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Before You Buy That Condo... Read This

By Dr. Steve Sjuggerud
Tuesday, March 28, 2006

“I want to buy now, before I’m priced out of the market...”

A good friend came up to visit over the weekend. While he was here, he went out with a realtor to find a potential investment property.

I live on an island in Florida, so you can imagine what’s happened with home prices around here.

He’s in his early 30s. So he’s never seen a real estate bust. In fact, in the time that he’s paid attention to real estate (say, since his mid-twenties), he’s only seen prices go up... and go up a lot.

He works hard. He owns his own home. But no matter how hard he works, the prices on the coast seem to go up more than his income increases. At this rate, he’ll soon be priced out. Many people already are.

He found a condo, two blocks from the beach, for $200,000. He asked my opinion...

Before I tell you what I said, let me offer up Exhibit A... It’s a chart of real estate prices in a few Florida coastal cities. You don’t have to stare at it too long to figure it out...

Chart by Steve Sjuggerud, with data from the NAR and OFHEO.

As you can see, prices bottomed in 1999, then absolutely soared. But that’s not the interesting part to me... the interesting part is what happened before 1999...

It is true throughout Florida... if you’d bought in 1981, unbelievably, it would have taken you 20 years to break even. Yes, you wouldn’t have made money for 20 years in real estate if you’d bought in 1981.

Even worse, this chart doesn’t include the hidden costs of real estate ownership. Property taxes here are in excess of 2% a year. Then you’ve got maintenance costs and condo fees.

So, contrary to what everyone says, you can lose money in real estate... a lot of it.

In the 1970s, we had a “real asset” boom, and a “paper asset” bust. Then in the 1980s and 1990s, we had a paper asset boom, and a real asset bust. This decade, things have switched once again. Commodities and real estate are beating stocks for the first time since the 1970s.

After visiting Australia, New Zealand, and Shanghai in the last month, I do believe that real estate prices in the U.S. can go higher... U.S. real estate, even in many major cities, is in less of a “bubble” than real estate in those places. (In New Zealand, I remember reading that median home prices were at a whopping seven times the median household income. I don’t remember the source, so take it for what it’s worth.)

So answering my friend’s question is tough... I do believe home prices can move higher, but I wouldn’t buy that condo.

Here at DailyWealth, we look for extraordinary assets that are cheap and hated. If you want to make triple-digit returns safely in a relatively short period of time, you’ve got to be willing to buy something that absolutely nobody else wants... That nobody is talking about. That’s how you make a fortune through investing.

Real estate is neither cheap, nor hated. It’s the exact opposite... and we don’t need to know anything else. Besides, there are far better opportunities for our money elsewhere.

Keep reading DailyWealth, and we’ll show you where they are...

Good investing,


Market Notes


As DailyWealth described in our February 15 edition, when you hear the phrase “The national bird here is the construction crane,” then you know a big correction is coming…

In the past few years, thousands of people have said this phrase about the Middle Eastern country of Dubai. With loads of oil revenue flowing into the tiny emirate, giant skyscrapers are being built, and the place sports an indoor ski resort.

We didn’t know how right we could be… as this chart of Dubai’s stock market shows, this market recently became over hyped… and has been hammered.


-Brian Hunt

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