Buying at market peak?
Member since 2019 · 67 posts · 34 votes
Buying at market peak?
Most Popular Reply
Investor · San Jose, CA · Member since 2012 · 2k+ posts · 3k+ votes
7yOriginally posted by @Jack Zhuang:
I read reports and experts saying the real estate market are approaching market peak in sales price in 2019. Price growth in my local market in SF Bay Area has defiantly slowed in 2019 Q1 compare to 2018 Q1. It seems like most experts are agreed the price will come down in the near future but they can't agree on how "near" is near.
I've been looking forward to invest in small MF units near the Bay Area but I'm hesitate to buy at the market peak. What should I do? Need advice!
Jack,
Bay Area Real estate is a competitive sport. The best players win. I didn’t realize owning real estate in the Bay Area is sexy until I’ve owned 10 apartment buildings with my partner. 😂😂😂
Let me give it straight to you. The people who say Bay Area Real Estate is expensive, no cash flow, blah blah blah, don’t have the know how to play in this league, or they have some 💩 to sell to you. Our market is one of the MOST lucrative real estate markets in the world. Millions and billions are made here, and people want to take their money to go and play elsewhere? I guess you and they haven’t had the opportunity to meet and talk to millionaires and billionaires who made their money HERE.
Once you’re a player in our market, you can get deals regardless of where we are in the cycle of the housing cycle. Then you will realize time in the market is as important as timing the market.
My partner and I bought 22 units last year in San Jose. We’re negotiating to buy 17 more units for $3.5M now. Then another lead just came in for over 20-unit portfolio in our market while I’m sitting on the balcony at Hyatt Regency hotel in Waikiki watching the waves.
By the way, a buddy of mine just got in contract for a 6-unit bldg in SF for $1.65M. He thought the market has peaked since 2013 while he was watching my partner and I buying bldg after bldg since. He finally realized waiting comes at a cost. He got a decent deal though while others said no deals to be had...😜
Go figure it out and make it happen. Life waits for no one.
Aloha!
33 Replies
- 7yMatthew Irish-JonesBusiness MemberReal Estate Agent · Buffalo, NY · Member since 2017 · 2k+ posts · 2k+ votes
@Jack Zhuang I think you should invest for cash flow, and consider choosing a more stable market. If you invest for cash flow and the rent is stable, which it should be, you will still be ok if there is a market correction.
I don't think waiting out markets is the best strategy, and I have yet to meet the person that can predict them.
Irish Jones Realty4.947 Reviews - Rental Property Investor · Chubbuck, ID · Member since 2018 · 532 posts · 466 votes7y
Do you want to be an investor or a speculator? To be a successful investor you need to think of the long term not just what might happen in the short term. Find an investment that is a good deal in today’s market that has potential to withstand downturns, and has opportunity to appreciate in both value and cash flow over the next several years. Also don’t over extend yourself and you will be fine in any market. Market downturns happen but you only lose if you sell during the downturn. Invest in all markets and take advantage of dollar cost averaging and compound interest and don’t get scared and sell in a downturn.
- Member since 2019 · 67 posts · 34 votes7y
Originally posted by @Matthew Irish-Jones:
@Jack Zhuang I think you should invest for cash flow, and consider choosing a more stable market. If you invest for cash flow and the rent is stable, which it should be, you will still be ok if there is a market correction.
I don't think waiting out markets is the best strategy, and I have yet to meet the person that can predict them.
Hey Matt, assuming I buy a 2-4 unit MF property with stable rent and cash flow today and the medium home price tanks next year. Small MF property will still get impacted by the medium market value, right?
Let's say the medium home price will drop in 2020 or 2021 and it takes another 5 years or longer to recover to the currently state (similar to what happened after 2008), will I lose many years of value appreciation due to this market downward cycle?
Although no one can predict the peak of the market, isn't is wise to avoid buying at downward moving market?
- 7yMatthew Irish-JonesBusiness MemberReal Estate Agent · Buffalo, NY · Member since 2017 · 2k+ posts · 2k+ votes
@Jack Zhuang Well yes and no. You will lose market value on your home but, the market value on your home is always going to be going up and down. That is why most investors I know invest for cash flow and IRR not appreciation.
