Time to cash out or dive further into real estate?

By: Julie Brosterman: Inman News
The dialog debating the housing boom versus the housing bust continues. Articles in major publications every other week speculate on the meaning of flattening prices and small declines in the percentage of sales. In spite of these stats, sales of homes in the Westside of Los Angeles are rocking. We're back to that multiple-offer, irrational overbidding and all-cash-offer situation that fueled the market last year in March and April.

Is this irrational exuberance or do these buyers know something that I don't know?

Several of my friends who have been trying to buy for a while and haven't found what they're looking for have been outbid on every home that they've looked at in the past three weeks. And if you're looking for a fixer or a flipper, so is everyone else here in L.A.

A listing in need of some major TLC and located around the corner from me came on the market last week. The listing price was $1.3 million. Our friends were interested in seeing if it qualified as a fix and flip so my husband and I went along to give them moral support through the exercise of pricing out the improvements to see if they could get their desired profit after a few months of hard work. It looked like a "go" so they made a solid offer of about $60K over asking price only to be told by the selling agent that there were 27 offers and that they were only going to be responding to the first 12 with bids over $1.5 million.

I'm thinking this must be an L.A. phenomenon. That long, cold winter back East usually works well on kicking up prices this time of year.

So I called our good friend who is an established developer of luxury homes in South Florida to see if the same fever was going on down there. I've been seeing several articles in the past few weeks about how Miami, Ft. Lauderdale and Palm Beach have been experiencing price run-ups similar to those in Southern California.

"Time to get out," I told my friend, the developer. "Take the money and run. Go live on that desert island and drink drinks with pink umbrellas sticking out of them. Done."

"Are you kidding?" my friend asked. "I just bought four more properties that are old hotels that I'm going to be tearing down and turning into million-dollar townhomes. This is no time to be cashing out. You can't believe what's going on down here."

My husband has less emotional thoughts on the subject. "Real estate is the perfect capital market scenario," he said when I posed the "what's going on here" question to him. "Information is readily available via the MLS for not only current listings but past listings and pending sales. Houses are priced accordingly. Houses that are 'tear downs' or in need of major TLC are now being priced with the finished profit in mind – in other words, they incorporate the ability for upside in their pricing – so there's no unknown. The only unknown is whether there will be a terrorist event or an earthquake sometime in the future that will rock the basic foundation of people's faith in the economy as a whole, not real estate in particular."

"This is the time for pioneers," he continued. "To branch out into areas that are rapidly becoming re-gentrified before everyone else wakes up and drives the prices up there too. There are still a few bargains out there but they are few and far between…and your neighbors might still have bars on their windows."

While concluding this story, I did my own personal test of whether to go further in or pull out of the market. I took a look at my stock portfolio's valuation as another rocky week ended. It certainly has looked better. Maybe it just needs a new coat of paint? Somehow, the idea of investing in real estate seems a whole lot saner.

Julie Brosterman is a consultant to the real estate technology, mortgage and servicing industries. She lives in Los Angeles and can be contacted at juliebrosterman@hotmail.com.