Hold cash or invest?

21 Replies

I'm still new to BP and would love to hear from some investors on this topic. I'm curious where others stand on holding cash now or investing, particularly in California and Sacramento, where I live. The financial markets seem pretty uncertain, the Fed can't make up its mind about when to raise rates, and some real estate markets (e.g. San Francisco) have been cooling over the past year. 

I know it's a general question and all markets are different and may be at different stages of a cycle. Does anyone have thoughts about holding cash or investing at this time.  Of course, a good deal can appear in any part of the cycle. That's a given. I'm wondering if folks are leaning one way or the other in general. 

Are people holding cash or investing right now? 

IRR viewpoint puts most US markets in late recovery, followed by oversupply, then recession. I'm shopping for multifamily, but finding it a seller's market. I made most of my current stack buying heavy in 09 and selling most of it this year. I'll buy the right property, but I'm not speculating on appreciation. That being said, I'm holding my Bay Area primary forever- irreplaceable location.

I am not in your market, but I am curious to check out the info that led you to believe the housing market is cooling? Corelogic predicts prices in California to rise by 9.4% in the next 12 months. 

The housing report showed sales dropping, but I feel that is a result of low inventory, not of decreased buyer demand.

Brandon L., Real Estate Agent in VA (#0225225026)
571-510-0027

Oops, meant late expansion...

This post has been removed.

@Brandon L. I'm not sure about all of California. SF has been cooling since about January and if SF is ground zero for Northern California economy, does that mean we'll see cooling in greater bay area and beyond in the next year? I'm not smart enough to even guess. 

@Brent M. Agree that there's always (usually) a bull market somewhere. I'm new to Sacramento and trying to learn the RE market here, as well as look beyond at financial indicators. 

Thanks all for the thoughts!

Originally posted by @Bruce C. :

I'm still new to BP and would love to hear from some investors on this topic. I'm curious where others stand on holding cash now or investing, particularly in California and Sacramento, where I live. The financial markets seem pretty uncertain, the Fed can't make up its mind about when to raise rates, and some real estate markets (e.g. San Francisco) have been cooling over the past year. 

I know it's a general question and all markets are different and may be at different stages of a cycle. Does anyone have thoughts about holding cash or investing at this time.  Of course, a good deal can appear in any part of the cycle. That's a given. I'm wondering if folks are leaning one way or the other in general. 

Are people holding cash or investing right now? 

Most markets are in the "hyper supply" phase of market cycle and will go through recession phase in the next 12-24 months.  HOLD CASH unless you find an amazing deal that will generate high cash flow and you can lock tenants in for 2-3 year leases.

Right now its all about cash flow!! I'm not betting on appreciation in todays market. We are getting nice long term debt and locking in low interest rate loans for great cash flow.

Like some others have said, I'll be holding and just maintaining my units for the cash flow right now as well. However, I will continue to buy whenever I see a great deal, only for cashflow. 

Also planning to cash out and sell some investments before mid-2017 so I can have a bit to work with in the future. 

Wow, this topic is exactly what I myself was curious about... it seems investors are hesitant to buy in SF market in particular, so I wasn't sure how other markets are like. I am looking at Florida market but cashflow seems really tight... Anyone seeing any good cashflow deals in Florida these days? 

Hello and welcome to this website!  You have trouble to say what is going on with real estate sales and the economy?  I would tend to say that real estate investments  goes in cycles.  I would not pass on a good deal righ now and to hold on to your cash to be able to take advantage of a buyer's market at some time in the future.  How much do you use your goals and what they say will help you determine what to do.

It matters where you think the prices will continue to go up or not. You may ask several people but any talk of the future is very suspect to where it is going. Are you into rentals or SFH's sales? If you own rental units and they are producing positive cash flow and will that support you on a monthly basis? If they will support you with cash flow now or are you into sales and are you depending on them to support you.

I would hold onto rentals that are supporting you with positive cash flow and I would tend to recommend selling properties, that are typically short term investments, that are for sales supportive SFH 's that you own and generate a profit you need? Rental units are typically producing positive cash flow and a long term investment for you. I think I would talk to a tax advisor to tell what the are planning for the future. You might talk to an experienced person in the Chamber of Commerce person to what they have planned to happen in the future and what they are predicting. Since you can probably sell non-rental house right how to raise cash if you need that right now to survive on.

Your question is getting a lot of answers on this subject because the future is so unsure and it is generating a bunch of opinions. Good luck to you!

@Bruce C.

Because of the low rates alone, I would invest. Whether it be where you live, or in another city, it's much better to invest than to sit on cash.

Large increases in interest rates are highly unlikely. Please observe page 3 for the FOMC interest rate increase forecast:

https://www.federalreserve.gov/monetarypolicy/file...

