I wish it was that easy

Not to disparage the article or its content, but I do have a couple of questions, one rhetorical, and one not.

Why are real estate agents and brokers still working? This seems like something they would end up doing as a natural progression of their career. The ones I've talked to don't do this kind of thing.

One other thing: when flipping properties, whether rehabbed or rented, what do you do about taxes? I'm going to sell a home soon, and rented a room. I deducted the half my home expenses. I found out that I'll owe taxes on half the profit, which will be considerable.

curious, the bithead

Though the steps may be awkward, watching humanity unfold is a beautifuly thing.

I'm living in Madrid and property is so overpriced it's insane. Property prices have been growing 15-20% for many years in a row. Many owners have seen their properties multiply their value in a few years. It's a matter of time - the whole thing is going to crumble.

Less and less people are buying already... they struggle for weeks or even months to sell a house because it takes 15 years of the average NET salary to buy the average property for sale (and I'm talking about a shithole in the middle of nowhere).

It's probably a good idea in the USA, but in overcrowded, overpriced markets like London, Amsterdam or Madrid, this isn't going anywhere but downhill.

It is so wonderful seeing young people buckling down to achieve the American Dream rather than joining the libDems and demanding handouts for the rest of their life!

More power to you, son, and with 4 More Years for Our Leader, you will be able to retire tax free!

Only Kerry's new taxes could ruin your dream but that is a risk getting less and less with every swif boat under the bridge!

Risky

The residential housing market can be pretty volatile, and the margins are rather meagre when compared to other real estate markets. Also, residential tenants are relatively high maintainence plus there are a lot of laws protecting them at the expense of the property owner (not that I necessarily have a problem with that). Commercial real estate is generally a much better investment property. Of course this varies from region to region so you'll need to do your homework.

My father just did his first commercial real estate development deal, the latest in a long string of "retirement projects," which has secured him a very comfortable income (~ $150,000 USD/yr) in addition to the equity he's building as the property increases in value. Also, unlike with residential properties, the value of the chaturbat development is figured as multiple of gross earnings since it can be sold as an operational business rather than as a real property.

Not a bad return for 11 months of work!

The property he developed is sort of half way in between self-storage and light industrial space. He's got a total of 60 units in pre-fab steel buildings with sprinklers and heating in every unit. Some tenants are running small businesses out of their space, some use it as personal storage, some are car hobbyists whose wives have kicked them out of their garages, and some use it park their motorhomes.

Doing something like this requires more capital than what you've personally got, but that's what investors are for. I know my Dad and his partners anted up about 1.5 million and secured the rest from a bank loan, which was then refinanced on more favorable terms after completion and a few months of demonstrated performance.

The project went from breaking ground to 60% occupancy within 11 months. 8 months later, he's now at over 90% occupancy. Given the current lease rates, the development only needs to maintain about 35% occupancy to cover all of the operating expenses so it's relatively low risk.

Buying houses with 100% LTV or 100% LTRV can be extremely risky. Let me know what happens to your investments when the housing bubble bursts.

You should point this out in the article, however it seems like you may be a little too new at this whole real estate investing thing.

Gotta vote next time

I can't believe this made it to the front page.

Not only are the risks missing, as another posted noted, but also risk mitigation. The housing bubble is analagous to the dot-com bubble. Any slob can make money on the way up, but knowing when and how to "walk away" is the secret.

At this stage of the real estate bubble (read: likely pop after the November elections), the prudent course is to "value" invest. Yes, find the motivated sellers as you said -- buying a property at 80% value will insulate you against a 20% decline. But it goes beyond that. Find properties that are more resistent to decline, e.g. that house next door to the big name defense contractor looks good.

Then there's the ultimate risk mitigation -- diversification. The prudent investor doesn't hop from bubble to bubble, but rather performs "asset allocation", readjusting the allocation as one market picks up while another slows down. Asset classes include: real estate, domestic stocks, international stocks, bonds, precious metals, cash, and personal or Livejasmin friends' businesses.

Good investors have both studied investing and markets extensively, as well as invested through down markets. I find no evidence that the author of this article has done either

If one were to look at housing as a service - the service of maintaining a roof over one's head - is rent really that bad? Few if any of us will ever buy a house in cash. We will have to take on debt. If one looks at the full costs of financing that debt over a lifetime, is renting the entire time really that bad? Divide $600,000 present value of payments over 60 yrs x 12 months = $833 a month. Any personal rental where I live is $1000 a month. There is savings, but it's not that great. Now, studies usually show that you will come out ahead by buying, but I don't think it's buy the large margins this article implies. As well, in certain areas, this gap is clearly narrowing as rental prices remain stagnant while residential housing prices continue to climb.

