defense on why someone should pay more to own than to rent, its all a lie to protect their own interests. I've been thru a few cycles and they are all similar. we have not even gotten to a tighten credit environment -- we just went from very loose credit to nornal credit (20% down good fico scores). when we get to tighten, banks wont lend for simple condos unless you put 30% down and require owner occupancy at 70-80%. when i bought investment condos in NYC when this happened (1992), i made a fortune. i bought outer borough condos for 25-30K and its now valued at 300-400K. i dont sell because they are now yielding over 30% pre tax. so BE PATIENT and you will be REWARDED!!!