Buying for appreciation isn’t the only game in real estate.
In order to predict behavior you need to make a reasonable accurate model of the system. I can make a pretty good model of the hour hand of a clock and guess how many revolutions it will make in 10 days. I could make a lot of money making even money bets on the outcome.
A reasonable accurate model of real estate would have to have at least 1000 factors. How much damage could a pair of boxcutters do? By the time you did the analysis you could justify any action you wanted.
The stock market has a long history and the most widely held opinion is that you should diversify and wait at least 20 years. Still no guarantees. The stock market could plummet 40% three months before you sell (in 19 years and 9 months).
It is widely speculated that the bottom of the real estate market is coming up in the next couple years.
What is the most effective way of calculating Appreciation rates? I have been looking to subscribe to neighborhoodscout.com which calculates this data, so i guess my real question is Has anyone heard of this site? Is it reliable and accurate? And is there a more effective and accurate way to calculate appreciation?
Thanks for all your responses. I love this site!!!
A long term study (several centuries) was made of real estate values in Amsterdam. The final finding was that despite many booms and busts (which skewed the values in any given time) in the end the appreciation rate was effectively 0% once you factor in inflation. Of course changes in any local market is going to affect the appreciation rate as well but those are usually just bets that could just as easily go sour. One thing to watch out for, but not necessarily avoid at the right price, is a long term declining population. Less people means more excess housing which will naturally lower or negate any appreciation rate. So far no one has show any real ability to turn around these declining areas of the country since they usually result in a populace that demands more government involvement and the larger government in turn drives away business that a populace needs to grow.
Easy answer, especially in the current market, is to purchase to cash-flow. As long as your property can produce a reasonable income stream that compensates a potential owner for the headache of owning it, then it will maintain its value in relation to its potential income stream. Moreover this means figuring in the 50% of of monthly rental going towards operating expenses, which is the average expense rate found for properties throughout the country.
In some places real estate has been appreciating at 20% a year but this is not sustainable - as people are finding out to their sorrow.
But it was fun while it lasted wasn’t it?
On the other hand, I just read a post from a lady who is thinking of buying a duplex in Buffalo for $26000. That property has not appreciated at all since the 1970s.
I usually take 5% as a reasonable average. Much higher than that makes me nervous, lower than that points to a buying opportunity - providing the local economy is not a basket case.