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Pastimes : Clown-Free Zone... sorry, no clowns allowed
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To: TobagoJack who wrote (161357)4/22/2002 11:52:44 AM
From: Mike M2  Read Replies (1) of 436258
 
Jay, my friend is discouraged with the real estate bubble in the greater New York City area. I told him that he must keep in mind that the monthly rental income that a commercial or rental property could generate places a limit ( within a range) as to how inflated such property can become in most cases ( Japan- was a BIG exception) since most purchases are on credit and the debt needs to be serviced and overhead needs to be paid. For a 3 family rental property in my area a market value of 100 times monthly rental income is in the range ( 90 -110) beyond that the numbers are harder to justify the investment although I recall 140 X in the late 80s . These are my observations in the state of Connecticut. Taxes always seem to climb faster than inflation. The costs of ownership keep real estate prices somewhat more reality based than stock prices lets say 7-10 times annual rental for a 3 family in my area. We have seen DOT.CON and tech bubble stocks hit 10s to 100s of times sales with no dividend income - it is easier to sell an open ended fantasy with stocks since their are no costs of ownership other than the initial purchases . I made the point that even though you can attain greater leverage with real estate it is easier to create more illusionary bubble wealth in the stock market. You can sell a rental property for 8 X annual rents ( sales) try selling for 50 X sales! but a DOT. CON or FiberCON stocks can be sold for such absurd multiples. I went through this discussion to illustrate financial markets can generate a greater wealth effect than RE. mike
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