If you add up cash flow, debt pay down, and appreciation over the duration of you holding the asset, chances are very low that the net appreciation is going to be negative. That is relative to specific markets obviously but, home values historically have always gone up over time, not down. There are ebbs and flows in every market. One of the advantages of RE investing is the positive cash flow in both up and down markets. The positive cash flow allows you to ride out the lows, and occasionally cash out and sell during the hi's.
There is a lot of interest over the last 10 years in investing in markets that are more stable due to the fear of losing all of your equity during a market crash. This includes a lot of rust belt cities that although they do not have the crazy appreciation of some markets provide steady cash flow, and are not as volatile as other markets.
Irish Jones Realty4.947 Reviews - Flower Mound, TX · Member since 2016 · 30 posts · 24 votes7y
@Jack Zhuang some things to take into consideration:
- Are you looking to hold short- or long-term? To borrow Buffett's quote, are you comfortable in buying something and not being able to sell it for 10 years? (I am paraphrasing his quote re: stocks and the market closing.) If you look over a long-term horizon and surmise that your property will be worth flat, slightly down or up over the next 5-10 years, then don't you come out ahead at the end?
- Also, multi-family is primarily driven by the NOI of the property. Granted, you could have times where there are less buyers out there and you could "feel" like the market is discounting your property, but again over time I would think that should even out.
- For too long, I have also been too apprehensive thinking the market is going to "correct," but that has likely cost me a lot of money. Therefore, I will instead only be looking at "deals" and trying to ignore a lot of the chatter.
- If you buy in 2019, and there is a 5%-10% correction in 2020-2021, does that hurt you? In stocks, it could if you purchase on margin or need access to the cash...in real estate, provided you have the tenants, you experience minimal pain. In fact, I'd be willing to bet that A LOT of RE investors on this site (and elsewhere for that matter,) who own properties, are secretly wishing for another downturn so that they can add to their portfolios. They understand the value of their existing properties may drop, but they can then go bargain hunt and add to their portfolios...they're not going to sell most likely during that time.
- If you find a good deal, and you are happy with the numbers, and you have a healthy timeline of ownership, along with adequate capital reserves, I would not worry too much about trying to "time" this real estate market. - Real Estate Broker · Bay Area · Member since 2018 · 1k+ posts · 3k+ votes7y
Hi Jack,
If you are looking to buy 2-4 MF in the Bay Area it does not make any sense at this time at these prices. Unless you were trying to buy value add projects in East Oakland I see no real value. I see people paying way too much for properties that do not support the rents. Guess that's what happens when everyone and their mamas want 2-4 units.
- Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes7y
If you are that sure, all you need to do is take a short position on housing and you can be a billionaire.
District Invest Group545 Reviews - Member since 2019 · 67 posts · 34 votes7y
Originally posted by @Matthew Irish-Jones:
@Jack Zhuang Well yes and no. You will lose market value on your home but, the market value on your home is always going to be going up and down. That is why most investors I know invest for cash flow and IRR not appreciation.
If you add up cash flow, debt pay down, and appreciation over the duration of you holding the asset, chances are very low that the net appreciation is going to be negative. That is relative to specific markets obviously but, home values historically have always gone up over time, not down. There are ebbs and flows in every market. One of the advantages of RE investing is the positive cash flow in both up and down markets. The positive cash flow allows you to ride out the lows, and occasionally cash out and sell during the hi's.
There is a lot of interest over the last 10 years in investing in markets that are more stable due to the fear of losing all of your equity during a market crash. This includes a lot of rust belt cities that although they do not have the crazy appreciation of some markets provide steady cash flow, and are not as volatile as other markets.
Hi Matt, it depends on the market. I agree that a smart long term investor should focus on cash flow and that's where my primary focus is. However, in expensive markets like California or NYC, the land value is worth more than its indwelling. So the land appreciation portion should be heavily considered.
Since the 08 crash, the SF Bay Area market has experienced tremendous growth of 6-10% annual appreciation beating 90% of the markets in the US. And the total cumulative appreciation in the past 10 years was a whooping 78%. I'm having a hard time ignoring those numbers in my head.
My assumption for small 2-4 unit MF is the property market value will also be influenced by the local market appreciation similar to SFH. I can't convince myself pull the trigger knowing if a market adjustment is coming soon.
