Everybody's an Investor Now

By Daniela Deane
Washington Post Staff Writer
Saturday, May 21, 2005

It feels as if Playboy's Playmate of the Month for May is speaking for the entire country.

Fort Lauderdale native Jamie Westenhiser, 23, told the magazine recently that she is ditching her modeling career to take up real estate investing.

In the magazine's May issue, Westenhiser poses in her lacy lavender baby doll, wearing nothing else except furry boots, leaning on a computer desk next to a stack of books with titles including "All About Escrow" and "Real Estate Principles." In her "playmate data sheet," she writes that her ambition in life is to have a "successful career in real estate."

Westenhiser and everyone else, it seems.

At the same time that the number of investors has skyrocketed, the costs of carrying an investment property have also spiked, especially in places where prices are climbing rapidly, as they are in the Washington area. That's making real estate investing more difficult -- and riskier -- than it has been in years. And the sheer number of investors has added to the concern about whether these price increases are sustainable.

"If you're an investor, unless you're smart, and you're lucky, you could get caught and burned," said Mark Zandi, chief economist at economic consulting firm Economy.com. "Some juiced-up markets -- and Washington is one of them -- are increasingly dominated by investors looking to make a quick profit."

A recent study by the National Association of Realtors showed that almost 25 percent of homes bought in 2004 in the United States were bought as investments. That's up a whopping 14.4 percent, compared with 2003. David Lereah, chief economist for the association, said the organization was surprised by how big the investors' share of the market had become.

"People are looking at real estate like it's another 401(k)" retirement plan, said Al Mansell, president of the association.

It's not hard to see why real estate investment is so alluring. From the beginning of 2000 to the end of 2004, home prices nationally rose 50 percent, according to the Office of Federal Housing Enterprise Oversight. During that period, the Standard & Poors 500-stock index, a broad measure of the stock market, fell 17 percent.

In the Washington area during that time, the increase in home prices has been even more dazzling -- 89 percent. And all anecdotal reports indicate that climb has continued so far this year, although the government hasn't released figures.

There is a problem, though: Because home prices have risen so dramatically here, the costs of owning an investment property, compared with the income it brings in, are getting out of whack.

Investors count on rent and price appreciation to make a long-term profit. Rents are traditionally used to offset the monthly costs associated with carrying an investment property, typically mortgage loans, property taxes, condo and homeowners fees, and maintenance. Tax breaks such as depreciation also make real estate attractive.

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