Many Investors Look to Bail as Market Softens

Buying real estate seemed a no-brainer five years ago.

Cheap home loans were easy to acquire. Home prices were soaring. Stocks were dead money. Oh, how things have changed.

For-sale signs are sitting ignored in some cities.

At the same time, mortgage rates on exotic loans are doubling.

Insurance premiums and property taxes are skyrocketing. Wannabe real estate tycoons stuck with properties they can’t sell have become landlords, forced to fix toilets and take tenant calls in the middle of the night.

Many are “under water” — owing more on their mortgages than they could get by selling.

Meanwhile, stock investors have been celebrating again as broad market indexes march to new highs. And that is prompting some real estate investors to make the switch back to stocks.

Real estate “isn’t as lucrative as it used to be,” says Jack Patterson, a financial adviser in Coral Gables, Fla., who has been helping clients sell real estate and buy stocks.

It’s a complete flip from 2002, when investors cashed in their stocks and bought homes and investment property. People doing that were the subject of a USA Today cover story in December 2002.

Dave Yeske, a San Francisco financial adviser, was featured in that 2002 story because he was being barraged with people selling stocks to buy homes. “The pendulum has swung in the opposite direction,” he says now.

“The clients that sold stocks to buy spec houses in Arizona are telling me they’re under water, can’t rent them and they wish they left all the money in the stock market.”

Lex Latkovski saw this shift early and made his move last year. He had been a big real estate investor in the Phoenix housing market.

Shortly after moving to Phoenix in 1996 for a consulting job, Latkovski, 38, bought a house therefor $87,000, putting down just $5,000 on an Arizona mortgage.

As home prices leapt, Latkovski quadrupled his bet, buying three more homes on the same street as investments. The prices on the homes skyrocketed.

Rather than ride the real estate wave until it crashed, Latkovski bailed. He sold three of the homes last year, pocketed a 60-fold gain and moved the money into the stock market. Seeing real estate as played out, he’s bought exchange-traded funds and mutual funds.

“It was time to take my profits and walk away,” he says.

But many people who used easy home mortgage loans and risky financing were not smart enough to make that decision and are now paying the price.

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