With all the bad news regarding real estate, it makes one wonder what to do with one's home. What will happen to your home's value? Should you sell now to get your equity out before the market pulls back any more? Is the market going to hell?
Endless numbers of articles and an infinite number of TV pundits are alarming the public, saying that we are in a real estate meltdown. One suggested that if you were interested in accumulating wealth you should sell your home immediately as today's prices are a once in a lifetime opportunity. This is ridiculous advice. What are you going to do when you sell? Take your money and move to a street corner in Los Angeles and live like a homeless person?
A home is a place to live and take care of your family and should never be considered part of your net worth. While it can prove to be a place to accumulate equity over time, you will always need a place to live. Any financial planner worth his certificate will tell you not to consider your home equity in your net-worth calculation.
If you bought in the last two or three years, got caught up in the hype, and borrowed more money than you can afford and now have to sell because you can't afford the payment, you will get hurt. That has nothing to do with real estate. It has something to do with making a bad investment.
If you bought your house because you loved the area, the house and you are able to afford the payments, then you'll be fine. Enjoy your home, and 10 years from now you will not even remember the real estate scene of 2007.
The negative brush with which the pundits paint their articles of "The Real Estate Armageddon" suggest that all real estate is the same. It is not all the same. There are many different types of real estate and many things that make each type different. Location, quality, views, coastal, inner city, corners, number of bedrooms, etc., each determine how much or how desirable a piece of property is today and in the future. Even the specific street in a neighborhood can greatly impact the value.
A place to live
Unless there is some massive ecological problem, 20 years from now, 95 percent of all real estate in Los Angeles will be more valuable than it is today. Much of it will be worth double and triple today's values.
While I have been lucky enough to make a great deal of money on the homes I have owned, I didn't buy them thinking I was going to make money. A home costs you money to live in, it cost you money to take care of it and it doesn't produce income. Therefore, I would never consider them a good investment. If you want real estate as an investment, buy something that produces enough income to pay the debt and the expenses and be in it for the long term. That would qualify as a real estate investment. A house is a place to live.
Los Angeles has very high barriers to entry, explosive population growth and a strong economy. Los Angeles fits the bill on all counts of a real estate market that will only continue to get more expensive over time. Compare L.A. to New York, Tokyo, London and you will see where prices will go.
Will some people be hurt in the short-term "pull back"? Yes! If they bought more than they could afford, they bought for the short term and they bought a product that was plentiful and could be easily duplicated.
Ten years from now, you will look back at 2007 real estate prices and wished you would have had the courage to buy the entire neighborhood. Remember your grandfather who bought a house for in 1950, and thought he was paying too much? In retrospect, he should have bought the entire Westside and you as the grandchild would be one of the real estate barons of Los Angeles County.
Grant Cardone is a motivational speaker and real estate investor. He lives in Los Angeles.
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