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Chasing Appreciation

March 10, 2007

I got an inquiry today about investment properties.

This prospective buyer is being told to buy single family homes in Idaho and New Mexico. Hmmm. This always reminds me of the “secret stock” whispers I hear so much of in Silicon Valley. Or the “plants” on investor pages, working to inflate demand on the penny stock they own 5,000 shares of so they can reap the rewards and dump it before the fall.

As a finance undergrad, I learned how to value stock and spot undervalued stocks. For years I thought I had enough information, knowledge and training to play the stock market game. Some of my colleagues have done really well and I just never got the hang of it. I think it’s the same with the real estate market, there are some that are good at seeing the trends, jumping in early and getting out before the fall. Then there are some who play real estate like I play the stock market, they get in late and watch in disbelief as the market falls.

The big difference between the stock market and the real estate market is that you have to make about 10% appreciation in order to break even. It’s not a $7.95 trade fee but title and escrow and commissions and vacancies and reports and marketing and….you fill in the blanks.

I have always done better with my real estate holdings. Maybe that’s why I have been in the business for 19 years! [still can’t believe 19 years!] But, I think the way I play the real estate game says a lot about my conservative nature. I play real estate so that I feel in control and limit my risk. I set it up beforehand so I am never forced to make a move. If my properties are paying all their expenses, maintenance and management, then it really doesn’t matter what the market is doing. I can hold on. I am not at the whim of Bernanke’s latest change of heart or a mysterious stock market scare or hoping that that “secret stock” doesn’t mis-state earnings and plunge 70%.

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