Based on my prior experience buying nearly two dozen homes across the country, I’m frequently asked for advice on buying real estate.
The attraction to real estate investing is easy to understand. Although real estate can’t be expected appreciate more than the rate of inflation (unless you have the vision to buy in to an area where demand is about to take off, such as Southern California circa 1960), the leverage and tax breaks make it look promising.
And the recent downturn, coupled with the ultra-low mortgage rates, have made real estate a hot investment in the past 12 months.
In Los Angeles, the median home price has jumped an eye-popping 23% in the past year, from $422,000 to $520,000.
So what does the future hold?
While it’s always hard to predict anything, it definitely looks like housing is getting overvalued in some areas.
Looking at the ratio of Median Home Prices/Median Household Incomes, we can see that California is getting expensive on a historical basis.
According to John Burns Real Estate Consulting, it’s 50% higher than the historical average in Los Angles, Orange County, San Diego and San Francisco.
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That’s not to say you can’t find a good bargain in this market. But they’re becoming a lot harder to find.
Unless you’re buying a house to live in yourself, it might be better to look in Florida, Arizona or Nevada to get a better deal.