Friday, March 25, 2005
The New York Times has an interesting article on how certain people are hopping on the real estate speculation bandwagon. Even though speculative stock traders of the 1990s didn't learn the lessons of 1929, there are now real estate speculators who are forgetting lessons of the 1990s. The danger is when people think that the investments they are making are a "sure thing" because the investments they were smart enoug to purchase are going to continue to incrase in value for the long-term. There were big downturns in the commercial real estate market in the early '80s and especially the early 90's. Young investors and investors with amnesia are not cognizant of these economic troughs when they leap inside the real estate bubble. The biggest danger these investors face is taking on a risky mortgage.
"It just seems like everyone is doing it," Laurie Romano, a 26-year-old self-described real estate investor, said with a giggle as she explained why she was attending an open house this month for the Nexus, a 56-unit building going up in Brooklyn's chic Dumbo neighborhood. She and her fiancé, a dentist, had already put down a deposit on a Manhattan condo earlier in the week and had come to look at another at the Nexus.
And many former stock market enthusiasts are now turning to housing. Douglas Paul, a 46-year-old former analyst, left AT&T in 2002 to buy and sell stocks on his own. But he soon decided that real estate could be another way to make quick profits. Mr. Paul owns two condominium units around Fort Lauderdale and one in Miami Beach, all bought during the last year, in addition to the one where he lives. He plans to sell one of the Fort Lauderdale condos in June for what he believes will be double his investment.
"It really is a very hot real estate market, and I don't know how long it's going to continue," he said. "But in the short term, why not profit from it?"
Mr. Paul's path is an increasingly common one. The National Association of Realtors estimates that nearly one-quarter of home purchases last year were made by people who thought of the house as an investment rather than a place to live. Seminars promising to teach amateurs the tricks of real estate speculation have proliferated.