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Friday, October 29, 2010

Time to Buy Real Estate?

Just reading CNN and came upon this article. Australians are buying US rental properties in depressed markets as investments. Places include the usual suspects: in addition to Tennessee, which is featured, we have Florida and Arizona.

Could this mean that if you have cash (as the Australians seem to), the best thing would be to buy another house in addition to your underwater home bought during the bubble?

My mother's Florida condo, bought 16 years ago for the price of a Long Island ranch home, is now worth less than the initial cost, while the Long Island home, I'm sure, is worth much more, in spite of the bubble.

Somewhat facetiously, one could call this dollar cost averaging with real estate. The only problem, of course, besides the risk of any real estate investment, is that you need wads of cash. Which Australians do, evidently.

Is this a mad idea? Would you buy rental property in depressed markets if you had some cash?

8 comments:

vilkri said...

According to The Economist, the Australian real estate market is the most overpriced in the world at 63.2% (based on long-run averages of price-to-rent ratios). US real estate - 4.6% overpriced on Case-Schiller indesx - looks cheap to them. Beside, the Aussie Dollar is high because of the healthy income Australia gets from its natural resources. Hence, US housing AND the US Dollar look cheap to them.

Frugal Scholar said...

@vilkri--So not good investments for Americans? Thanks for explaining.

Northmoon said...

Unless it was a vacation property, that I wanted to use no I wouldn't buy a second house. In the terrible job market in the US finding a renter could be a problem. Then you are stuck paying upkeep, taxes etc yourself. Plus depending on the neighborhood a vacent house is an invitation for squaters and vandalism. How can you look after your investment from another country?

It might look cheap, but a house is not the same as a bond that you can put in a safety deposit box.

JacqJolie said...

FS, there`s loads of Canadians buying US property too - and not all of us are renting them out. I`ve thought out buying a condo myself. If I could find one on a ski hill that was a decent price I`d do it in a heartbeat.

Duchesse said...

I'm with Northmoon, only vacation rentals or a place you could run as a seasonal b&b. But a vacation property in a desirable area is not fire-sale priced.

You can look after a vacation rental in another country- property management companies will do that- but if buying a condo you have to check for bylaws re time periods- some can only be rented for a full seasons.

Frugal Scholar said...

@Northmoon--A voice of reason! I think the Australians may hire property managers. I wish I knew where I might end up in retirement.

@Jacqjolie--Welcome and thanks for commenting. I am surprised you don't want something in Florida for the winter--many, many Canadians there. I bet Vermont ski houses are available. Of course, finding one could be time-consuming.

@Duchesse--Some of the Australians were buying small rental houses. Another voice of reason.

Funny about Money said...

Arizona's awash in Canadians buying devalued real estate just now.

The same happened during the savings and loan fiasco, which like the current recession hit Arizona hard. People defaulted right and left, so many S&L's went down I don't think any are even left here today. HUD became one of the major real estate agencies...as it were.

At that time I got my house for $30,000 under market because it was in an estate and the heirs couldn't get rid of it at the price they'd set, which was not out of reason.

Last time Canadians became absentee landlords en masse, it wasn't good for Arizona. They'd buy up the property, rent it out to all comers, and then just ignore it. Homes in nice neighborhoods ran down, and so middle-class areas got tackier and tackier. When the money came back, of course middle-class homeowners sold in droves to get away from the run-down rentals and the noisy, often undesirable renters, and they all sprawled out to the 'burbs. There they bought new houses in HOAs, which they hoped would keep that kind of depreciation under control.

Little did they know, alas, that a major recession (dare we say "depression"?) would drive the HOAs out of business and turn their shiny new gated communities into instant slums. {sigh}

Frugal Scholar said...

@Funny--There's a teeny part of me that would like to buy a rental house....if I knew where.