Go with the flow or Avoid the hype like the plague

Buying & Selling Real Estate
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Go with the flow or Avoid the hype like the plague

Tyler Pearson
Investor · Phoenix, AZ · Member since 2019 · 8 posts · 2 votes

It is no question that we are in the middle of an economic boom right now; everyone seems to be doing well. With that being said, the Phoenix housing market has taken off into outer space; in real-world terms, the market is incredibly hot. Huge shortage of housing, houses flying off the shelves in 10 days or less at full list price. Now, as most people on this site, I am an investor and want to invest in an intelligent manner so I don't end up a bafoon and underwater somehow. Everything that I have ever read about real estate is that when the market is a seller's market, hold out. Avoid buying, wait, stack up the cash reserves, etc. for the catchy cliches that we all use. Okay I understand that. If I do that, then I continue renting and realistically throwing money down the drain (as an investor). I am caught in the middle of whether to continue looking and seriously consider buying, putting in offers, etc. if what I really should do is hold out. If anyone can shed some light or has been through a similar experience, your input is greatly appreciated.

Cheers!

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Jim K.
Handyman · Pittsburgh, PA · Member since 2018 · 5k+ posts · 13k+ votes
6y
Originally posted by @Tyler Pearson:

Now, as most people on this site, I am an investor and want to invest in an intelligent manner so I don't end up a bafoon and underwater somehow.

The pedant in me wants to tweak your nose about your spelling of the word "buffoon." That being said, one of the things you're going to have to get used to in order to survive in this game is being laughed at. I did my first two flips for free for a girl who was manipulating me. I may be the biggest buffoon you've ever met. And that's fine.

Who are you worried is going to laugh at you and call you stupid? Keyboard cowboys on Bigger Pockets? Other investors in your local REIA? What do they matter? Who died and made all these people the arbiters of good sense? Ultimately, you have to accept that you're gonna take some serious lumps. You're not going to go into this as a beautiful, pristine snowflake and come out an even prettier snowflake. You will take a beating or two or ten, it's going to hurt, and there will be long stretches when you have to accept yourself as a laughingstock and a failure, and do something different.

Read, study, learn. But take on a project on a small scale somewhere to do some practical learning. Be prepared to lose some money. It happens to everyone, especially the ones it hasn't happened to yet.

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  • Damaso Bautista
    Rental Property Investor · Hawthorne, CA · Member since 2018 · 655 posts · 900 votes
    6y

    @Tyler Pearson

    When I read your post I think to myself:

    What did Tyler Pearson or any investor do in 2009, 2010, 2011 and 2012, when houses were practically being given away in some areas.

    Then I remind myself that the best predictor or future behavior is past behavior.  So to the question in your post I think you can answer your own question by looking what your past behavior was.  If you weren't buying properties when they were practically giving them away, your probably not going to be buying at the height of the market.

    Now if you weren't of age during those years or weren't in a position to buy during those years then you wouldn't know any better and just look at the market that is sitting in front of you at the moment. 

    Today there are still markets that you can make money in.  The question to ask yourself is "am I willing to go to where that market is".  If not then just make sure that you have a contingency if the market crashes out from under you.  

    5Reply
  • Jim K.
    Handyman · Pittsburgh, PA · Member since 2018 · 5k+ posts · 13k+ votes
    6y
    Originally posted by @Tyler Pearson:

    Now, as most people on this site, I am an investor and want to invest in an intelligent manner so I don't end up a bafoon and underwater somehow.

    The pedant in me wants to tweak your nose about your spelling of the word "buffoon." That being said, one of the things you're going to have to get used to in order to survive in this game is being laughed at. I did my first two flips for free for a girl who was manipulating me. I may be the biggest buffoon you've ever met. And that's fine.

    Who are you worried is going to laugh at you and call you stupid? Keyboard cowboys on Bigger Pockets? Other investors in your local REIA? What do they matter? Who died and made all these people the arbiters of good sense? Ultimately, you have to accept that you're gonna take some serious lumps. You're not going to go into this as a beautiful, pristine snowflake and come out an even prettier snowflake. You will take a beating or two or ten, it's going to hurt, and there will be long stretches when you have to accept yourself as a laughingstock and a failure, and do something different.

    Read, study, learn. But take on a project on a small scale somewhere to do some practical learning. Be prepared to lose some money. It happens to everyone, especially the ones it hasn't happened to yet.

    7Reply
  • Jai Reddy
    Edmond, OK · Member since 2012 · 456 posts · 270 votes
    6y

    @Damaso Bautista

    Your profile ricks with wisdom, especially in context of the OP’s concern. Tell us more of your purchases during the market low, did you prepare for it and acquire or you just happened to have cash and saw an opportunity spring up. How did you finance your acquisition during market low, when credit was also tight? Did you acquire SFHs? What was net worth first year of acquisition, what is it now? Thank you

    1Reply
  • Pamela Sandberg
    Realtor / Attorney · Phoenix, AZ · Member since 2018 · 388 posts · 265 votes
    6y

    You mention that you are renting - that is guaranteed to get you a negative ROI. For a personal residence, I always recommend buying rather than renting when possible. The other important thing to consider is what will happen with the Phoenix market in the coming years. Yes, it is hot now. But that doesn't mean we're in a bubble that is about to burst. On the contrary: job growth projections here are huge. The analysts say that we won't have enough housing supply to meet the demand of new residents over the next coming years. So even though the market is hot now, the next couple years are projected to be hot, as well.