-Jack
- Member since 2019 · 67 posts · 34 votes7y
Originally posted by @Frank Klarich:
@Jack Zhuang some things to take into consideration:
- Are you looking to hold short- or long-term? To borrow Buffett's quote, are you comfortable in buying something and not being able to sell it for 10 years? (I am paraphrasing his quote re: stocks and the market closing.) If you look over a long-term horizon and surmise that your property will be worth flat, slightly down or up over the next 5-10 years, then don't you come out ahead at the end?
- Also, multi-family is primarily driven by the NOI of the property. Granted, you could have times where there are less buyers out there and you could "feel" like the market is discounting your property, but again over time I would think that should even out.
- For too long, I have also been too apprehensive thinking the market is going to "correct," but that has likely cost me a lot of money. Therefore, I will instead only be looking at "deals" and trying to ignore a lot of the chatter.
- If you buy in 2019, and there is a 5%-10% correction in 2020-2021, does that hurt you? In stocks, it could if you purchase on margin or need access to the cash...in real estate, provided you have the tenants, you experience minimal pain. In fact, I'd be willing to bet that A LOT of RE investors on this site (and elsewhere for that matter,) who own properties, are secretly wishing for another downturn so that they can add to their portfolios. They understand the value of their existing properties may drop, but they can then go bargain hunt and add to their portfolios...they're not going to sell most likely during that time.
- If you find a good deal, and you are happy with the numbers, and you have a healthy timeline of ownership, along with adequate capital reserves, I would not worry too much about trying to "time" this real estate market.Hi Frank, when I'm doing my analysis, I'm using 5 year as a check mark. I might keep the property longer as of the snowball effect but let's say 5 years for now. Another Buffett's quote is "Our favorite holding period is forever". It is ideally to hold the golden chicken forever and only eat the golden eggs. But sometimes, you have to eat the chicken.
I'm a little skeptical about buying at the market peak is because of the opportunity cost. Properties are very expensive here in the Bay Area, avg. price of a SFH is over $1.5M! Even the 20% down payment will take years to save. When the property value decreases by 10% or 15%, that makes the property a lot more affordable. I don't know about you, but I can't save 150K/year from my W-2 job, so why not wait for a year or two?
Another side effect of the high price is negative cash flow. In order to have even or positive cash flow from a small MF in my local market, I will have to either have a high % of down payment or find heck of a deal.
It is still a strong seller's market in the Bay Area, people over pay a ton to get what their heart desires. Paying 100K or 200K over asking price for a SFH to hope beat out the cash buyer is very common here. How am I suppose to find a good deal when buyers are so craaaaaazy!
My hope is not to "time" the lowest market value to entry, just waiting the market to be slightly more affordable.
-Jack
- Member since 2019 · 67 posts · 34 votes7y
Originally posted by @Frank Wong:
Hi Jack,
If you are looking to buy 2-4 MF in the Bay Area it does not make any sense at this time at these prices. Unless you were trying to buy value add projects in East Oakland I see no real value. I see people paying way too much for properties that do not support the rents. Guess that's what happens when everyone and their mamas want 2-4 units.
Frank, totally agree! You know the local market in the Bay and I can't see myself overpaying like everyone else.
- Member since 2019 · 67 posts · 34 votes7y
Originally posted by @Russell Brazil:
If you are that sure, all you need to do is take a short position on housing and you can be a billionaire.
I can't tell you exactly what temperature it will be tomorrow, but I know it will be warm :)
- Real Estate Agent · Cupertino, CA · Member since 2016 · 4k+ posts · 1k+ votes7y
2018 spring was the peak year for this cycle. Everyone knows things are back to normal where homes based on past data need an adjustment. Mountain View, Sunnyvale, Cupertino, Los Altos, Fremont all are saturated with homes that come on the market. Marketing time now takes approx 2X longer. That being said last 15 months avg home price in aforementioned cities dropped close to 12%. That price adjustment was set with full employment. R2 start around 1.1M with 3-3.5% cap rate. R3 2/1 ea in MV sold for $2.3M. East Bay like Oakland, Contra Costa Counties are lower. When cap rate and CD are close to each other, what is a better choice? Most investors already went o other states if interested in cash flow. Appreciation SFBA probably will not be much better than Tennessee or Alabama urban at least for awhile.
