NOYB wrote:
"DSK" wrote in message
. ..
NOYB wrote:
I've been on the fence on how to advise him. Part of me believes as you
do: that $340k villa will drop in price once a correction knocks the
speculators out of the market. But if I'm wrong, then where does he
live? If he pays the $340k now, and then it drops, he can just stay in
it until it goes back up again.


Rent cheap and put money into a residential REIT

I don't know anything about REIT's. Can you see 30-50% returns like we're
currently seeing in the real estate market?

And are they any safer than actually owning the real estate?


You haven't seen any "return" until you sell. You have seen other
people realize a return, and you believe, by extension, that you would
be able to realize a return if you chose to sell. All of your equity is
theoretical.
Of course, if you do sell, the only ways you can actually extract any
value
are 1) forego home ownership and become a tenant, 2) reduce the
"quality" of your lifestyle by moving to a smaller, older, home or one
in a questionable neighborhood, 3)relocate to some hill town in the
Ozarks or Sage Brush City Oklahoma. If you replace your house with
another that is about the same or bigger, newer, and nicer in the same
area you will plow all of your sales "proceeds" into the new house, and
simply be deeper in debt than you are now.


I recently had coffee with a guy who was excited about his house in
Seattle.
He began boasting about how the house for which he paid $250,000 in the
early 90's is now worth about 4 times that amount. I said, "Well,
congrats.
But unless you sell, of course, you can't really spend any of that
money."

I had to bite my tongue when he answered, "Oh, yes, you can! I just
took out a home equity loan for $700,000 and we're buying a new
45-footer and a Land Rover."

Poor guy. He doesn't realize that he just "repurchased" that house (for
which he initially paid $250,000) for the $700,000 he just borrowed
against it. He actually did have to sell his house......he sold it to
himself.

A REIT spreads the risk across a spectrum of properties and geographic
areas. While it doesn't put all its assets into an unsustainably
booming market like Naples, the trust is also more insulated against
the implosion of a single overheated housing bubble.

Putting all your eggs into a single basket makes no more sense in R.E.
than it does in the stock market or any other speculative enterprise.