Low rates alone are a reason to get in. If you make sure your properties still cash flow in a recession, large losses over time are unlikely. 

-Cary (An actual economist)

@Jon S.  @Bruce C.

Love the chart you shared... But I don't think it applies to all investment classes. This report covers 5 investment types that are monitored by major institutional lenders/funds/investors. I'm thinking this probably excludes SFR - Quads but I could be wrong.

Within each city on that chart, there are many surrounding towns where rent performance will vary dramatically. You need a much lower level of analysis than this report if you're going to decision on it. For example, Lakewood, Ohio has a very low vacancy rate and it is projected to stay low for a some time. In order to build anything in Lakewood, you have to tear something down. Additionally, it's Ohio's most populated city and has incredible amenities. I only mention this because a city like Lakewood cannot not be analyzed by the provided chart.

So Bruce...   If it's not medium to large apartments that you're looking for, then maybe you do want to invest given that it's the right place and the right deal. If you're looking for apartments in a large city, then I'd probably decision on the chart that Jon showed.

Not going to lie though...   I'm definitely saving off those reports that Jon shared. Good stuff. 

Cash pays nothing right now.  In fact, if you factor in inflation, it pays less than nothing.

The beauty in real estate is that you control your return because you control the structure of the deal.  

That being said, putting money into anything is NOT better than putting into nothing.  Keep panning through that dirt until you find that gold that gives you the ability to structure the return that you want and then, put your money to work.

Originally posted by @Jon S. :

Most markets are in the "hyper supply" phase of market cycle and will go through recession phase in the next 12-24 months.  HOLD CASH unless you find an amazing deal that will generate high cash flow and you can lock tenants in for 2-3 year leases.

Interestingly, this was the very same point made by the speaker at a seminar I attended recently that was sponsored by my local REIA. The prediction, based on past RE cycles, was a dip in late 2017/early 2018, with a deeper recession coming around 2022. In several markets that I am aware of, 2016 was as hot a market as any pre-Great Recession, and 2017 is shaping up to be the same. Now seems to be a good time to sell off assets that are so-so performers, reserving the cash to buy top-performing ones in the next couple of years.

Originally posted by @George Despotopoulos :

@Bruce C. One thing I learned over the years is do not try to time the market. Everything happens in cycles but you will never be able to take advantage of any down turns if you are not in tune with the market. 

 I respectfully disagree. DO try to time the market.  You cannot predict exact peaks or bottoms but, if you do your research and watch the market, you'll know you're in a Buyer's (prices dropping) or sellers (prices increasing) market.

Originally posted by @Patsy Waldron :
Originally posted by @Jon S.:

Most markets are in the "hyper supply" phase of market cycle and will go through recession phase in the next 12-24 months.  HOLD CASH unless you find an amazing deal that will generate high cash flow and you can lock tenants in for 2-3 year leases.

Interestingly, this was the very same point made by the speaker at a seminar I attended recently that was sponsored by my local REIA. The prediction, based on past RE cycles, was a dip in late 2017/early 2018, with a deeper recession coming around 2022. In several markets that I am aware of, 2016 was as hot a market as any pre-Great Recession, and 2017 is shaping up to be the same. Now seems to be a good time to sell off assets that are so-so performers, reserving the cash to buy top-performing ones in the next couple of years.

Best time to sell was late 2015, when most markets were peaking.  Time to hoard cash and hold high-quality, cash flowing assets.

I am not in the USA so I don't know the markets, here in the Netherlands some real estate markets in particular city's are overheating quickly. Which makes it difficult to get a decent return out of your real estate investment. Looking for Bargains and paying partly with cash and finance the rest would be my preference. It all depends on which price you can buy the property for. 

Bruce,

It depends if you are active / passive investor and willing to look at alternative strategies outside of your market such as syndication or crowdfunding opportunities.  Partners that have excellent track records in specific niches that have been performing well and have upbeat forecasts of continued growth.  Apartment demand continues to look healthy and you want to be in only the strongest growth markets.  Re-positioning of older class B/C that get a new clean look and still trade at below replacement costs.  I was in Dallas last week looking at two properties with our team and can see that opportunities still make sense.  Dallas, where jobs and population growth are still very robust and economy has had a history of being resilient when pullbacks occur are still solid.  Specifically, value add large apartment where operators can get scale and force appreciation can still work.  

I do not like to hold cash, because I will spend it.  With the prices going up I'm having to look at more property to find deals that make sense.  Real estate is an amazing machine.


Frank

Frank Romine, Real Estate Agent in CA (#01957844)

A cash flowing asset today, will still likely be a cash flowing asset tomorrow. 

I'm in my 30s, I don't plan on or even want to retire any time soon so I couldn't care less about trying to predict the short term market trends. 

"Over the long term, the stock market news will be good. In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a fly epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497."

-Warren Buffett 2008

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