Property Investment - Advice Needed

[Chris]

I've pondered this question for over two years now yet I still can not determine whether this makes sense or not;

I own my primary home in London, UK with no mortgage and I would like to purchase some investment property on a 25-30 year fixed rate mortgage (5-6%) within the next year either in the Eurozone (Portugal) or the US (or both) on the following assumptions:

• Interest rates will increase substantially over the next 1-10 years,
• Inflation will increase substantially over the next 1-10 years,
• Property prices will find a nominal bottom within the next 2-3 years given an increase in inflation,
• There will be positive cashflow from the purchase within the next 5-6 years

Of course interest rate rises may cause complete carnage in the property markets and prices may fall like a rock (I can imagine this happening in places like the UK where property prices are still hugely out of line with salaries).

If any iTulipers have any advice, even if its to sell the London property, forget the crazy idea, whatever, I'd appreciate hearing it.

[jpatter666]

Re: Property Investment - Advice Needed

Wow....excellent question and one I've been dealing with as well.

We have (for the moment) decided NOT to buy. For us the reasons are:

1 ) For where we want to buy, I do not think property values have come anywhere near the bottom.
2 ) Better to buy cheaper than more expensive with a lower rate. Who knows? Might even pay cash.
3 ) Given the uncertainty in the future, we do not want to tie-up a significant portion of our wealth in more housing.
4 ) For same reasons, we like the flexibility of having no debt.

Essentially, we are willing to do something if it is a flat-out no-brainer, but that's about what it is going to take.

[ViC78]

Re: Property Investment - Advice Needed

• Interest rates will increase substantially over the next 1-10 years,
• Inflation will increase substantially over the next 1-10 years,
• Property prices will find a nominal bottom within the next 2-3 years given an increase in inflation

Of course interest rate rises may cause complete carnage in the property markets and prices may fall like a rock (I can imagine this happening in places like the UK where property prices are still hugely out of line with salaries).

You are assuming the nominal bottom based on commodity inflation being transmitted to wage inflation. This is what happened in the 1970s and led to debt being devalued. However, in the 70s, there was no competition to labor from a globalized economy. Hence, it is not clear to me whether the same principle will apply this time around.
Rising interest rates also lead to a decreased ability to borrow, and ceteris paribus, will lead to lower property prices. Another factor, especially in the US, is revenue shortfall for state and local governments. This might lead to increase in property taxes, another negative for property prices.

IMO, cash flow is probably the most important factor to decide whether/where to buy investment property.

[grapejelly]

Re: Property Investment - Advice Needed

I am out of real estate and into commodities.

I see the world in a depression and we have experienced only the first downleg.

To get out, we need rising incomes which ain't happening. I would sell the London house and RENT. And put my money all in gold and other commodities.

Because real estate may rise in nominal terms but I think in real terms it will be decades before it takes off again. It is too tied up in credit and credit is kinda sinking. That's what this depression is about, the sinking of a multi decade credit cycle. Same as the Great Depression actually. And the government makes it worse and worse by increasing Keynsian deficit spending, raising taxes, further penalizing what profitable producers there are and making the cycle deeper and longer than it otherwise would be. Same as the Great D.