Why Real Estate Is A Good Investment

by Nicole Weston (RSS feed) Jan 9th 2007 at 2:02PM

There are entire books written on the subject of what makes real estate a good investment, so we won't go into that here. Instead, we will simply give you an example of exactly how good it can be.

Seven years ago, 10 large, but run-down and abandoned, homes on Hampstead Road, North Benwell, Newcastle were put on the market for 50p. The area was a bit on the unsavory side (to say the least) at the time, but with a deal sweetened by a £26,000 grant, young families were moved in in no time at all. Today, the homes are all valued at over £145,000 ($280,000) - a 290,000% increase! With three stories, large and spacious rooms and up to five bedrooms per unit, it only seems like the value in the properties will be going up for the families who are staying, but you have to admit that those who are selling up now have done pretty well!

Tags: britain, england, investment, price, prices, real estate, RealEstate

Filed under: Estates

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rip Jan 9th 2007 3:16PM

not a bad return, but misleading. Depending on the condition, I'm guessing $50-100k was spent on renovations per unit. That makes it a much smaller return, although still good.

But compared to stocks, it's not even close. There are plenty of stocks that would have given you a 200%+ return over the past 7 years. Just off the top of my head: Apple- 1000% over the past 7 years. Other stocks: NTAP, IPR, BRK, GOOG the list goes on and on.

Point is, stocks greatly outperform real estate. It's not even close.

Rune Jan 9th 2007 7:24PM

Stocks, individually, can outperform real estate. However, real estate is safer, and has a more consistent positive return rate. Stocks and real estate can fluctuate, but you are almost certain to have a profit, if you buy a undervalued property, spend a modest amount to fix it, then flip it. In stocks, that guarantee can not be made.

diva13 Jan 10th 2007 1:27AM

as a Realtor in the Boston area, I have to quote Scarlett OHara & Her father in Gone With The Wind..."Land is the only thing that lasts...worth fighting for".

Go forth and invest, buy your first home, buy a vacation home...now is the time!!!

mmr Jan 10th 2007 9:22AM

Yeah it was a good investment for those guys that got their land for 50p. But back in reality where your chance of getting land for 50p ($1.00 in the US) is non-existent you cant exactly use that info to proclaim to the masses that real estate is a good investment.

That said, real estate is a good investment if you buy the right property/apartment. As a Manhattan RE broker I can say that you can buy a cheap apartment in a great building and see minor returns if the apartment sucks in comparison.

The best way to make a 'fast' buck in Manhattan is to buy preconstruction that is over a year or two out from being built. Not only do you get a tax ride, but people will pay more to be able to actually see a unit and not just choose it from a floorplan. Almost all new developments increase in value from the time you put a down payment on it to when it closes. 15 Central Park West has already seen 100% increases on the apartment prices and it STILL isn't built.

Real Estate Investor Jan 10th 2007 12:58PM

I concur with Boston Realtor

Go forth and buy now, when others are madly selling

If you're looking for a great opportunity to get started or are an investor, I WILL PAY YOU $10,000 if you can find a better opportunity than this one in Tampa:

http://www.real-estate-investment-alliance.com/

Bob Schwartz Jan 10th 2007 1:40PM

Keep in mind...........

Times and markets are changing!

In California with average homes selling well over $500,000, a 20% decline is $100,000! In any market 'timing is everything'! So, could you afford a loss of 25% of your investment all because of poor timing???

This last up cycle was 10 years in many parts of the country. The downcycle now started in CA, Wash DC, NYC, Vegas and other hot areas of the past are all soft and getting softer.

From 1990 to 1996, the average home in San Diego lost 20% of its' value! The cycle we are now enterng looks like it could well exceed that on the downside!

With all the 100% financing, interest only loans, EZ qualifing etc...even a slight decline will cause many to be unable to sell for the amount due on their loans!

For some great 'insider' articles on the San Diego real estate market, which I beli
eve will apply to any of the hot real estate markets of the past five years.....visit:

http://www.brokerforyou.com/brokerforyou

http://www.downtown-san-diego-real-estate.com/san-diego-real-estate-article-index.htm

http://www.brokerforyou.com

rip Jan 10th 2007 3:57PM

re: rune...

Your generally incorrect. The historical average returns for real estate vs. stocks proves you wrong. Over the past 100 years or so, the stock market has outperformed the real estate market. Stocks have about double the rate of return.

This is not open to debate.

FYI, there have been plenty of boom cycles in real estate, where returns are in the double digits. However, historically, real estate rate of return is around 4%. And I don't know where your getting your "more consistent" return rate for real estate. California real estate skyrocketed in the 80's then collapsed in the 90's (as in down 50%), taking 10 years just to get back to previous levels. It took some people 10-15 years just to show a positive return on their investment.

And I'm not sure I know what you mean by individual stocks... All you have to do is simply buy a S&P 500 index fund and forget about it for 20 years. At the end, it'll be worth more than if you invested the same amount in real estate.

However, it does stand to reason based on the basic rule governing all investments: risk=return. Stocks are gernerally higher risk than real estate. That is assuming you have a traditional mortgage with actual equity in the property.

Conversely, stocks are far more liquid. I can convert a stock holding to cash in the time it takes me to say "convert the stock to cash." Good luck doing that with a house.

beanspants1 Jan 10th 2007 10:33PM

i work with a guy who has 22 properties in the DFW metroplex. our job is not in the real estate industry. that tells you all you need to know about how much you can make flipping houses.

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