Real Estate Bubble Myth

General Real Estate Investing
1

Here are some of my thoughts on the “Real Estate Bubble” as I see it.

I am going to break this down a bit . . .

Here are some reasons why prices on homes have fallen.

  1. Interest Rates

The Federal chairman changes the rates to keep a lid on Inflation. The rise in rates will really affect areas where prices are too high to begin with. Like parts of CA and New York.

Cities such as Chicago, DC, Boston. It wont really affect the South as much.

I do feel we are headed for a recession in 2010 in this county. If you follow history we had one in 1950, 1960, 1970, 1980, 1990, 2000, and so I feel 2010 is next.

  1. People who have are out of work.

Most blue collar states that build cars are hurting.

Erie PA, Lancing and Detroit, parts of Indiana prices are in some cases 30% of FMV. This may be a good buy and hold or buy and gamble area.

  1. To many darn Houses built and on the current market! :o

Their are lots of homes new and old on the market now. NAR says that in the US there are over 4 million homes on the market, this time last year only 3 million.

  1. Rehabbers, Fixers and Flipper - - Oh, MY 8)

Areas like FL went up in value this past year so a lot of investors tried their hand at flipping houses. Now there are just too many on the market! It happened in Miami, Las Vegas and other FL areas too. This is in direct competition with builders who are giving out incentives now like candy at Halloween.

Ok, so how can I avoid this so called “Bubble”

My best advice would to be “Not to put your eggs all in one basket”

  • Buy homes in different up and coming areas such as the south.

  • Stay out of areas where a regional bubble can happen.

  • Don’t invest in areas that are sky high already.

  • Put as little of your own money down as you can. Use Other Peoples Money. Leverage.

Over all I feel this down turn will last maybe 2 to 5 years.

I also feel that over time Real Estate will make you rich.

I welcome all comments and your professional thoughts on this topic! :slight_smile:

2

the easy money has been made in Real estate.

there are however a few states where inventory is dropping and prices are up this year.

The fed is done raising rates and may infact lower them in about 6 months. This will help the few states that are still appreciating.

the one thing that will help you from losing your shirt -
DOING MORE RESEARCH!

but you’re on the right track.

3

i fully agree with your views. it just sadden my hearts that there are a lot of people that are in denile about it, especailly the people that are late bloomers who does not do their research. when will people realize the market right now is NOTHING like how it was in 2002- 2005?? it seems u have followed the market and the economy when it goes into recession. what is the trend that tends to happen when the real estate market is in a recession? what would you recommend to be the best investing strategy for an unstable market like this?

4

I think you will be fine if you approach real estate like an investment and not a speculation. You find a distressed property, buy it cheap (that depends on what is cheap where you are) remedy the distress you will be alright.

House prices don’t go down. What happens is house prices are bid up artificially and people have paid it. What happens is that a house that a guy bought at retail for $80k wants to sell it a year later for $100k because the guy next door sold his for $100k in 2 weeks. Since his house stays on the market 2 months at $100k he says the prices have gone down. No they haven’t. I will bet real money that he can sell it in a week for $80k. What happens is that the prices have not gone up as much. That is why you never want to pay retail. If he had bought that house for $70k when retail was $80k and his neighbor sold his for $100k and he could not sell his for that same price, if he put it on the market for $80k it would well in a week and he would be up by $10k.

The example is for illustrative purposes but bubbles only affect retail prices. You have to buy at a discount.

5

its not a bubble,it only seems like one!

in socal, prices have dropped significantly. there is a 2 yr supply of condos on the market. they will not sell until there is a significant price correction

6

I’m not sure how I understand how this helps to avoid a bubble. In fact if you are going to make a mistake and buy into a bubble that you didn’t forsee, then the more you are leveraged the more it will hurt. Unless you have nothing to lose on your credit score and it is morally alright with you to just walk away from a committment to pay the lender when you find out that you are upside down on the house. The more you leverage, the surer you had better be that you are right, IMHO.

DB

7

ignore the 0 zero down approach for now.

make sure you can rent the property for your mortgage[regardless of how much you put down] on a 5/1 ARM or regular 30 yr loan. don’t use the neg-am loans for calculations. [infact you shouldn’t use them anyway.]

never trust an agent or a seller what a property will rent for. if you’re looking to rehab, make sure if it doesn’t sell you can rent it out for this price and cover your payments.

if rehabbing, also make sure you leave enough profit after calculating all costs and atleast 6 months of vacancy. if the margins are too slim, walk away.

if you don’t know how to calculate these costs, you need to spend the next few months reading 50 books on investing & real estate in your local library.

8

What about real estate developers–especailly with the shopping malls and commercial developers? Do they contribute to the bubble burst? Are they too effected by the bubble burst?

9

I was told by many World Lending Group Mortgage Agent that the negative ARM is the way to go with rental properties and maxing your cashflow. Is that not true?

10

If I were you, I’d look for a new lending agent. I wouldn’t even consider a negative amortization loan for a rental. Cash flow is king for rentals, but how will you keep your cash flow if your principle balance keeps increasing. Sooner or later, you will have to refinance that neg am loan and then your cashflow is gone and you’re in a negative equity position. Talk about a losing deal! These negative amortization loans were based on the hope of runaway appreciation (remember that HOPE rhymes with dope). That is now over and is not likely to reappear for the next 10 to 12 years based on past history. My suggestion is to do the hard work required to find a real deal - one with a positive cash flow AND some equity.

Mike

11

Wow what a shocking bit of news…a mortgage sales guy says his product is best and its “the way to go with rental properties”!

If the Negative Am is goinfg back onto the back end of your loan, how is that cashflow???

Keith

12

Yes, is that not like more of a loan to yourself you have to pay back, unless you are counting on the property appreciating in value? ???

13

But as a twist you pay someone else the interest not yourself. :frowning:

14

It’s too sad to see so many people being lied too and falling for it about negative ARM…

15

Read the book, The Roaring 2000’s, it gives you great detail as to exactly why the boom occurred and when the next one will return.

16

Thank you for your recommendation I will read it.

17

Wallace, are you the guy on MySpace with the tux and bowtie? ;D Jeez, you’re everywhere it seems.

18

So are you saying that as long the property is appreciating in value, payoption arm does max cashflow?

19

Yes…that would be him…

Keith

20

sure, it give you max cashflow, but you are also increasing your liability (loan amt).

think of it this way:

if you don’t pay your credit card bill every month, you will have max cash flow from your income. does that mean you are making money? what happens when you credit card is max’ed out…

not a plan for success as a long-term landlord (IMHO). ARMs and I/O loan are OK for rentals, but always pay the full amt on the debt service (interest). Its deductable on your ScHE as an expanse against income received.