Is Real Estate the best bad investment?

I talk to and correspond with a lot of people who are in the business of Real Estate and pretty much all of them agree that the low end properties (under $600k) that Investors have been buying do not make sense using the traditional metrics of price to rent or price to income ( I’m using multipliers that were common here prior to the last bubble)

The investors are either assuming significant wage inflation, significant appreciation, or they are all real dumb. Or…they look at the stock market, the bond market, the other alternatives and think that Real Estate is the best bad bet out there because it is tangible. I have heard several very intelligent and well informed people say just that.


I’d like to be clear about my opinion, there are good investments to be made in Real Estate. Very few of those good investments are available to someone who has a moderate amount of money unless they are contractors and/or they have first rate management skills. I do see some raw land, some estates and some commercial properties available that look like good investments using traditional metrics. But they are not cheap and not many people have the financial wherewithal to plunk down a Million plus dollars.

What do our readers think? Is the current rise in Bay Area home prices partly or wholly a flight to safety?

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Tom Stone

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About Tom Stone

I am a Broker Associate with Creative Property services (CPS) in Sebastopol Ca. My father was an Appraiser and expert witness based in Oakland Ca for many years and I grew up having the basics drilled into me. I enjoy what I do and I am good at it. I managed income property in Oakland for a number of years and was licensed to run a collection agency for more than a decade. I have also worked as a credit manager and as the senior collector at the test center of a Bank . I have been commenting for years at "Calculated Risk" and on other Real estate Blogs including the defunct "Sonoma Housing Bubble" Blog. The best job title I ever had was "Chief Garbler". My Email Address is "" and my cell # is (707) 364-2477, please don't call before 7 AM or after 8 PM unless we have a deal in progress.

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2 thoughts on “Is Real Estate the best bad investment?

  1. Anthony Casolino

    I agree Tom. As a broker in Napa and Solano counties, I’m seeing “investors” snatch up (over pay) properties that do not make much economic sense. They seem to be counting on near term appreciation, which, as we all should know, can be catastrophic.

  2. Tom Stone

    Anthony,Thanks for your comment. I am seeing people pay 250X monthly rent for homes that need $50k of work or more, and they are calling them investments. These are 3/2 1960′s or 1970′s built tract homes in good areas. I may be wrong, but they seem like a very risky bet.

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