Hacker News Reader

Comment by beerandt | Hacker News Reader

My personal rule: if it actually hits the market (ie gets listed on a mls or the seller has already signed a realtor) then 99.9% chance you're already beyond the point of getting a good deal. That is, a good enough deal to purchase strictly as an investment.

View on HN

>My personal rule: if it actually hits the market (ie gets listed on a mls or the seller has already signed a realtor) then 99.9% chance you're already beyond the point of getting a good deal.

So basically you have to be one of those companies that put out "cash for your house" ads?

Or you buy distressed properties.

A friend of mine invests directly in tax liens, and develops very good relationships with the people who were underwater. He usually works out an agreement with the homeowner to buy the house (lump sums are very valuable to these people) and rents it out to them for life, at a rate they can afford.

Sometimes, the people take the lump sum and run (and he gets the property). In other circumstances, he has a super loyal renter-for-life.

I might have gotten some subtle parts wrong, it's been a year since he last explained it to me. Obviously it's not for everybody, you really have to be a people person with a lot of empathy. :)

Curious what you mean when you say strictly as an investment? In my worldview, if you are purchasing real estate as an investment, it means it generates income, meaning you plan to rent it out.

You could just keep it and sell it in the future without renting it out. Or you could flip it I guess.

I call this speculation. In most real estate markets, a normal house is a depreciating asset that requires upkeep, maintenance, property taxes, and other liabilities.

No, not really. It's very rare for a house to depreciate, even if no repairs are being done. Moreover, property taxes are almost always going to be lower than the rise in price of the property.

And speculation and investing are the same thing, except the former is often used in a pejorative way.

Real estate is the highest-leverage purchase most people can make, so even if you're living in it and plan to sell in the near-ish future, a 5% appreciation will yield you more net cash than a 5% appreciation on the same amount of down payment put into a "regular" investment. The obviously-oversimplified example is something like: put 20K down, buy a 100K place. Sell for 105K, your 20K is now 25K, assuming your mortgage payments were the same as what you would've paid for rent otherwise. Which is a 25% return on your 20K, even on just 5% appreciation.

Except transaction costs are a thing (e.g. the closing costs for the purchase, and the commissions on the sale), and often eat up a lot of the gains.

Or in parent's example, more than all of the gains.

Or develop it. Or combine or subdivide parcels. Or as an alternative/hedge store of wealth.

Or even if you plan on living in it, if you want to make money when it comes time to sell, and not just break even, after accounting for total cost of ownership.

Most people who think they sell their house for a modest profit are wrong.

This is only true in places where investment capital has taken over the market, not in places where individuals are scraping together funds to buy in an economically growing neighborhood.

I meant more along the lines that people don't take into account all the costs that they should when calculating their break-even price.

This is generally true regardless of the location, with the caveat that hot markets are more likely to have more professionals participating that know how to include those costs.

Often people see those higher prices as greedy profit (or as artificially high in order to gentrify, etc.), and developers do need to make a profit, but often times a large part of the elevated price is just including hidden costs that homeowners don't account for.

But looking at it from the other side, developers/investors are only going to enter markets where they believe there's a margin for profit. Which generally means those neighborhoods are a bit underpriced to begin with.

That reminds me of the story of the economist and the $20 bill.

Reply on news.ycombinator.com