- Investor · Marin County California · Member since 2018 · 1k+ posts · 2k+ votes7y
I do not have a crystal ball. However, there is an article in the San Jose Mercury today - the Bay Area contains 19% of California's population but just created 36% of all jobs in the state. People who have jobs need to live somewhere and have money to pay rent. Bumps and rough roads are an inevitable part of any investment plan. Investing in areas where people are fleeing and/or can't find work is (to my mind) where the real risks lie.
- 7yTheresa HarrisPro MemberMember since 2019 · 15k+ posts · 11k+ votes
Buy something that makes financial sense. You only know you were at the peak after the fact.
- Rental Property Investor · San Diego, CA · Member since 2018 · 44 posts · 36 votes7y
@Jack Zhuang
Invest in large multifamily B/C class. We control the cash flow and force the appreciation of value instead of waiting for the market to go up.
Waiting for the market- They call that “hopium.”
- Flower Mound, TX · Member since 2016 · 30 posts · 24 votes7y
Originally posted by @Jack Zhuang:
Originally posted by @Frank Klarich:
@Jack Zhuang some things to take into consideration:
- Are you looking to hold short- or long-term? To borrow Buffett's quote, are you comfortable in buying something and not being able to sell it for 10 years? (I am paraphrasing his quote re: stocks and the market closing.) If you look over a long-term horizon and surmise that your property will be worth flat, slightly down or up over the next 5-10 years, then don't you come out ahead at the end?
- Also, multi-family is primarily driven by the NOI of the property. Granted, you could have times where there are less buyers out there and you could "feel" like the market is discounting your property, but again over time I would think that should even out.
- For too long, I have also been too apprehensive thinking the market is going to "correct," but that has likely cost me a lot of money. Therefore, I will instead only be looking at "deals" and trying to ignore a lot of the chatter.
- If you buy in 2019, and there is a 5%-10% correction in 2020-2021, does that hurt you? In stocks, it could if you purchase on margin or need access to the cash...in real estate, provided you have the tenants, you experience minimal pain. In fact, I'd be willing to bet that A LOT of RE investors on this site (and elsewhere for that matter,) who own properties, are secretly wishing for another downturn so that they can add to their portfolios. They understand the value of their existing properties may drop, but they can then go bargain hunt and add to their portfolios...they're not going to sell most likely during that time.
- If you find a good deal, and you are happy with the numbers, and you have a healthy timeline of ownership, along with adequate capital reserves, I would not worry too much about trying to "time" this real estate market.Hi Frank, when I'm doing my analysis, I'm using 5 year as a check mark. I might keep the property longer as of the snowball effect but let's say 5 years for now. Another Buffett's quote is "Our favorite holding period is forever". It is ideally to hold the golden chicken forever and only eat the golden eggs. But sometimes, you have to eat the chicken.
I'm a little skeptical about buying at the market peak is because of the opportunity cost. Properties are very expensive here in the Bay Area, avg. price of a SFH is over $1.5M! Even the 20% down payment will take years to save. When the property value decreases by 10% or 15%, that makes the property a lot more affordable. I don't know about you, but I can't save 150K/year from my W-2 job, so why not wait for a year or two?
Another side effect of the high price is negative cash flow. In order to have even or positive cash flow from a small MF in my local market, I will have to either have a high % of down payment or find heck of a deal.
It is still a strong seller's market in the Bay Area, people over pay a ton to get what their heart desires. Paying 100K or 200K over asking price for a SFH to hope beat out the cash buyer is very common here. How am I suppose to find a good deal when buyers are so craaaaaazy!
My hope is not to "time" the lowest market value to entry, just waiting the market to be slightly more affordable.
-Jack
I guess I was under the mistaken impression that you were trying to look at this with an open mind, but I think you likely came into it with a pre-conceived notion that you were looking for validation on. Look for solutions, not just what the problems are.
- Rental Property Investor · SF Bay Area · Member since 2018 · 49 posts · 54 votes7y
One thing you are failing to account for is the HUGE amount of money in the Bay Area chasing assets like real estate. It’s only going to increase when the lockup period expires for all these recent ipos that just hit.
