How high can property values go?

[Rich Weese]

I have just rekindled my interest in bigger pockets. I have been shocked at how few names I recognize from years ago. I have probably been gone mostly for three or four years. It does not really surprise me how many new investors there are when I look at how high prices have been bid up. The simple old story of more demand than product.

I am old enough to have gone through a few recessions/depressions  and have owned many properties at those times. I saw what happened to so many friends and investors. As I get older, I become more cautious about high risk endeavors.

Here is my reasoning for being concerned about this madness. We all know history repeats itself so let's take a look at something.

I am picking the city of Phoenix just because I know something about it. I bought apartments there back in the 70s and single-family residences there a few years ago. All of those items were successful.

I am not a computer techie, but I know there are many on bigger pockets that are. Six months ago I saw and article where someone that had done a graph of real estate value increases for the years before the big crash. The person then did a graph of what has been going on for the last few years. You could lay the graphs on top of each other and the similarity was scary. We are in that period of time that things turned awful in Phoenix on the original chart. How much longer before history repeats itself? There are some of you that seem to think the answer is never. Others think it will be a 2 – 5% drop. Others say they will be able to see it in advance and bailout. How did that work out last time?

I was visiting a friend of mine in Phoenix at the height of that lunacy. He took me to a lottery of real estate opportunity! A builder had just determined to sell an additional 10 homes in preconstruction phase. There were over 50 people there who put their names in a fishbowl with the hopes they would be the lucky one to be able to purchase one of these underpriced 10 homes. My friend was "lucky"enough to be a winner! A second builder was doing the same thing and my friend was lucky enough to win there also. I remember him telling me during the construction stage that the price of his home had been raised twice in a single day! It was complete lunacy complete lunacy how much the price increased during construction.

It was within one year that he had fallen behind and worked  deal out to deed the properties back to the lender in lieu of foreclosure. That is sad reality.

I know there are locals in Phoenix that witnessed the same things. I don't know of many people that saw it coming and were able to save their butts ahead of time. I hope this time will be different but I'm not sure about that.

I could give other examples of the early 80s when the same thing happened but I don't want to bore you.

I have been told by real estate brokers in the Dallas area that inflation will continue to be 5 to 6% this year. I hope so but I have read other things that say a slowdown is starting. I am talking about multiunit buildings and not single-family residences. I do not know the predictions on those nationwide or in any particular areas.

My decision is to play it safe and sell one property and not do a 1031. I will hold the cash for security and I am not waiting as a vulture for bad things to happen and purchase additional properties. I do not have a crystal ball, but I do have age and a lot of experience. I am old enough to have seen the highs and lows. The highs are euphoric and the lows are disastrous

Any other thoughts?