    Just my two cents. Happy to answer any questions you have about Phoenix!

    0Reply
  • Doug Pintarch
    Rental Property Investor · Harrisburg, PA · Member since 2018 · 369 posts · 406 votes
    6y

    @Jim K. Once again, sir, a reality slap right across the face. Thank you, excellent post. We have 1 STR and are hunting for our second now (Literally this weekend with our agent), and I keep re-reading the "Pristine snowflake" part again. If it works we'll pull the trigger and do our best and hope it's like the first one, if not and we take some body-blows we'll keep slugging and try not to get KO'd.

    2Reply
  • Damaso Bautista
    Rental Property Investor · Hawthorne, CA · Member since 2018 · 655 posts · 900 votes
    6y

    @Jai Reddy

    I personally believe that you can tell a lot about someone's future success in real estate investing by looking at their personal financial situation and their personality.

    Somethings that lead to me being able to take advantage of opportunities that presented themselves:

    Buying my first home in 1994 (which I still live in) for $175,000 now worth $850,000

    Living below my means as my salary at work rose.  Many of my colleagues moved to Huntington Beach or South Orange County in what many called white flight back then.  I stayed because I was happy with my neighborhood and less debt in the long run.  My wife and I never bought high end luxury cars even though our salaries would have allowed us to.

    We always maxed out our retirement accounts.

    I also listened to my mothers advice as a young person that I never ever pay any of my bills late.  She told me pay your bills before you eat.  That's how important it was to her.  I didn't understand at the time but now it is crystal clear.

    So come 2008 I see my retirement accounts get wiped out but I was sitting on some liquid cash, ton's of equity in my home and 820 credit. I saw houses being sold low and took a chance to buy them. I used equity from my primary residence, my stellar credit score and liquid cash for earnest money down to acquire properties.

    This is where personality comes in.  I was willing to lose everything I invested because I knew it would not ruin me.

    I knew that I would not lose my primary residence (I am responsible for putting a roof over my families head and food on the table) and at the end of the day I had my job which would easily maintain our below means lifestyle that we had.

    It all worked out so far.  I invested at my risk level.  I am sure I could have made a lot more money but I do this for fun.

    I compare the way I do real estate investing like some other people look at Golf, deep sea fishing or some other high end hobby.  They choose to spend their money on those things and I choose to spend my money on real estate.

    I hope this answers your question.

    7Reply
  • Jai Reddy
    Edmond, OK · Member since 2012 · 456 posts · 270 votes
    6y

    @Damaso Bautista

    Thanks for sharing. I still wonder how you had the stomach for investing in RE when the market kept falling between 2008 - 2012. That’s when, even when one has cash and a solid credit score, will be fearful of RE. Is that where your personality of ‘willing to lose it all’ helped?

    0Reply
  • Damaso Bautista
    Rental Property Investor · Hawthorne, CA · Member since 2018 · 655 posts · 900 votes
    6y

    @Jai Reddy

    Yes I believe at some point in your life you realize that money is a means to put a roof over your head and food on the table.  I was taught this at a young age by my father.  So for me as long as I can put a roof over the heads of my wife and kids and food on the table (which now includes paying for their university educations) about $65,000 worth of wasted money per year.  Then the rest is just discretionary.

    When my wife and I moved out in 1992 I was 20 and she was 18.  The only thing I had was a good job a supportive partner and dreams of making a life together.  Ideals that my parents put in my head.  The American dream if you will.  I keep telling people that life is marathon, there is no magic pill or get rich quick scheme.  Hard work, planning and steady as she goes will get you to your goals.  It takes time.  

    Good luck!

    2Reply
  • Doug Pintarch
    Rental Property Investor · Harrisburg, PA · Member since 2018 · 369 posts · 406 votes
    6y

    @Damaso Bautista

    You do something that my wife and I do, almost as a fervent religious practice...live below your means.  VERY difficult to do with all the cool tech and luxury things that you see and think "You know...we actually could drive that car if we wanted to"...  Luckily cars mean absolutely nothing to us and we are still in our "Starter home" that we bought 17 years ago and have now paid off.

    Hit the retirement accounts hard and save elsewhere too...your time will come to relax and enjoy those fruits you've been cultivating.  Easier too if you make smart real-estate investments!  

    0Reply
  • Damaso Bautista
    Rental Property Investor · Hawthorne, CA · Member since 2018 · 655 posts · 900 votes
    6y

    @Doug Pintarch

    Yes I see too many people on here looking for a quick way to get rich. My position is besides the lottery or being born into money the only way is through hard work, diligent saving, living below your means and investing.  Its not a secret its right there for the taking.  The issue is most people don't have the discipline to save and then the personality to let it ride.  

