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Strategies & Market Trends : The Residential Real Estate Crash Index
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To: Elroy Jetson who wrote (31280)5/15/2005 5:16:19 PM
From: Drygulch DanRead Replies (2) of 306849
 
Very revealing post Elroy.

"keep only as many properties as we can without debt"

This philosophy was the cornerstone of my family's (on my mother's side) RE ambitions for the last several generations.

My maternal great-grandparents arrived in San Francisco separately, met and married. Great-grandfather Carlos Solari came from a cattle farming region in the Southern Swiss Alps. After failed attempts at striking it rich in the Virginia City silver rush and cheese making in Monterey, he ended up milk farming in the hills above old San Francisco. Eventually he shifted to rental RE. Later his wife built an estate that lasted close to 100 years. As administrator and executor to a couple of estates, I oversaw the dismantling of the last pieces of that earlier estate just in the last couple of years.

A duplex I sold in December 2003 came into the family estate sometime before 1914 (the year my mother was born). Her mother acquired it from my great-grandmother exactly 6 months after mom's birth. The courthouse records show the transaction was for a $20 dollar gold piece. ie the true value of the transaction was concealed from the tax revenuers. Tax avoidance was clearly an issue back in 1914 as well as today, evidently.

Using an estimated value of $1000 back in 1890 for that property, its average annual increase over that 115 year period was approx 6.25% without factoring out inflation. I also recently sold my mother's home in Menlo Park which our parents built in 1941. 62 years later, when we sold it, that average annual increase was approx 9.11%. So long term RE appreciation here in northern CA seems reasonably bounded by these rates.

In looking at properties that I have an interest in, I see appreciation rates ranging from 5.5% to 16.7%. These properties have been owned for 20 years or less so there could well be significant fluctuations in these during the years ahead.

One of the keys for keeping properties 100 years or more is to have no leverage. There was no way this family could have sustained it through the Great Depression period with the estate properties intact had there been any debt. If a residential RE crash lies ahead in the next few years I hope and think I am prepared to survive it pretty much unaffected. Basically as a young man I studied my great-grandmother's model and then tried to emulate it.

Emulation seems to have worked, as I sit here in our free and clear condo in sunny Hawaii enjoying the residual of that duplex acquired so long ago. Now so long as Mauna Loa doesn't pull a Mt. Saint Helens we should be just fine.<g>
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