- Investor · San Jose, CA · Member since 2012 · 2k+ posts · 3k+ votes7y
Originally posted by @Jack Zhuang:
I read reports and experts saying the real estate market are approaching market peak in sales price in 2019. Price growth in my local market in SF Bay Area has defiantly slowed in 2019 Q1 compare to 2018 Q1. It seems like most experts are agreed the price will come down in the near future but they can't agree on how "near" is near.
I've been looking forward to invest in small MF units near the Bay Area but I'm hesitate to buy at the market peak. What should I do? Need advice!
Jack,
Bay Area Real estate is a competitive sport. The best players win. I didn’t realize owning real estate in the Bay Area is sexy until I’ve owned 10 apartment buildings with my partner. 😂😂😂
Let me give it straight to you. The people who say Bay Area Real Estate is expensive, no cash flow, blah blah blah, don’t have the know how to play in this league, or they have some 💩 to sell to you. Our market is one of the MOST lucrative real estate markets in the world. Millions and billions are made here, and people want to take their money to go and play elsewhere? I guess you and they haven’t had the opportunity to meet and talk to millionaires and billionaires who made their money HERE.
Once you’re a player in our market, you can get deals regardless of where we are in the cycle of the housing cycle. Then you will realize time in the market is as important as timing the market.
My partner and I bought 22 units last year in San Jose. We’re negotiating to buy 17 more units for $3.5M now. Then another lead just came in for over 20-unit portfolio in our market while I’m sitting on the balcony at Hyatt Regency hotel in Waikiki watching the waves.
By the way, a buddy of mine just got in contract for a 6-unit bldg in SF for $1.65M. He thought the market has peaked since 2013 while he was watching my partner and I buying bldg after bldg since. He finally realized waiting comes at a cost. He got a decent deal though while others said no deals to be had...😜
Go figure it out and make it happen. Life waits for no one.
Aloha!
- Investor · Dallas, TX · Member since 2015 · 446 posts · 197 votes7y
@Jack Zhuang
I bought at the peak of the market in 2015, right before it was about to go down. Pretty much anyone who bought in the last 4-5 years bought at the top right before it was about to go down. And here we are, right before it’s about to go down.
Thankfully, the area I invested in “at the top of the market cycle” has appreciated around 35% since then.
Hopefully this post doesn’t jinx the domestic real estate market.
- Contractor · Grand Marais, MN · Member since 2016 · 249 posts · 417 votes7y
You aren't factoring in interest rates. It's the only thing that matters. If prices drop, but interest goes up, you lost money. Don't buy junk, but I really don't think these rates will last forever. I would rather lock up 30 year mortgages than wait on a lower price. Ever bought something on sale with a credit card? Same idea.
- CA · Member since 2016 · 1k+ posts · 1k+ votes7y
Instead of waiting for the "right" timing, set a bench mark that you are OK buying and stick to it..... Unless you find a property that hits your bench mark, don't buy just because other people are buying... Some of those people will go busted in the next year or two...
I am looking for 4-plex too, and I have set a criteria that with 15% down, i need the property to be cash flow neutral from day 1.... Of course, that is not happening in today's market, so I am waiting....and looking every day...
This is a very dangerous time to buy, so stick to your criteria....
If you look at MFH currently listed in SF for under $3M, at least 5 of them are listed by people who bought back in 2017/2018 and who are trying to sell for what they paid for now... Not selling....
- Member since 2019 · 67 posts · 34 votes7y
Originally posted by @Sam Shueh:
2018 spring was the peak year for this cycle. Everyone knows things are back to normal where homes based on past data need an adjustment. Mountain View, Sunnyvale, Cupertino, Los Altos, Fremont all are saturated with homes that come on the market. Marketing time now takes approx 2X longer. That being said last 15 months avg home price in aforementioned cities dropped close to 12%. That price adjustment was set with full employment. R2 start around 1.1M with 3-3.5% cap rate. R3 2/1 ea in MV sold for $2.3M. East Bay like Oakland, Contra Costa Counties are lower. When cap rate and CD are close to each other, what is a better choice? Most investors already went o other states if interested in cash flow. Appreciation SFBA probably will not be much better than Tennessee or Alabama urban at least for awhile.
