chasing the market

1 Reply

hi,

curious to hear what some long term investors think with respect to when to say no to chasing ever increasing prices.  

 The pacific northwest (particularly Seattle area) has seen a huge increase in the price of homes and multi-family properties (as well as rents).  increasingly i am seeing multiple bids on a property and agents calling for "highest and best offers", etc.  we recently lost out on a prop when 3 additional bidders came in and someone paid full price.   Full price on a place that needed a new roof immediately, new electrical panels immediately, possible need to re-wire the entire place and finally one of the units hadn't been updated in nearly 15 years.  The cap rate at current rents was something near 5.75%-6% and cash on cash was not attractive either given the $ needed to spend on the first day, etc.  i realize the northwest is a growth area of the country but when do investors say enough and step away from the market.  

@Mike R. ,

Mike,

I think we're in a similar environment here in Denver, it's made things tough.  I see deals here with really low cap rates also 3-4%, who buys that?!  There are bigger funds out there who I think just want a portfolio of stable cash flow properties, even if it's only 5-6%, it works for them, not for me.

I consider myself a big fan of contrarian investing, buy when there's blood in the streets, avoid the feeding frenzy.  Right now, instead of pushing capital into new things, I'm focusing on improving the value of my existing assets, creating more equity and increasing cash flow.  

Though I am keeping and eye out for deals though. I think there's still a lot of value in land development or distressed properties (if you can find them). Investors are flocking to the tried-and-true deals, I'm going to try to be where the herd isn't today but will be tomorrow.

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