Is REI market over heated....In my area I think so

General Real Estate Investing
1

Hi all, Im pretty much new to REI and this is what I think of the current REI market by looking at whats happening in my area wich is NorCal.

I think Part of the problem today for people starting in real estate is the over heated real estate market: when you look at the return on income properties they are lower then the interest rate to borrow money.

Example; 4 unit apartment building listed for $500,000, the net income is $30,000 a year or 6% return, but when you borrow money to buy it the bank is going to charge you 7% -7.5% or $35,000- $37,500 a year in mortgage payments, you end up losing $5k-$7k a year.

Now of course you can put a large down payment so you get some cash flow; say you had $250k to put down, you payments are now about $18,250 a year on $30,000 a year income your return is now $11,750 a year on $250k or about 4.5% return and you will have to work to get that return, apartments are not arm chair investments.

These programs make big deals about “creative financing” but in this market it’s pretty tuff to ask the sellers to hold a 1st or 2nd trust deeds, the sellers have all kinds of options to get cashed out, either by low ball all cash offers or just being patient and letting a buyer obtain a loan.

The end result is you end up doing all the work and giving all your money to who ever made you the loan, and tying up your down payment with little or no return (at least for the first few or more years) if you can deal with that time is on your side, but were talking 5-10-15 years.

You can take all the classes and seminars you want but that won’t change the market, save your money; cash is king.

The most valuable thing Iv learned is you always assume your costs and expences will be more then what ever anybody tells you they are going to be.

What do you guys think any body sees diffeent?

2

I live in NorCal too. Look at areas outside of this one for investing. cap rates on commercial properties are pathetically low. All you have to do is drive around and see all of the vacant commericial property for rent. It’s obvious the market for it is going to be soft for quite awhile.

3

[i][b]“You can take all the classes and seminars you want but that won’t change the market, save your money; cash is king.”

“What do you guys think any body sees diffeent?” [/b] [/i]

Yeah, you’ve forgotten a MOUNTAIN of other benefits as well…not the least of which…TAX BENEFITS!

Also, CASH will get ground to pulp overtime by inflation. There ain’t nothing wrong with having cash for emergencies, but cash ain’t King…that’s just a cliche’.

Our latest investment returns aprx. -$60 a month (not bad by West Coast Standards), however, we’re seeing better than a $1,000 a weak in appreciation. Then there’s the repair costs (write off), and other tax bennies (everything from windex to pick-em-up trucks).

To quote Nat King Cole…“it’s been said many times & many ways”…location, location, location is everything!

There’s basically, very basically, three ways to invest insofar as I can tell; buy & hold (for the pot @ the end to the rainbow), buy for positive cash flow (harder & harder to accomplish nowadays), and buy to flip. All of which are possible at any given time depending on location.

-Infowell

4

Infowell,
So where are you making lots of $$$ these days ? what state is good buy and flip ? how do you do your research on the real estate economy of different state ?
Are you from WA ?

5

I’m in SoCal and the cap rates here are pathetic too - for residential 4 unit properties, commercial multi-family or commercial office properties. So no chance for a newbie. I had a glimmer of hope when I realized that the cap rates may have gone down so much by the irrational exuberance in the market. There is too much easy money and low interest rates that are driving the prices upwards. It seems people are investing with the hope that the prices will continue to appreciate. So when the interest rates go up I’m hopeful that the cap rate will go down. Now I’m not sure how fast that will happen. But if that happens will the cap rate go up some much that it is higher than the then interest rates? What do you folks expect will happen?
Is there any hope for newbies like me?

6

don’t listen to infowell. he’s an agent and agents will rarely tell you not to buy.

tax advantages only make sense to the extremely wealthy who need a tax shelter and a place to park their money.

i live in socal and i’m renting back my own home. its lost 10% of its value since i sold it last august. places i’ve bought out of state have gone up 10-15% since then.

7

“don’t listen to infowell. he’s an agent and agents will rarely tell you not to buy.”

