Real Estate Doesn’t Always Go Up: A Personal History

Many people think — or used to think — that real estate is an investment that always goes up.  But the reality is contained in only part of that statement:  Real estate is an investment. 

What is an investment?  It’s something you contribute to, nurture, and/or hold onto for some period of time, hoping to realize a reward.  When people treated real estate that way — bought a house, took care of it, and held onto it — their rewards were many:  an inflation hedge; stability; and perhaps a paid-off place to live in old age.

In the last few years, people have treated real estate not as an investment, but as a way to make a quick buck.  However, to make money on any investment, you’ve got to buy low and sell high.  Too many people bought when the market was already high.

As with the stock market, a buy-and-hold strategy works best for real estate.  That’s because, like the stock market, the real estate market has ups and downs. Some years it goes up a lot; other times it doesn’t go up at all, or it goes down.  But if you buy low, and hold on, you won’t have to worry about ups and downs.

Too bad I didn’t follow my own advice.  I’ve bought and sold half a dozen homes in my life, and ”made money” on only two of them.  I remember them well:

–1982, Pittburgh, PA:  Bought 1920 home for $58,500; sold two years later for $67,500.  Inflation was really high then, so everything was going up.
–1984, Phoenix, AZ: Bought 14-year-old ranch house for $88,000; sold four years later (after numerous improvements) for $88,000.  Housing was soft nationwide, and Phoenix was overloaded with new-home developments.
–1988, Riverside, CA: Bought brand-new 2,100-square-foot home on 1/3-acre lot for $156,500 (note:  buying low).  Ex-husband still owns that house, which is worth around $500,000 (note:  buying and holding). 
–1993, Moreno Valley, CA: Bought brand-new 2,100-square foot home at a developer’s auction for $142,000, which was about $45,000 less than neighbors paid a year earlier.  Sold in 1999 for $148,500. (Note:  Buying low and holding didn’t really help much here.)
–1999, Riverside, CA:  Bought brand-new, 2,500-square-foot house for $182,000 (note how price is not that different, 11 years later, from 1988 house).  Sold in 2005 for $450,000. (Note:  After 22 years of homeowning, this is the first significant money I’ve “made.”)
– 2005, San Marcos, CA (a.k.a. the dumbest thing I’ve ever done):  Bought five-year-old, 1,800-square-foot home in an overheated seller’s market for $517,000.  Sold in June 2007 for $483,000.  (Today, other homes in the neighborhood with the same floor plan are selling for around $400,000. One went for $343,000).
–2008, Los Angeles:  Sitting on what’s left of my money from the 2005 sale and happily throwing money away on rent.  I’m not saying I’ll never buy again, but I won’t buy high.  And I don’t know if “low” in L.A. will ever be low enough for me.

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