Sam, appreciate for the insight! I've been watching the SFBA market for a few years and was struggling to make sense what to invest. I saw the market correction since 2018 with no employment drop and I was wondering what will happen to the Bay Area market when there's a recession when people starting to lose their jobs. Because of this trade war thing, foreign money is getting even harder to get into the states to save people's morgate when their income is cut. SFH will hurt the most.
I spoke to small investors in the bay who focus on tertiary markets. But as you mentioned the cash flow was similar to out of state but requires more initial seek money to get it started. I will either wait a bit longer or look else where.
-Jack
- Member since 2019 · 67 posts · 34 votes7y
Originally posted by @Darius Ogloza:
I do not have a crystal ball. However, there is an article in the San Jose Mercury today - the Bay Area contains 19% of California's population but just created 36% of all jobs in the state. People who have jobs need to live somewhere and have money to pay rent. Bumps and rough roads are an inevitable part of any investment plan. Investing in areas where people are fleeing and/or can't find work is (to my mind) where the real risks lie.
Good point Darius! Which direction do you think people are fleeing? In or out of the Bay Area?
- Member since 2019 · 67 posts · 34 votes7y
Originally posted by @Account Closed:
Originally posted by @Jack Zhuang:
I read reports and experts saying the real estate market are approaching market peak in sales price in 2019. Price growth in my local market in SF Bay Area has defiantly slowed in 2019 Q1 compare to 2018 Q1. It seems like most experts are agreed the price will come down in the near future but they can't agree on how "near" is near.
I've been looking forward to invest in small MF units near the Bay Area but I'm hesitate to buy at the market peak. What should I do? Need advice!
Jack,
Bay Area Real estate is a competitive sport. The best players win. I didn’t realize owning real estate in the Bay Area is sexy until I’ve owned 10 apartment buildings with my partner. 😂😂😂
Let me give it straight to you. The people who say Bay Area Real Estate is expensive, no cash flow, blah blah blah, don’t have the know how to play in this league, or they have some 💩 to sell to you. Our market is one of the MOST lucrative real estate markets in the world. Millions and billions are made here, and people want to take their money to go and play elsewhere? I guess you and they haven’t had the opportunity to meet and talk to millionaires and billionaires who made their money HERE.
Once you’re a player in our market, you can get deals regardless of where we are in the cycle of the housing cycle. Then you will realize time in the market is as important as timing the market.
My partner and I bought 22 units last year in San Jose. We’re negotiating to buy 17 more units for $3.5M now. Then another lead just came in for over 20-unit portfolio in our market while I’m sitting on the balcony at Hyatt Regency hotel in Waikiki watching the waves.
By the way, a buddy of mine just got in contract for a 6-unit bldg in SF for $1.65M. He thought the market has peaked since 2013 while he was watching my partner and I buying bldg after bldg since. He finally realized waiting comes at a cost. He got a decent deal though while others said no deals to be had...😜
Go figure it out and make it happen. Life waits for no one.
Aloha!
Hi Mihn, I greatly appreciate someone who has so much experience in the Bay Area real state market giving new the new prospective. I certainly have not met a lot of investor (millionaires or not) in the area, but I would be really interested to meet people and learn their perspective.
I went for a jog in my neighborhood in Mountain View this evening and saw new constructions of A class-A MF building just wrapping up. Across the street from it, there are blocks and blocks of class-C buildings which were built in the 60s and 70s. As a millennial tech worker myself, I wish there are more available class-A housings to choose from than living in older yet expensive apts. I believe there's still huge potential modernizing the apartments in the Bay Area and more millionaires and billionaires will be created from real estate along the way.
If now is your first time stepping into the Bay Area real estate markets, what would you do differently? How would you start as a newbie with not much connections and limited capital?
Cheers,
-Jack
- Investor · Marin County California · Member since 2018 · 1k+ posts · 2k+ votes7y
By 2040 the San Francisco Bay Area is projected to add 2.1 million people, increasing total regional population from 7.2 million to 9.3 million, an increase of 30 percent or roughly 1 percent per year. This growth means the Bay Area will continue to be California's second-largest population and economic center.
This from the MTC
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