From all sources of recent information, things pick up left and right, employment is up, manufacturing is up, consumer confidence is up, and the housing slump did not hurt the economy as early expected. Surprisingly, many housing indicators are show housing is stablizing. I personally don’t expect a short housing slump, this slump is looking more and more strange to me. This slump seems to be so isolated that the general economic condition may not warrant it. In the history past, housing slumps were usually brought forth by bad issues such as recession and massive loss of employments. Very strange, it’s definitely different this time. Everybody is happy, everybody’s income is rising. Job is getting more plentiful. And rate is so far still very low.

I think consensus is already made: real estate market is no longer playful, it’s no fun, it’s dead and it’s going to be dead for the next 4-5 years. Yes, there is little argument to that sentiment. But are you going to completely give up the market, close your eyes, shifting your focus entirely away from the RE market? I don’t think this is responsible for your financial health. Investment in one field is not like a switch you can turn on and turn off. Rather, it should be a job you always pay attention to. I personally think the next 4-5 years will present perfect opportunities for you to slowly accumulate houses. The key is to do it very slowly. This period will be a time you can take time to find good deals. Accumulating houses will be like dollar cost averaging in the stock market. We need to recognize the fact that finding a true bottom is not practical. If one focus on finding the true bottom, he would defocus him/herself from finding the best deals. The best deals can be characterized by a property that can generate even/positive cashflow, yet at a price that is below market and presenting great appreciating opportunities. If you can find a house that can generate even cash flow for you, even if the purchase has not reached absolute bottom (which you may never know anyway), you should consider yourself having a great deal. One thing we should learn from Warren Buffet, he always accumulate value stocks when nobody on the main street is interested. Warren Buffet is a great role model for contrarian and long term investing. The same idea can be applied to the real estate market as well as it’s applied to the stock market.

Now, let me ask a question. There are two investment properties. One has a chance for you to hold for long term without breaking your back. Another has an unbeatable discount in sales price, but your ability to hold it is uncertain? Which one would you choose?

I guess you already knew what I was thinking: Of course, to me, the ability to hold counts number one in my priority. If you can’t be certain to hold it for multiple years, then game will be over very soon. Any seemingly attractive discount in price would not matter at all.

New York Times article describes today is just like 1989.

http://www.nytimes.com/2007/06/02/business/02charts.html?_r=1&ref=business&oref=slogin

Now, the only remaining issue is: If today is 1989 all over again, then it should be followed by a big economic recession. What happened from 1989 to 1996 was made possible by that recession. From 1989 to 1996, there had been massive loss of employment in most metro areas.

If this year is indeed 1989, and if the housing market is going to repeat what happened after 1989, the economy should sink into a similar recession for that to become possible. Because in history, there had never been a period when economy was in great shape with the only exception of housing market. Housing market condition is closely tied to the general economy. When people have money, they will buy houses.

1) You bought in 2004 or 2005, kind of late, although not extremely late. So your price advantage is small (20% gain). In 2-3 years, you may lose 10-15% gain due to worsening market condition. So, you may look at your price advantage to completely disappear in 2-3 years.

2) Due to your inexperience, you may have found a high risk tenants. That may further discourage you from continuing to be a landlord. If you want to stay in rental market for long, you must learn all the tricks of being a landlord, learn from books like “Handbook of Landlording”. Just search on Amazon.com with “Landlording” keyword, you will find good books.