The Sellers Market is Over - Be Careful (Now What)

114 Replies

@Irina Belkofer I do not compare wholesaling a house, when holding for a few weeks or months to be the same as flipping, because of RISK. Way more risk flipping, and you are ADDING value in a Flip. Most Wholesaling is picking up a check after clouding the title for a period of time. 

The fact is that most will not buy an overpriced listing because its just that, overpriced. The sellers market is coming to an end, welcome to the new reality and buyers market. I do not wish all wholesalers to go bankrupt, I need the ones that survive, only the greedy ones thinking they can get a 50% return on money after a few weeks or months. Just like BAD realtors with little or no experience, same goes for BAD wholesalers. I'm comfortable paying 8-10% above the cost to the wholesalers, but some are 25-50% and that's nuts! 

I only point out to the newbies to look at recent comps, last 3 months, not the past 12 to get an idea of value because prices are not the same they were at the beginning of the year. Don't overpay for properties that make no sense. The greedy wholesalers will get theirs soon. 

part of the reason why we saw a drop in buyers in past few week may be due to downturn in equity market. I know i hold most of my cash now in equities (I'm a newbie REI). so when market takes a sharp downturn, 1) i have less money i can spend to buy houses, and 2) i want to hold on to it in hopes that it will turn back up. If the equity market recovers (some people still think S&P will end up going over 3000 by end of the year, very well could happen), the buyers may come back. Just a thought.

I just owner financed all of my sf property's with 30 year notes and am buying a little townhouse in Beaverton, Oregon. Not bad---- 15% down and tripling the sales price. This market is going to get ugly I believe 2019-2020. Alot of private debt, and corp debt coming due, but and refinancing at 2-4% higher interest rates, all bad, from the cheap money the past 10 years. Ray Dalio and the big guys, look at what they are saying, and doing. 

Originally posted by @Brian Mcmenamin :

@Benjamin Maciel I think you are making the right call Ben. I also think Oregon and California markets will be the hardest hit. Beaverton isn't a bad spot though. I have some family in the area. Can't beat those PACNORTHWEST Summers

 They usally are if it happens, but bounce right back with vengeance. They are beautiful for sure. Also, wife is a Nurse so we are all set "if"

Originally posted by @Michinori Kaneko :

part of the reason why we saw a drop in buyers in past few week may be due to downturn in equity market. I know i hold most of my cash now in equities (I'm a newbie REI). so when market takes a sharp downturn, 1) i have less money i can spend to buy houses, and 2) i want to hold on to it in hopes that it will turn back up. If the equity market recovers (some people still think S&P will end up going over 3000 by end of the year, very well could happen), the buyers may come back. Just a thought.

You hold most of your cash in the stock market? When a downturn comes you will not be buying RE then after your stocks have lost 20-50% of their value! 

This is why people hate the stock market it can go down 50% when they are about to retire, then you hear that they have to work another 10 years (Suze Orman recommends age 70). It's extremely volatile in the short term. I do not hold "Reserves" in stocks. Hold Reserves (cash on the sidelines) in a high yield savings account. 

Stocks are so easy to go in and out like water it is not good to do so. Best to think of stocks like a long term hold not for cash reserves! 

@Aaron D. & @Michael Zuber

sorry if i confused you.  I was not saying I keep my cash reserves in equity.  All i was saying was that I am a new real estate investor, and previously, i invested primarily in equity so all my money is in there right now.  

I know the market crash is around the corner, but in my mind that is not going to happen for another year or so.  The recent volatility in the market is a noise, but this is not the real crash.  I think we have some steam left for upward movement for another few months.  I'm leaving most of my equities as is, as i'm a big fan of buy and hold (and I don't intend on liquidating all my equities to get into 100% RE) as i've done well as buy and hold equity investor historically.  

I was applying what I do to the general market stating that there must be other investors who are slowly transitioning (some of) their equity investment into RE like I am, and for those investors, the market volatility now makes it harder for them to sell equities to get cash to put into RE. hope that makes more sense.

Originally posted by @Michinori Kaneko :

@Aaron D. & @Michael Zuber

sorry if i confused you.  I was not saying I keep my cash reserves in equity.  All i was saying was that I am a new real estate investor, and previously, i invested primarily in equity so all my money is in there right now.  

I know the market crash is around the corner, but in my mind that is not going to happen for another year or so.  The recent volatility in the market is a noise, but this is not the real crash.  I think we have some steam left for upward movement for another few months.  I'm leaving most of my equities as is, as i'm a big fan of buy and hold (and I don't intend on liquidating all my equities to get into 100% RE) as i've done well as buy and hold equity investor historically.  

I was applying what I do to the general market stating that there must be other investors who are slowly transitioning (some of) their equity investment into RE like I am, and for those investors, the market volatility now makes it harder for them to sell equities to get cash to put into RE. hope that makes more sense.

 Yes, many stock investors have seen a dramatic run-up including tech investments. Tech is always overvalued in boom times. The S&P 500 continues to change and adds more tech. The more tech names that drop like Amazon the more they fluctuate. I am continuing to see that my rents are paid whether or not the stock market fluctuates. I am of the understanding if you believe there is going to be market drop then I wouldn't continue to keep 100% of your assets in stocks. I would be more conservative and keep some cash on the sidelines if there is a correction in housing or stocks. You are supposed to do this before the market drops, not at the exact moment the market drops. 

I am curious now that October numbers are out is there any more or less belief that the market is changing fast? I stand by my call but clearly all markets are different and we had lots of people say, sorry Michael not in my market Z

Not an expert on this... what I see are lots of overpriced properties that have been reduced.  Don't know if that counts.  I believe it is mostly a local issue.  In rural areas, where there isn't much of a demand, the prices do go down, but in areas with high demand... they may stay the same or go up.  

Originally posted by @Michael Zuber :
@Michinori Kaneko got it, sorry my mistake

Yes I suspect some investors have less funds to invest in Real Estate given the decline. That is very fair

i actually would tend to think the opposite;

Maybe the SFH is starting a moderate correction but residential investment RE will likely continue to perform well for the next few years even at elusive cap rates. There is a massive need for affordable housing in most metro areas, and multifamily and condos sales will probably continue to perform well. Retail, office and industrial may suffer however if the stock market tanks.

Investors are exiting the stock market and they see interest rates rising, so most will think that investment properties are a good edge against a potential recession and that they'd better lock low interest now. 

There is no fundamental reason for the RE market to litteraly crash today, but there are compeling reasons for a moderate correction and return to the mean. The stock market however is potentially headed for a massive drop in the coming years due to the tech bubble.

The last one in 2000 / 2001 didn't really affected the RE significantly, actually some markets even appreciated

Investment real estate in major touristic and economic hubs should weather a recession ok