Real estate investment turning into a trend
As stock market tanks, some are putting money into homes, property
By TANYA FOGG YOUNG
Staff Writer
Irmo residents Sam and Sandy McGuckin believe there's no place like home as an investment.
They've moved most of their money out of the stock market and into real estate, buying 20 houses during the past eight years that they've sold or rented in Columbia and Charleston.
While the stock market is tanking, the McGuckins say they've seen as much as a 24 percent-a-year return on their investments, which now number seven rental properties in Columbia.
"Real estate has a built-in inflation hedge," said Sam McGuckin, 43, who has worked 18 years for Computer Sciences Corp. "You buy a house, rent it out, and somebody else pays for it. It's a great way to invest."
Real estate agents say as the stock market is falling, they're seeing more people who want to buy property as an investment. And homeowners are putting money into their homes - through renovating, refinancing or paying off mortgages early - instead of putting money in the stock market.
"The stock market is in the doldrums, but new home construction and existing home sales remain strong," said Jim Peters, chief executive officer of the S.C. Association of Realtors.
"People are still buying stocks, but diversifying their portfolio with a solid piece of real estate, brick and mortar."
Statewide sales of existing homes rose 12 percent in May - the most recent figures available - from the same time a year ago, according to the state Realtors' association.
Columbia resident Brooks Sandifer, who sells cabinetry for a living, is counting on the house he's renovating in Earlewood to appreciate and yield him a return on his investment.
He is renovating a nearly 40-year-old house of about 1,500 square feet on Columbia Avenue. He figures the renovation would cost about $30,000 if he contracted the project out.
Sandifer is counting on selling the $90,000 house he bought last December for $85 to $100 per square foot - about $127,500 to $150,000 - once he has lived in it for at least two years.
"If you're in the right neighborhood, there would be some appreciation every year," he said. "If you do your homework and research and get in one of the desired areas, you can get up to about 7 percent a year."
Peters of the state Realtors association said homes statewide have averaged an annual appreciation rate of about 5 percent over the past decade.
NO SURE BETS
But some people in the housing business caution investors looking to make a quick buck through real estate.
Bill Cauthen, a broker with Coldwell Banker Tom Jenkins Realty, said he doesn't advise his clients to buy individual properties for investment and bank on appreciation.
He suggests instead investing in other forms of real estate, such as Fannie Mae, a Washington, D.C.-based home mortgage giant, or a real estate investment trust.
Admitting his views probably put him in the minority in the local real estate community, Cauthen said it's risky to buy real property thinking its value will increase.
"Property values are inflated way beyond sustainable values," said Cauthen, a 20-year real estate veteran. "With interest rates and house payments so low, buyers don't care what the house price is, which is causing very gross and unwarranted increases in prices.
"When the bubble bursts - and it will - you'll still have a low payment, but you might not be able to sell it for the mortgage that's owed."
But that's not stopping some people looking to make money in real estate.
Steve Cowart, RE/MAX Real Estate Services' broker associate, said most would-be investors who have contacted him are looking for "lower-end" properties they can buy for $30,000 and sell for $50,000 or $60,000, although some are looking at the higher-end properties costing $150,000 to $200,000.
Cauthen said a relative who lives near Charlotte stands to benefit from the current "inflated" house values. The family member plans to put much of the six-figure profit from the anticipated sale of a 13,000-square-foot house into the depressed stock market, which Cauthen said was smart.
"The stock market is so low, it can only go up," he said. "But the housing market is so high, it can only go down."
Still, some like the McGuckins would rather take their chances with real estate than with the stock market in its current state. They have moved their capital out of the stock market and into their real estate portfolio, paying off older 8 percent mortgage loans.
"We have a 401(k), but that's about it," said Sandy McGuckin, 43. In June, she left a 16-year career with CSC to be a stay-at-home mom to 5-year-old son Chase.
"Real estate just seems a safer investment."
SWEAT EQUITY
The McGuckins are quick to say that investing in real estate - particularly being landlords - is not without its down side, even with the healthy return on investments they've seen.
They say, too, that the investment of time it takes to craft a successful "landlording" business model isn't worth it for just a couple of properties.
"Stocks never call you at home at night complaining about plumbing or the air conditioner," Sam McGuckin said. "You can't compare a 23 percent return on a rental to the stock market returns because one requires significantly more management than the other."
Not everybody has the skills - or the desire - to be a landlord. And not everyone has the money needed to buy another house to sell or rent.
So many homeowners are putting money into the houses they live in, by paying off their mortgages faster or upgrading their home.
The nation's largest home-improvement retailers - Home Depot, followed by Lowe's - have reported healthy increases in first-quarter profits. Home Depot saw a 35 percent jump in first-quarter profits; Lowe's saw a 53 percent jump.
Tony Thompson of Remodeling Services Unlimited said he has encountered many clients who are taking money they would have put in the stock market and are putting it into their homes instead.
He estimated his customers average $40,000 in home improvements.
"I've absolutely seen a huge increase - probably about 25 to 30 percent - in sales from this time last year," Thompson said. "And a lot of those are from people who have decided to stay put, improve what they have and not wait on the stock market."
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