Author Topic: Why do we assume real estate is an asset?  (Read 2609 times)

Two9A

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Why do we assume real estate is an asset?
« on: March 29, 2015, 04:25:08 PM »
So I live in an objectively crappy part of England, in a town which is engaged on a spiral of permanent decline. If I tell you that it's a hive of robbery, and has been in the news as a breeding ground for child abuse, you can probably work out where I live.

Whenever I read through FI resources, they assume that real estate is an asset which appreciates in value, and (barring any crashes like '08) will always be worth more next year. Around here, houses are like cars: depreciating "assets" that aren't worth the paper their deeds are written on. I own or have owned three properties in the town, and here are the figures:
  • Bought before the Crash for 90k, sold this year for 50k;
  • Bought just after the Crash for 110k, currently valued at 70k and falling;
  • Bought just after the Crash for 120k, currently valued at 80k and falling.
So I had two questions. Given my luck in real estate so far, should I just keep any future investments liquid in Vanguard and such like? Also, should there be some recognition more widely of the fact that real estate isn't always a good idea?

rmendpara

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Re: Why do we assume real estate is an asset?
« Reply #1 on: March 29, 2015, 04:34:26 PM »
No one thinks real estate is always a good idea. Few would suggest buying in high risk or unsafe neighborhoods except for the most highly skilled and risk loving investor.

Given your track record, either the whole real estate market is just slow, or you did a particularly horrible job of buying multiple times.

Are these properties at least occupied and with decent tenants... Considering the price range and your expectations going in?

arebelspy

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Re: Why do we assume real estate is an asset?
« Reply #2 on: March 29, 2015, 04:38:46 PM »
If you study economics, you'll see that land is valued for the income it can produce. It can't fall forever because it has intrinsic value.

Over a long enough time frame, it should appreciate with inflation, no more or less. On shorter and more local scales it can be higher or lower based on demand.

If you end in a hot area you might get significant appreciation. If you buy into a declining area, you may see significant depreciation, as you have.

It's worth understanding the underlying fundamentals and why things work the way they do, IMO.
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Two9A

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Re: Why do we assume real estate is an asset?
« Reply #3 on: March 29, 2015, 04:44:58 PM »
Given your track record, either the whole real estate market is just slow, or you did a particularly horrible job of buying multiple times.

Are these properties at least occupied and with decent tenants... Considering the price range and your expectations going in?
The market's generally slow outside London, but I did a terrible job of buying, that's true.

I also generally do terribly at tenancies: both of the properties I have left are undergoing renovations after significant damage caused by tenants who skipped out after a few months. I'm wary of renting them out again, as you can guess, so may just sell at a loss when the works are done.

Sibley

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Re: Why do we assume real estate is an asset?
« Reply #4 on: March 29, 2015, 04:52:11 PM »
If I know I'm really, really bad at something, I have 3 options, in this order:

1. Learn/practice to improve
2. Get help from someone who is good to make sure I don't screw up
3. Just avoid it because it's not going to be pretty.

Retire-Canada

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Re: Why do we assume real estate is an asset?
« Reply #5 on: March 29, 2015, 04:52:17 PM »
So I had two questions. Given my luck in real estate so far, should I just keep any future investments liquid in Vanguard and such like? Also, should there be some recognition more widely of the fact that real estate isn't always a good idea?

I'd say your 2nd question has already been answered with the 2008 crisis and so many homes underwater. There should be a pretty wide recognition that real estate has risks like any other investment.

The answer to your first question is up to you. You can invest in real estate via REITs if you like to get risk/location diversification. You can also skip real estate altogether.

-- Vik