Is it smart to invest in a red hot market?

23 Replies

Hey guys, I live in the Boulder Colorado area and the real estate out here is going crazy. Listings stay on the market for only a day frequently and they often go for well above listing price. Is it smart to buy now or should I wait for the market to cool to get a better deal?

Thanks, Nick

Hey @Nick Elrod we were faced with the same situation here in South Florida a year ago. We had to go above and beyond to find deals. Red, hot fire market here. At the end, we said "screw it" and placed several, several, several offers every week. From a different angle we researched new commercial retail and new homes developments. At the end we closed on two properties. So its doable. Today both properties appreciated around 8%. Will keep an eye on pending-sales/days-on-market once development ends. My advice: dont focus to much on listing if banks are approving above listing the value is probably there...

If you can find a good deal in your HOT market then yes absolutely.  Are you banking on appreciation or is there potential cash flow you can get?

@Brian G. Thanks for the input. It's good to see that you got some appreciation out of your deal. How does it work submitting multiple offers. Are you bound to every offer that gets accepted or can you back out of the deal if you change your mind or value one property over another?

Nick

@Alexander A. Thanks for the response. This would be more for appreciation because it would be my primary residence. I own a townhouse that would cash flow already and would hang on to that! 

There are deals in every market - not as easy to find right now but they are out there. Just depends on your strategy and goals. I am doing/seeing/funding the most profitable deals I could have ever imagined, even in this red hot market.

All signs point to our market staying strong for the foreseeable future - if you wait for the market to cool - what does that look like? not participating in potential gains? 

Careful with considering your primary an investment unless you are buying multipleunit, typically what works for you isn't always the best investment. Maybe you get into something a little less than you can afford to allow saving money to buy investment deals.

Good Luck!

@Travis Sperr Thanks for the insight.It's reassuring to hear from a fellow Coloradan!

Nick

Hey @Nick Elrod - I'm with @Travis Sperr on this.  

Just had a conversation last night with some local folks and the discussion was all about whether Denver area market is a bubble, or just a climb up to a plateau.  The general consensus of the small group is that there is no bubble.  

When the market cools (general consensus is more than two but less than five years from now), it will just mean that the prices will stall wherever they are at that point and if they dip, won't dip much - maybe 10% in some price points, maybe a little more in higher price points.

If it's a bubble, then it will burst and prices may come down as much as 15% from wherever they are at the moment of burst, but you aren't going to see a major correction back down to where prices were, say, two or three years ago.

So personally, the question to ask yourself is - do you want to get in THIS market?  If so, I'd buy now because prices probably won't be going DOWN.  Not unless there's another overall national financial crisis again.  It's up to you whether you think that will happen or not.  Barring disaster though...

If you're looking for investment and the Denver metro /Front Range (because even Ft Collins and Greeley are pretty danged hot right now) is too hot for you, then you may want to consider something in another market.  

@Linda Weygant Thanks for the input! I think what you say makes sense. I can't see why it wouldn't keep going up for a while. Colorado is pretty appealing and nowadays, with telecommuting, people can live where they want . I think I'm going to go for it.

Nick

As a current investor in the Denver market I am not all that intimidated by the high prices that we are currently seeing, especially when looking to purchase long term rentals. Of course it would be unwise to expect the kind of appreciation we have seen over the last few years, and my best guess is that as the market begins to settle prices will in fact plateau some. Instead you need to focus on potential rental income.  Depending upon the locations you are looking at, there is opportunity to be clearing $500 or more per month and that is after using a property manager and factoring in vacancies. Renting in the market is hotter then the actual home buying. Speaking to both landlords and potential tenants, places in the right neighborhoods are seeing 20+ applications in the first 48 hours of posting.  As the potential landlord it essentially suggests that you will have a good pick of the litter when it comes to selecting your  tenants and of course as demand increases so  does the rent.

Once you acquire a few rental properties you should almost hope that the home prices stay  high as it will drive more qualified renters to your properties  giving you a steady stream of occupancy.  

This is a great place to live and a fruitful place to invest. Good Luck. 

I think you'll just really have to find a motivated seller looking to unload asap. If you analyze 100 deals, offer 20% or so below market value on 10 deals, you should be able to get one of those deals. You can't have a blindfold on anymore and throw a dart at a board and automatically score a deal like you could a few years ago but there's still properties in most markets that can cashflow, if you're willing to do a value-add, maybe adding 10k-20k in rehab to fix things up a bit. I've talked to a lot of people though that are waiting until prices go back down before they buy again because of how much appreciation has happened. Unfortunately, who knows when that'll be. 

Seller's Market=Easier to $ell but often difficult to find deals

Buyer's Market=Easier to find deals but harder to $ell

Pros and cons of any market, the strategies just change.

I've brought this topic up at my Meetups and the general consensus is "knocking on doors" right now. Looking for creative strategies to find properties that haven't gone public i.e. RMLS because once they do everybody and their Mother jump onto them.

Originally posted by @Nick Elrod :

@Brian G.Thanks for the input. It's good to see that you got some appreciation out of your deal. How does it work submitting multiple offers. Are you bound to every offer that gets accepted or can you back out of the deal if you change your mind or value one property over another?

Nick

 Hi Nick,

It depends on the content of the contract, expiration dates, the language in your letter of intent, etc. The goal is to have several lines in the water. All week. Every week.

@Nick Elrod you asked if you submitted multiple offers and all got accepted if you would be bound to buy all. The short answer is no.

Colorado has a very easy means of exiting a contract via the inspection clause. You can basically say that after "inspecting" the property it is no longer satisfactory to me and I will not be purchasing it. You could say the front window is missing a screen and we don't want the property. The seller has no option to fix and force you to buy. Not all states allow for this type of exit from the contract.

I know many agents that have their clients write multiple offers on a given weekend. It's really crazy from what I have heard.

@Nathaniel Boyer

 Thanks for the advice Nathaniel! Hope to find a good property soon. Good luck to you as well.

@Vincent Crane

 Good point Vincent. It's hard to tell what will happen a few years from now. Hopefully the market will continue to increase for a few years! 

Nick

@Matt Good

 Thanks for the tips Matt. I like the creative approach!

Nick

@Brian G. Thanks Brian. Now I just need to talk to my realtor!

Nick

@Bill S. Thanks for the clarification Bill. It's reassuring to know that there are ways to back out and only go with the best property for you!

Nick

Unless your are wanting to rack up your post count you can "mention" someone anywhere in your @Nick Elrod post. You can condense all your "thank you" comments to one post and just dedicate a few lines to each person.

@Bill S. Thanks for the tip Bill! That sounds way easier/better.

Originally posted by @Nick Elrod :

@Brian G.Thanks Brian. Now I just need to talk to my realtor!

Nick

 Make the use of the realtor only 25% of your efforts to find deals. Use as many lines as possible when fishing... All the best

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