    My time sit back and reap the benefits is coming soon.  I would love to do a five year tour of the US doing live in flips but in C- or D neighborhoods.  Something like the neighborhoods my wife and I grew up in the 80's here in LA.  I would have to convince my wife because I think she has traveling on her mind.

    Anyway I hope you and your wife are successful in your real estate journey!!

    1Reply
  • Adam Bush
    Member since 2019 · 26 posts · 32 votes
    6y

    @Jai Reddy "Be fearful when others are greedy and be greedy when others are fearful" - Warren Buffett

    2Reply
  • Joe SplitrockPro Member
    Moderator
    Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
    6y
    Originally posted by @Jai Reddy:

    @Damaso Bautista

    Thanks for sharing. I still wonder how you had the stomach for investing in RE when the market kept falling between 2008 - 2012. That’s when, even when one has cash and a solid credit score, will be fearful of RE. Is that where your personality of ‘willing to lose it all’ helped?

     The reason housing prices were so low is because nobody had the courage (or means) to buy. Conversely the reason prices are high right now is because everyone has the courage (or means) to buy. 

    It is easy to have courage to invest when the economy is good, but near impossible when everything is bad. Human behavior is much like sheep in a herd. People follow what other people are doing. 

    Courage to invest when things are bad requires the willingness to go against the herd. 

    So if someone is on BP asking someone "what should I do", they are likely looking to follow the herd. 

    5Reply
  • Dennis M.
    Rental Property Investor · Erie, PA · Member since 2018 · 6k+ posts · 9k+ votes
    6y

    If you won’t invest when times are doing really good then what makes you think you’ll have the guts to do it when the bottom falls out and there’s blood in the streets ? Your going to have $h(7 or get off the pot . This isn’t a kids game . Feel the fear ....and do it anyway !

    1Reply
  • Nicholas L.Pro Member
    Flipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
    6y

    Hi @Tyler Pearson I think compared to markets like SF, NYC, DC prices in Phoenix are still reasonable.  Now, you have to evaluate each deal on its own merits, but when I look at Phoenix compared to DC, I'm still absolutely amazed by what your Phoenix dollar can buy.  And, Arizona generally has been and remains one of the fastest growing states in the US.

    Finally, renting can be a good deal.  While I agree with @Pamela Sandberg that buying is generally better, renting for a short period for a specific reason is fine.  You don't pay closing costs when you move into or out of a rental =)

    0Reply
  • Account Closed
    Investor · Phoenix, AZ · Member since 2018 · 420 posts · 388 votes
    6y

    @Tyler Pearson I think you have to ask yourself what the underlying cause of the huge housing shortage is in Phoenix. In my view it’s a lack of new builds at an affordable price point. So how is that being countered? What part of the valley has the land cost metrics to most easily support the entry level housing development? When houses are built there and the demand for that area increases, what will it do to other markets? How do jobs, and wages, and corporate perception playing a role?

    Though I am a real estate agent I do understand that renting has its purpose.....If you’re throwing $1000 down the drain on rent or $1000 down the drain in interest...it’s apples to apples (especially if you can’t itemize). As with any kind of investment you have to pick your spot based on your own contingency plans.

    0Reply
  • Account Closed
    Investor · Milwaukee, WI · Member since 2013 · 1k+ posts · 1k+ votes
    6y

    Gotta play if you expect to win.

    0Reply
  • Scott Doyen
    Rental Property Investor · CA · Member since 2019 · 27 posts · 13 votes
    6y

    Hello Tyler! I totally get it, I'm in a similar position as you recently out of college, but in the Sacramento area. Phoenix is a decent market, but it is getting hotter by the year (literally & figuratively lol). The days are pretty much gone that you could throw a dart on a map in Phoenix & it lands on a cash-flowing property (even break-even). Maybe 8 years ago, but for guys like us, we could not capitalize then. 

    I don't know your entire situation, but I would encourage you NOT to wait out. The truth is nobody knows whether there will be a crash or when. What makes Real Estate investing so great is that you can forecast a little better than other investments or at least protect yourself a little better. Get very good with your numbers and make sure that you have enough.

    HOUSE HACK
    Phoenix is still a terrific area in my opinion to 'house-hack'. I don't know what your current rent is but if you bought a 250k SFH house & rent out 1-2 rooms, you could probably be living for the same price as you currently are. Duplexes would make for a great return, but sometimes they are not located in the best areas or produce good tenants. Just depends. And keep in mind, if the market tanks, you still have to live somewhere & your mortgage won't change, so you are pretty much in the same situation regardless (just with roommates). 

    OUT OF STATE
    If you don't know how long you will be in Phoenix for or don't want to house hack or something, you can always look at out of state investment. That's what I do as I do not know what my future holds and I want to keep it more passive for the time being while I'm young & nomadic. There are more difficulties this way, but it's possible and worth it if you research!

    Good luck! Shoot me an IM! Let's Chat

    3Reply
  • Tyler Pearson
    OP
    Investor · Phoenix, AZ · Member since 2019 · 8 posts · 2 votes
    6y

    I appreciate all of the input here and it all is very valuable. It is interesting to see what types of responses and the wide range of personalities that have decided to give me advice; I appreciate all of you and will be following up with some of you soon. Have a good one!

    0Reply
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