Our Future Real Estate Strategy: Thoughts After Five Weeks Off

by | BiggerPockets.com

To Quote Michael Jordan, “I’m Back.”

I thought I would start my first article back with my reflections on the market. Where we are, where we are going and close with what we might do in certain situations.

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Where We Are Currently:

The market is clearly off the bottom with my earlier prediction of at least 20% in improvement this year potentially proving to be too conservative. Where I used to find a deal a weak just sitting there in the MLS to be picked up for pennies on the dollar four years ago I haven’t found a deal in the MLS in almost a year.

Another area that is improving slowly is financing for the active investors. Years ago a bank would just kindly ask me to leave as I have too many properties. Now a few county banks and credit unions are talking about writing loans against multiple properties as a portfolio. Mark my words if any of the big banks drop the 10 limit rule for investment properties the housing market will improve by 10%-20% overnight.

Also, it is clear that deep pocket investors are active across the nation amassing thousands of single family homes with one goal in mind. They want to make lots of money. They like to talk about buying at a 7% or 8% cap rate. If you believe that is all they are looking for you need to remember these are the guys are the ones who created CDO’s, etc. I suspect they are looking at making no less than 50% and most won’t be happy with anything less than doubling their money.

They will make the lion share of their profit in the future either through selling inventory to individual investors, they will create REIT’s and sell shares to public or they will finally figure out a way to rate portfolio’s and securitize the rental income / cash flow. Good luck with this last one. My money is on them creating REIT’s and selling shares to the public (I forgot to mention they will leverage up the portfolio with loans taking out all of their original capital before they sell shares to the public thus earning profit twice). They are not called smart money for nothing.

Where We Are Going:

I suspect 2013 will prove to be the first of at least 3 years of double digit increases in real estate values. I can already feel the masses starting to talk real estate again at parties and at work. I find this crazy as no one wanted to talk when the market was ripe for picking in 2008. But now that properties we bought have doubled (rent stayed the same) people are interested in buying again.

If interest rates stay low, meaning under 6% for all three years it could prove a better time to sell in 2016 than to buy.

While I believe home ownership is a great goal for most people I suspect we will not see home ownership rates anywhere close to our past peek for multiple decades. This means we will have a growing population of renters which will increase rental rates as time goes by for quality well cared for rentals.

What We Might Do?

At this point we are still active in the market looking for deals but I have to be honest – we might be done buying for a couple of years. If that happens I am ok as that means prices are rising fast and we will just sit back and manage our portfolio.

Lastly by 2015 or 2016 we could be looking to unload our portfolio through a mix of 1031 Exchanges and straight sales to build cash reserves for alternative investments.

Things are never boring in real estate and I promise the next three years will be very exiting.

Good Investing

Photo: manuel | MC

About Author

Michael Zuber is an active buy-and-hold real estate investor who still has a full-time job. Michael is not an agent or broker, and simply uses the internet and agent relationships to drive his business. He currently averages at least one deal a month and has developed laser focus on his 5 step process.


    • Hi Jeff

      You know my rule. Ask a question get an answer:-)

      I honestly believe we have inflation already but the real hit is still several years away (My guess 5). I don;t see any way around inflation given all the money printing and currency debasement going on around the world.

      As for consequences I say buy cash flow assets into inflation rise and then when numbers don’t make sense sell and move equity to other markets, other asset class or just take the 6-8% coupon we should be earning by then (verse 1% today)

      Good Investing

  1. Hi Mike:

    Love your post.

    We’re finding the same thing with banks. We haven’t borrowed from a bank in seven years, but we’ve had several approach us this year (!) with suggestions on how they could benefit us.
    Double digit appreciation is unheard of here in NC. Boy, would I love that. And, like you, we are very active in the market but have stopped buying. Our focus now is on flips to pay off the portfolio we built over the past 10.

    Thanks for the post and Happy Investing to you!

  2. Tracy Royce

    Interesting article Michael. Quite a few seasoned investors here are less in buy mode, and if they are, it’s too hold. Personally I still look at each deal individually and yes, basically ignore what’s in MLS.

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