I hope everyone had a great holiday and your New Year is off to a bang. My own investing and investing education is going great.
My question for TOPIC is about the “B” word… (bubble).
While we all know the “B” word is not a universal thing, it can happen in Sub Markets, in pockets all over the USA.
From your own local knowledge and experience, where would you tell an investor NOT TO INVEST in and why? Say for example because the prices may fall off or even drop?
What about Miami? ???
Your thoughts as a group of Professional is appreciated!
Since you make your money when you buy the property, not when you sell it, there isn’t a single area that I would say don’t invest in.
It’s the deal that makes more sense than the market as a whole.
That being said, in hotter markets more deals make sense because you can be less conservative on the numbers.
I think the thing that investors need to keep in mind is the strength of the market allows you to either take more or fewer risks not whether you can or can’t make money.
Whether it be the stock market or the RE market a good investor can always make money, you just have to be smart to do it. Good markets just make it easy for money to fall into the lap of an otherwise uneducated person. Think about that late 90’s, anyone with money to invest could have made money on tech stocks. Nowadays things are tighter and its tougher to make money but I don’t see Merryl Lynch going out of business. Even during the worst markets there were stil REIs making money, the tough times probably just eliminated some of the weaker competition.
My advice, take everything on a deal by deal basis. Look at the numbers, closely, and see if it will make you money. If not, walk away and find another deal.
Real estate has been a solid investment since 1932, but now many people including Alan Greenspan are predicting anywhere from a “bubble” to an “outright crash” of the real estate market. Some are even predicting a serious “deflation” in the value of homes, one of whom I read was predicting a 50% decline. I find that highly unlikely. During the Great Depression, the largest annual drop in home prices in any one year was only eleven percent (11%).
In most areas, coastal excluded, prices are not over inflated. The problem lies with interest rates. If short term rates exceed long term rates you may see the economy going into recession and stifling home buying. Therefore, we must watch and see if the federal reserve continues to raise rates. If you do your due diligence on each property you should be ok.
The reason that there is a bubble (and there is a retail bubble) is that people buy properties at retail prices hold them and because of the high rate of appreciation, time creates equity for them. In our business we create our own equity by fixing up the properties. Therefore for investors there is no bubble.
We don’t buy properties at retail prices but we do sell at retail prices. Even in a stagnant market is which home process are the same for 20 years, we still make money because we buy below retail fix them up and sell them at retail prices.
As long as we have the three “D”s (death, disease, and divorce) we will always be able to make money.
How do you sell at retail price in a stagnant market? Won’t you have the same problem as retail brokers? If there is too much inventory out there, won’t you fall in line like everyone else to sell your property? If you sell your property at retail creatively as you bought it, how is that retail? I’m a newbie so I’m just trying to understand this.
I don’t know of any markets that are stagnant. Here is Houston is probably the closest thing in the country and we have what I call normal appreciation 3% - 5%. But you always want to have best product best price. When you fix up a property, you are selling to a person that wants a house, just like yours in the same area. They will either buy your house or the one just like it 2 streets over. What you want to do is make the guy want to buy yours. You need local knowledge to make that happen. Make your house more attractive than the one 2 streets over. In Houston, you want to have solid surface and good appliances in the kitchen, whirlpool tub vessel sinks in master bath, hard wood floors, etc. This all depends on the area and what others are offering.
But the price will not make the sell. You will price the house at the market rate just as the others, the house will sell because of the fix up. So for the price point, you offer the best product. That is why I say best product best price will move the house. Not the fanciest house not the cheapest price. The best product best price.
Have any of you ever sold your properties in a hot market to then reinvest the money in an up and coming market. Have you moved simply to do this? For example I have a few properties that have grown significantly in the s. florida market. Everyday it seems like cost keep going up here (taxes, ins, electricity, hoa’s, etc). Is it smart to cash out and move to an area that is beginning to rise and hasn’t reached an over inflated market? How can you determine if something has capped for awhile?
<<Have any of you ever sold your properties in a hot market to then reinvest the money in an up and coming market. Have you moved simply to do this? For example I have a few properties that have grown significantly in the s. florida market. Everyday it seems like cost keep going up here (taxes, ins, electricity, hoa’s, etc). Is it smart to cash out and move to an area that is beginning to rise and hasn’t reached an over inflated market?>>
I cashed out in the DC area an moved…partly because of ever-escalating costs (of everything), partly because of the rat-race, and partly because they started blowing stuff up…
Bluemoon is 100% correct. Blue explained it a bit better than I had orginally. The phrase that I used ‘You make your money when you buy your property rather then when you sell it’ emphasizes that we don’t make our money based on market appreciation. We make our money based on buying UNDER market now and fixing it up to a saleable condition.
P.S. You always sell at retail. Whether you like it or not if you’re selling a property to someone other than an investor (which, if you’re doing the rehab, usually the margins are too low to do) then it’s ‘RETAIL’.
It’s easy to sell at retail even in a soft market. There is always demand for shelter - you can sell ANYTHING at the right price. You just have to know what price is ‘RETAIL’ before you buy the house and rehab it. The real issue is with those that over estimate this ‘RETAIL’ figure on the front end. Those are the ones that are banking on the appreciation of the market to make up their margins for doing a spotty deal in the first place.
Flip check on from Hawaii, was a property I bought a couple of years ago because of a seperation and structured a nice offer, upgraded it as a rental, and just sold it for $177K profit (before fees and expenses)
On another note FORTUNE MAG just listed the TOP 100 Real Estate Markets to appreciate in 2006, 2007
#1 San Antonio TX with 7%+
#100 (WORST) Las Vegas -5.9% in 2006, -7.2% in 2007
“From your own local knowledge and experience, where would you tell an investor NOT TO INVEST in and why? Say for example because the prices may fall off or even drop?”
Housing markets are in a constant state of flux (appraisal principle of CHANGE), and what I advised a year to six months ago is not necessarily what I’d advise today (holds true for the future for that matter);
I’d currently avoid Miami…Yes, and areas of Orange County CA, certainly Las Vegas (nowadays), New York, and DC. There are many other areas around the country that I view as far less risky.
P.S. You always sell at retail.
“…it’ emphasizes that we don’t make our money based on market appreciation. We make our money based on buying UNDER market now and fixing it up to a saleable condition.”
You’ll have to forgive me (I know how touchy you get when someone disagrees with you), but where is this written in stone?
There’s more than one way to invest. For instance; my brother’s a rehabber, but I make as much (if not more) off appreciation by recognizing emerging markets, and buying in the path of future growth.
I don’t repair, I don’t paint, I don’t shampoo (least not yet). I simply have the lawn mowed & the interior cleaned. Of course I buy at a good price, but I make more on an annual basis than the average household makes in a year–just by riding the equity elevator.
