Man, this is sounding like the dot.com craze all over again.
Putting Stock in Property (LA Times)
Putting Stock in Property
Sun Mar 27, 7:55 AM ET
By David Streitfeld Times Staff Writer
SAN FRANCISCO ? Chris Boome, an insurance agent in the suburb of Burlingame, doesn't want to work the rest of his life. Who does? But at 58, Boome knows he hasn't saved enough to retire.
So a few weeks ago, he revamped his retirement accounts. He sold most of the mutual fund shares and used the cash to buy an $83,500 chunk of land in the Nevada hills, a stretch of ground he had seen only in a photograph.
"This is more exciting than a mutual fund," Boome said. "It feels safer too. You buy a piece of dirt, you feel you'll always have a piece of dirt."
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They're cashing in retirement funds, selling stock and taking out second mortgages. They're pouring the money into real estate, often in distant states, often without seeing the property.
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Some speculators have already been burned in Las Vegas, until recently the hottest market in the country. But for most investors everywhere else, any risks are outweighed by the potential rewards.
"People who did this five years ago aren't working today," Boome said.
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He bought his 10 acres on the strength of his favorable impression of the area, his agent's recommendation and a photograph she provided. "It was a great deal," he said.
Complicated too. The rules for buying real estate with an investment retirement account are stringent: The purchase must be made through a specialized administrator, and it must be transacted with all cash. A week ago, the paperwork was done. He went to visit his dirt.
It wasn't quite the way he imagined. "It was steeper. And there's a lot of rocks. Big rocks." He's having a local builder look at the land before the deal is irrevocable.
If this is a setback, it hasn't dented Boome's enthusiasm.
"It could be worth nothing, but I'm willing to bet it's going to work out," he said. "I've got a good feeling."
Other California investors are going much farther than Nevada - and using different strategies to come up with the down payments.
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Not-So-Happy Endings
One sign a boom is peaking is that prices have risen so much it appears perfectly natural and inevitable that they will keep doing so. Believing the game has only winners, new investors pile in.
It was against this backdrop that Kim Kaul bought a house last summer in Las Vegas.
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The seller said he had contracted with Pulte Homes in June to buy a three-bedroom house in the suburb of Henderson for $425,000 but that his financing had fallen through. He sold the contract to Kaul in August for $8,500, money she took out of the family's meager savings. Her new investment, which she bought with no money down, was appraised at $460,000. An agent told Kaul she would be able to sell in six months for a $100,000 profit. In a market where prices had gone up by 50% in the previous 12 months, that appeared reasonable.
Instead, on Oct. 1, the Vegas market caught a chill. In the face of weakening demand, Pulte cut prices. More than 500 would-be investors fled, abandoning their deposits rather than taking possession of something whose value might decline further. The speculators' party was over.
For Kaul, whose model could now be had for $335,000, it was too late. She had closed on her purchase.
During the fall, she was hopeful or maybe just unwilling to see reality. She found a tenant, who pays $1,250 a month. But her mortgage was $3,000.
When her husband lost his job, the situation became dire. The couple paid the January mortgage with borrowed money, then gave up. Their lender is in the early stages of foreclosure, a process that will ruin their credit rating.
Kaul is chastened but still believes in real estate: "I'm sure the market's going to pick up, but I can't hold out that long. This is kind of a bummer."
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I had no idea people had gone that far bonkers.
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