Is This The New Normal?
Atlanta, GA · Member since 2014 · 26 posts · 5 votes
Is This The New Normal?
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Rental Property Investor · Dallas, TX · Member since 2017 · 1k+ posts · 1k+ votes
8y@Christopher Munn Congratulations for not overpaying or getting into a bidding war. The market is tough as everyone and their dog is "into" real estate.
Stick to your conservative investment strategy, build up your dry powder and aggressively invest during the inevitable downturn (when that happens, I don't know...lol).
30 Replies
- Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes8y
Originally posted by @Chris Martin:
Not saying this is the case here, but there are international buyers who buy just for asset stability. In a phrase, they buy for return OF investment, not return ON investment. I learned years ago that I cannot (or should say will not) play in this scenario. So to answer the OP's question "How are us "investors" supposed to compete with that?" I say you shouldn't.
This is a great point. US investors see things through our own lens. In some cases US real estate is akin to having a bunch of gold bars in the closet for investors in other countries. A US real estate crash is still small potatoes compared to the currency instability in much of the rest of the world.
Skyline Properties - Specialist · Baltimore, MD · Member since 2016 · 384 posts · 318 votes8y
Aside from international investors looking to park cash somewhere that their governments can't get at it, pretty much the rest of us care about returns...be it in cash flow, appreciation or both. Now like the OP said, dude bought a property for a proforma CAP rate when in reality, it is probably doing 6 or 5.5 CAP. Smoke and mirrors. After debt service, that guy is left with table scraps. That's speculation in my book.
What happens when that 3, 5, 7 or 10-year lock is getting ready to pop and he is frantically looking to refi that pig at the newly raised interest rates (not hypothetical)? Yup, that pig that was bleeding him emotionally with the 16 tenants that he have to manage (or a property manager who is taking their cut of his table scraps) is now bleeding him financially as well.
What would you do if I told you that "this widget I'm selling is currently giving me $100 per month BUT, it has the POTENTIAL to give me $300 per month if I invest MORE money AND TIME into it. Today, this widget is only worth $50,000 based on net cash flow, but because it has the POTENTIAL for more, I am justified in charging you the inflated upfront price of $120,000 based on what you MIGHT SOMEDAY realize." Does this sound like a good deal to anyone? To me, this sounds like the seller is literally STEALING the buyer's future appreciation profit by charging him/her up front and cashing in on the future appreciation of an asset they didn't help to improve. But all these buyers are readily jumping on these things...
Feel free to disagree with me but after watching this frenzy over residential and commercial dwellings over the last 3 years, I've become quite polarized in my views.
- Rental Property Investor · Brooklyn, NY · Member since 2014 · 722 posts · 1k+ votes8y
Since my first comment in the chain, additional people have chimed in to say that the market will never go down again
Because foreign investors
Because California
Because some people don’t need to make money
Yadda
Yadda
Yadda
None of these factors existed before this current cycle?
Did any of these factors prevent the last cycle from ending?
A few weeks ago some serious people were saying that Bitcoin could only go up.
I’d like someone to give me an example from history of an asset class - ANY asset class, anywhere - that is not subject to cycles and fluctuation.
Anyone who thinks California or New York real estate never goes down has obviously not been around long enough to remember 2008. Or 2001. Or the 1990s. Or the 1980s. There are people who bought at the top and were under water for years.
I can think of only two things that rise inexorably and never fall - college tuition and health insurance costs. If we could figure out a way to invest in those, we’d all be super rich.
- Investor · Riverside, CA · Member since 2015 · 280 posts · 111 votes8y
Originally posted by @Jonathan Twombly:
Since my first comment in the chain, additional people have chimed in to say that the market will never go down again
Because foreign investors
Because California
Because some people don’t need to make money
Yadda
Yadda
Yadda
None of these factors existed before this current cycle?
Did any of these factors prevent the last cycle from ending?
A few weeks ago some serious people were saying that Bitcoin could only go up.
I’d like someone to give me an example from history of an asset class - ANY asset class, anywhere - that is not subject to cycles and fluctuation.
Anyone who thinks California or New York real estate never goes down has obviously not been around long enough to remember 2008. Or 2001. Or the 1990s. Or the 1980s. There are people who bought at the top and were under water for years.
I can think of only two things that rise inexorably and never fall - college tuition and health insurance costs. If we could figure out a way to invest in those, we’d all be super rich.
While you’re absolutely right that RE is cyclical, I don’t think you’ll see the drops like we did in the bubble days. In order to do that you’ll need something to trigger it. Last time was NINJA/liar loans and mass re’fi’s by people using their houses like ATMs, and the rates climbing. While rates may start going up and could cool the market somewhat it really will allow not those who can truly afford to buy.... to buy. But finance arms don’t offer the liar loans of the bubble days.
Granted I’m hearing Refi with us commercials on the radio, it’s a lot tougher as the loan guidelines seem to be back to where they were. And by that I mean pre bubble days where you had to prove what you stated in the application. I bought a house a few years back and I took a loan. 530k house 20% conventional at 3.6%. I had to prov3 everyth8ng. I had a check for 10k from a investment dividend and I deposited it and they wanted to see where it came from.
Right now in California just to keep up with housing demand from buyers we need to build a minimum 100,000 houses a year. That’s basically a new city every year and the infrastructure to support it. We sure as heck aren’t doing that. That’s why housing is so expensive to buy or rent.
When people are saying it won’t go down (housing) I think they mean the amount it went during the bubble. There are still people in areas that haven’t recovered. I’m not delusional to think it will never go down again, but I’m not a extravagant spender. I went through a few downturns and I came out unscathed.
- Investor · Charlotte, NC · Member since 2017 · 791 posts · 479 votes7y
@Christopher Munn the market is hot and will continue to stay hot. Stick to your business plan and be discipline. It will pay off big time in the long run!
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