One of my favorite television shows is House Hunters -- if you're planning to buy a home and looking to learn more about the process, you should absolutely watch this show. You'll learn a lot.
I recently watched an episode that featured a middle-aged couple looking to buy a second home in Las Vegas, preferably a condo. They lived in Los Angeles and were enthusiastic about buying an "investment property" and the real estate agent was equally enthusiastic about Vegas' prospects. She had a commission to earn.
But as they looked at condos, there was just one problem. The units were nice and the locations seemed ideal, but the sounds of new construction were a major turn-off. Who wants to wake up to that? But every condo they looked at suffered from that problem.
Of course the show was taped in 2005 -- the height of the Vegas real estate bubble that has been crashing lately -- so it's easy to say this with the benefit of hindsight, but it's interesting nevertheless: did any of these people looking at condos hear the construction and wonder "Will demand keep up with the rapid building? If there's a glut of condos available, won't people want the fancy new ones instead of this old one?"
But they never thought of that. No one ever suggested that all the new construction could be anything but good, amazing given that a huge increase in supply would tend to drive down prices, which is exactly what ended up happening.
Another thing: all the discussion about an "investment property" aside, I never heard any mention of rental rates, vacancy rates, cap rates, etc. I think they were planning to buy the unit as a second home, calling it an investment property. But remember the golden rule of real estate investing: if you aren't generating income, you aren't investing. You're speculating (i.e. hoping) that rising prices will bail you out of a bad investment.
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