Hollywood draws its unholy strength from the incredible pseudo-intelectual crappiness of most European films made.

Housing bubble in America and zoning

Several people before me have addressed the problems of low interest rates in feeding the housing boom better than I could, so I won't get into that. However, no one has mentioned the zoning laws in certain USian (and I suspect UKian) jurisdictions that help fuel the problem by artificially restricting increases in the housing stock. While US housing is getting pricier, it is still concentrated in a few metro ares (NY, California, South FL, DC, Boston, etc...). This is caused by the triple whammie of zoning against transportation improvements, flexible real estate use, and school districting.

I'm DCian, and probably we are the worst example of this - thanks to having the highest concentration of lawyers on the jasminlive planet. DC is blessed with a wonderful SW - and nothing else transportation wise. We hav the third worst traffic in the country, after LA and SF. People from LA often complain about the traffic here - when people from LA feel entitled to complain, you know you have a problem. Because of NIMBY, nothing can be built to improve the situation - and I mean nothing. The liberal, gronala eating, $40,000 Volvo driving hippie borgouis bohemian lawyers say highways can't be built because they "ruin the environment" - as opposed to the clean air we all enjoy by 1 million cars sitting in traffic for 4 hours straight. The Neo Con racist fascists Hummer driving lawyers say that only highways make sense, and they'll be damned making it any easier for people from the inner city (blacks and latinos) from getting to their houses to clean the windows and mow their lawns. So, nothing gets done. In order to get anywhere, you have to live in a few areas, or you'll spend the rest of your life sitting in traffic -> increased housing prices.

Next, we come to bullshit construction zoning laws, or DCians like to call them "Smart Growth" laws. There is nothing smart about smart growth laws. The whole "high density" housing thing is a crock. They just become more unafordable condos. Basically, all new construction of affordable housing is prohibited. Naturally, this gives current owners a monopoly on housing, so they can charge more.

Finally, schooling. If you want your kid to learn how to read around here, you send him to basically one of five public schools or pay for private education. So, if you don't want to pay, you have to live in the school district. Since parents don't want to pay for other kids education, the current property owners zone the neighborhood to prohibit. For example, in the DCian suburb of Fairfax county they tried to make it illegal to sleep in anyplace don't designated a bedroom in order to beat up on poor people who dared tried to give their kids a better future.

The net effect of this is that increasing the usable housing stock around DC has been made a criminal offense. Someone is making with a bundle, while the rest of us get screwed.

Hollywood draws its unholy strength from the incredible pseudo-intelectual crappiness of most European films made

Owning your house in Germany

The market for one unit houses in Germany is a sure bet to loose your money. In Germany building ones own house is a must do for any man in a social position to inhabit a one unit house - along with planting a tree and having a child. It's a cultural thing. Thus the market is pretty saturated, selling houses is possible but not terribly profitable. Also there is a whole generation inhabiting one unit houses on the verge of dying - and German houses last long. A substantial drop of the market in the next decade is anticipated for that reason.

Profitable real estate investment in Germany is in condos and commercial buildings. Due to the nature of such investments you have to invest a lot of money into those though. And you have the risks. The article notes the possibility of vacancy. That means if you misjudge the market you are screwed. It fails to mention that you are also screwed if you misjudge your contractors (if you do not have substantial money reserves a bankrupt plumber can flush you out of business) or other factors. The local government decided to build a bypass route next to your rehab project? Goodbye. The rehab turned out to be older than you thought and thus has memorial status? Tough luck. Fungi are eating away the truss? Business can be cruel.

People are not stupid. At least enough people are not stupid to make money making schemes useless in the long run. Sure avenues of profit are well traficked which limits the revenue. The only way around this is being very good at what you do or being very original and very lucky, or taking big risks. If you sympathize will real estate investment go buy some closed investment fund. They have very atractive interest rates and reasonable risk levels.

Democracy is the recurrent suspicion that more than half of the people are right more than half of the time.

You've bought into the bubble. I hate to burst your it, but most of your success is based on two things:

1. The nearly 10-year appreciation of real property values in most US markets.

2. The outrageously easy access to capital during that period.

Do not assume that either condition will continue forever. If you are buying houses with money obtained by fast & loose banks that the writing 100% LTPRV (Loan to Post-Repair Value) mortgages, you are going to have a rude awakening when these banks start having financial problems and call your loans in.

You also mentioned renting to tenants using Section 8 (or similar programs) vouchers, but failed to mention ANY of the caveats of accepting tenants using those programs. That's kinda scary too.

Real Estate is a highly cyclical beast that requires capital reserves to survive. If you are more than 80-85% leverages, you need to address that asap.