Taking a Cash Position and Awaiting the next Dip?

6 Replies

I invest in Southern California, more specifically the Perris, Moreno Valley and Hemet areas of Riverside County. This area is one of the most volatile real estate markets in the entire country. Median home values in this area went from $80k in '00, to $400k in '06, to $140k in '09, to 320k today. Due to it's volatility, this market has been extremely good to me. However, I am seeing the writing on the wall and have taken and am currently holding a cash position. I wanted to see what other investors thoughts are about the market.

Originally posted by @Debbie Holland :

I invest in Southern California, more specifically the Perris, Moreno Valley and Hemet areas of Riverside County. This area is one of the most volatile real estate markets in the entire country. Median home values in this area went from $80k in '00, to $400k in '06, to $140k in '09, to 320k today. Due to it's volatility, this market has been extremely good to me. However, I am seeing the writing on the wall and have taken and am currently holding a cash position. I wanted to see what other investors thoughts are about the market.

You are close enough that you could invest in Las Vegas or Phoenix and catch the growth:

Average Turnkey Cash Flow Per Door In Phoenix Metro Area No Bank Financing Needed

https://www.biggerpockets.com/forums/600/topics/584916-average-cash-flow-per-door-in-phoenix-metro-area

 

Thank you Mike. I unfortunately got very burned trying to invest out of state before. I'm a bit of a control freak. LOL. I've read so many books where the numbers that the author's are analyzing are so much lower than here in SoCal. Sometimes I wish I lived in a location where $80k homes were a reality. All my deals are long term buy and holds that cash flow. Deals are very hard to find here in Southern California. The number of investors that you are competing against is daunting. Bank auctions and tax sales end up going for $5-10k under market value. I am just trying to be smart about positioning myself to weather the next storm (I am also a residential architect) and at the same time be able to take advantage of possible deals during the next downturn.   

Obviously we can't predict it completely, but there are indicators...the Yield Curve, the ABI (Architectural Billings Index), Consumer Sentiment, the Federal Reserve Bank of New York's Recession Probability Model. They are all pointing to a recession that will probably correspond to the elections heating up in 2020. 

I have not been able to find multi-family out there. There is very little except un-permitted 2nd houses on one lot. 

Are you selling your existing portfolio?  If not, holding is the same as buying at today's prices (the purchase price is irrelevant).

Some investors have been redeploying capital from value plays to cash flow plays. Their value play strategy has been executed. And then they can't put millions on the sidelines for extended periods (there have been recession posts on BP most every day for the past 5 years).

If I were in Riverside County, I'd do likewise. Southern California overall will do fine in the long run, especially having accumulated quite a deficit of housing units over the past several decades. However, its edges are especially prone to wild price swings--and you don't want to be left holding the bag. (My uncle and aunt had quite an apartment portfolio in LA, but they happened to die suddenly, without adequate estate planning, in the early 1990s--so everything was lost.)

I've built a recession into my development business plan: line up cash and credit lines now, deploy in 1-2 years when construction prices are hopefully better, plan for a long hold period and be flexible about when to recapitalize, and choose markets that are more recession resistant.