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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: Tradelite who wrote (1338)	1/13/2002 12:38:29 PM
From: JoanP	Respond to of 306849

<High transaction costs are precisely why I keep saying, over and over, that real estate is not a short-term investment.> SmartMoney's Jersey Gilbert says most people think of their home as a blue-chip growth investment. The truth is, it's more like the most expensive mutual fund you can imagine. Not only does it have a front load consisting of closing costs, moving expenses and other charges, but it exacts high management expenses each year in the form of maintenance and property taxes. Then, on top of all that, most people get charged a 6% back-end load for the broker's fee when they sell. Compared with the average share prices or even bond returns, house prices plod upward at a very slow rate; since 1979, about 4.4 percent per year. If you can't do better than that in the stock market, you need to fire your broker. Hot markets perform better, right? If you have a very high appreciation rate, the leverage factor really does kick in, but you can't make the case for investing your retirement savings in a house by cherry-picking only the best markets. One, most of us don't have the option of living in hot markets. For another, they seldom stay hot for more than a decade at a time. The tech wreck is already killing housing prices in the Bay area. The fact is, when it comes to outsize returns, equities win walking away. Once you stop looking at your house as an investment, it's easy to see the real advantages of homeowning. On the case cited above ($250,000 house held for seven years with 6% appreciation), could you have rented the same living space for what amounts to a little more than $350.00 per month. We doubt it. In other words, you should treat your house as an expense - one that will pay you a rebate when you're done with it. A home is your "best investment" only metaphorically - if it helps you achieve a more comfortable life. If you do it right, you house purchase will free up much more of your income, now and in the future, to fund some truly outstanding investments.