How high can property values go?

How high can property values go?

Real Estate Investor · the villages, FL · Member since 2008 · 5k+ posts · 3k+ votes

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?

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Russell BrazilBusiness Member
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Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
9y

On a long enough timeline there is no cap on prices....because there is no stopping the economic force of inflation. Prices go up, and prices do go down....but eventually they will always be higher. 

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  • Real Estate Investor · the villages, FL · Member since 2008 · 5k+ posts · 3k+ votes
    9y

    John,

    I understand what you are saying about the only states you would invest in. Texas is the only state I would ever move back to. If it decided to secede from the union, I would move back in a heartbeat! I do continue to own a lot of property in that state, both in South Texas and Dallas area. It has been very good to me. I have what one large apartment complex under contract to sell at the present time. I did advertise it on here.

  • Investor · Lucas, TX · Member since 2010 · 620 posts · 352 votes
    9y

    @Rich Weese Welcome back!

    I have been wrestling with the same dilemma this week. I have decided to sell one of my SFH dogs as the equity buildup is too good to ignore anymore and I have to rehab it after an 8 year tenant left anyway. But I don't know whether to 1031 it into a nicer SFH or just take the tax hit and add it to the cash pile I've been building up.

    By the way after our last conversation a few years ago I took your advice and retired rather than wait for the magic number.

  • Investor · Jasper GA · Member since 2015 · 1k+ posts · 1k+ votes
    9y

    I agree with @Lesley Resnick, the leverage isn't there.  The values might drop but the house won't know it and good tenants are still going to pay their rent.

    I've managed to get mine paid for and I can't see them ever being worth less than what I have in them.  

  • Real Estate Investor · the villages, FL · Member since 2008 · 5k+ posts · 3k+ votes
    9y

    Robert,

    @Robert Steele

    I hope you didn't retire just because I suggested it was a good thing to do! I do appreciate you having the confidence in my thought process, though. I understand what you were saying.a few years ago I had nearly 100 SFR's spread around. My wife was completely tired of them. As you probably know, we've owned over 1000 SFR's in our lifetime. We also had a big self storage facility in Fort Myers, Florida.

    We decided to 1031. The storage facility into a couple apartment buildings to provide more right off with depreciation, etc. I traded for two large apartment complex in the Dallas area, one in Mesquite and one in Grand Prairie. We have been able to raise the rents in less than two years 23 and 27% on the two buildings. Absolutely ridiculous but still running 97% occupancy or higher.

    They have gone up so much in value that I decided to sell out right  152 units that I have owned for seven years. I decided I would sell my over priced asset and take my tax lumps now rather than having to go find another overpriced asset to exchange into. I chose the safer route. Even though a check for $1.2 million will need to be written to the IRS. That was approximately the amount I put into the building and I will walk away with three times that amount in my pocket after taxes.

    @Bob B.

    if you have lived in your home for decades, I agree your home most likely will never be worth less than what you have in it. That isn't the same situation as those that have not been in for decades. I have seen numerous examples of downturns and recessions to know that your statement does not apply to everyone.

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