Increasing Agreement That Buying Now Is A Smart Investment

Today’s WSJ both have interesting things to say about buying in today’s market.

In “California Home Sales Revive…” it points out something that’s not particularly new information:

Investors and first-time home buyers are snapping up foreclosed houses here, with the number of local sales up almost fivefold from this time last year. …. Across hard-hit California, sales volumes rose 65% in September compared with a year ago, said MDA DataQuick, a San Diego-based real-estate information service.

Deeper in the article, there’s a discussion about the safety of positive-cash flow real estate investments:

Where many see ruin, some sense opportunity. Michael Arpaia, an officer with the California Highway Patrol, just bought a foreclosed four-bedroom house — valued at $400,000 two years ago — for $160,000. He spent $25,000 to replace linoleum floors, carpeting and landscaping. He’s renting the house to a local couple who lost their home in foreclosure.

With stocks falling, Mr. Arpaia is counting on the property’s cash flow and appreciation to supplement his retirement nest egg. “My financial adviser says residential real estate is the safest investment right now,” he says.

I was struck by the use of the word “safe”. It resonates with me because I have been making similar arguments in regard to sales at our Manhattan Condominiums project. When you compare the rent that those units can fetch to the price you can buy them at, you can now buy units there at positive cash flow. This is true for many other pieces of real estate in Las Vegas, as well.

There isn’t much downside risk if you’re generating positive cash flow. Only if rents collapsed or you got a tenant-from-hell (think Michael Keaton in “Pacific Heights”) would you risk a problem, because even if housing prices continue to fall, you just hold on and collect your money each month.

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