OH CRIPES! Here we go again!

“He’s an agent…don’t listen to him.” Hey Einstein…how much money you think I make posting here anonymously…hmmmmm?

What about Real Estate Gurus…do they ‘often’ tell people NOT to buy? Are all the articles here…tapes & programs geared towards people who come here NOT to learn how to buy & sell real estate?

Yeah…I’m a Real Estate Agent, and as such I help people who WANT TO buy or sell do so…whatever the market conditions. I also tell them the truth about the state of the markets.

However, if you’re a Bubble-Head…I can’t help you.

Infowell,
“So where are you making lots of $$$ these days ? what state is good buy and flip? Are you from WA?”

Yes I am from WA. More precisely…I work & reside in Western WA (Seattle region). It’s one of the hottest markets in the country right now (if not THE hottest). The NAR’s Senior Economist thinks this region could see “30-40% appreciation the next couple years.” Of course…he’s the NAR’s Senior Economist in WA DC…so I’m sure nvrmind would tell you “not to listen to him either!” :smiley:

“…how do you do your research on the real estate economy of different state?”

As our friend nvrmind stated, I’m “a real estate agent,” and as such I have access to databanks not available to the general public. One such tool I use is NiteOwl (available to loan & escrow officers, and licensed agents of the Board Of Realtors). Property information includes; Property Profiles, Interactive Comparable Sales Reports, Plat Maps, Street Maps, Demographic–Community & Neighborhood Profiles, School Reports, and Historical Sales Averages. NiteOwl offers data for 29 states (last I checked), and the only city they don’t carry (that I’ve discovered thus far) is Carson City, NV.

What nvrmind has failed to tell everyone is, I’m also a State Certified Residential Appraiser w/more than 15 years experience. I feel my skills are transferable to any market given enough time & data.

I also utilize the services of local professionals in any given market (i.e., Realtors, Appraisers, Real Estate Attorneys, and the like).

A States Chief Demographer (CD) is also an excellent source of information for the would be investor. See what your states CD is projecting for your region regarding in-migration, birth rates, jobs, etc.

Compare that information to construction permits. For instance; while the Vegas market was booming…every builder & their brother was moving there to take advantage of the situation. Problem was…they flooded the market with new homes & soon there were more living units being built than there were people moving to the region. The inverse is true in my area…new home construction can barely keep up with in-migration & job growth. Simultaneously, there’s a lack of existing product on the market…especially in the more affordable price ranges.

“tax advantages only make sense to the extremely wealthy who need a tax shelter and a place to park their money.”

That’s got to be one of your more ridiculous statements (and you make a lot of them).

Whom one listens to is certainly their own business. I’d recommend hiring the services of professionals in your region, and not taking the advice of ANY anonymous posters on an Internet Message Board. I’m just posting here like everyone else–giving my 2 cents & getting change back from those with an axe to grind towards agents.

-Infowell

8

“tax advantages” are over-rated; your passive losses are limited to $25K and get phased out if you income is over $100k. Sure, its great for some small time investors of modest means, but it does not take a lot of property to end up with suspensed losses (suspended typically until you sell). Moreover, sure you can funnel some expenses into to real estate activities, but you still have to spend CASH for those expenses. Even if you pretty aggressive it a couple thousand bucks a year. I consider this to be “icing on the cake” to whatever I make on buying and selling properties.

9

“tax advantages” are over-rated; your passive losses are limited to $25K and get phased out if you income is over $100k.

You’re not seeing the BIGGER picture:

What are your passive losses limited to if you’re, say…a Real Estate Agent? Do they still get phased out if your MODIFIED GROSS income is over $100k, and you’re an Agent?

What about Capital Losses?

And, what about real estate related investments in IRA’s & Qualified Plans? What about exercising your option for a tax-free/tax-deferred income?

What about the fact you can influence when income is received & when taxes are paid? How about your ability to determine when expences are incurred?

I could go on, and on, and on, but I’ve work to do…

-Infowell