Attorney · Raleigh, NC · Member since 2008 · 4k+ posts · 1k+ votes
One of the things I always try to be conscientious to is herd mentality. Recognition of herd mentality and the pure luck of a well timed divorce kept me from investing in real estate in 2007 and waiting until 2008 when I could get property at 20% of 2007 prices. Recognition of herd mentality also pushed me to start flipping a rental here and there in the past couple years when post sub prime fallout out, everyone thought the answer was in buying steady, secure, cash flowing rental properties rather than flipping.
There's a new herd mentality and you can see it by reading what the majority of posts assume here and any other place on real estate investing is discussed. It's the assumption of recovery. Just like everyone assumed in 2006 that every flip could be profitable (look in the old posts on here - it's in there) everyone is assuming that these new lows in real estate pricing are just waiting for a market correction to bring them back up. That may be true but it's to the point now that your barber can tell you REOs are a good investment. When your barber can give you just as good investment advice as a financial professional that's not a good thing.
What if things don't change? What if these prices are the new norm for real estate? Are you mentally ready for that? Is your business ready for that? What are you doing to be ready for the chance that the herd mentality is wrong? What's your attitude, plan and strategy going to be?
Historically, Real Estate has provided gains pretty much equivalent to pure inflation, though not along the same curve. Given the scarcity and the integrity of the underlying asset involved (land), this will most likely continue forever (in many economist's opinions).
For a long time (the past 50 years or so, inflation adjusted home prices diverged significantly from nominal prices, but in the past 25 years, the curves have started to converge, and are now pretty much aligned:
In my opinion, if you believe inflation is a given over the long-term, then you should assume that real estate will appreciate over the long-term. If you believe deflation will reign over the long-term, then you should assume that real estate will depreciate from here.
As for what I'm doing, I'm just doing whatever is profitable in today's market. Currently, that's a focus on rehabbing and flipping lower-end SFHs to first-time FHA buyers. I also have some cash invested in a couple big apartment complexes, in the case the rental market rebounds. And I'm always looking for good commercial deals. In other words, diversification on a small scale (actually, within a small market space), with a cash and effort focus on the strategies that are working today.
If tomorrow there is a more lucrative investment strategy, I'll move my focus in that direction, while still maintaining some diversification.
Or, if MIkeOH's predictions come true, we'll retire, move the family to another country and sit on a beach until we die or get bored again...
If we could figure out how the French do it..... nobody in France works and they all seem to manage to live just fine. You should try shopping there. Everything is closed 4 days a week and the banks are only open a couple of hours 1-2 days a week.
Easy to run a business when you're overhead is so low from being closed more than half the time.
Much brick and mortar overhead is nearly fixed (rent/mortgage, utilities, insurance, etc), so having the business open for less than half the time actually makes it MORE difficult to run profitably...obviously labor costs are reduced, but when labor costs are at $0, so is income.
...obviously labor costs are reduced, but when labor costs are at $0, so is income.
Actually, not quite, because those "Socialists" pay their employees even if they don't actually work. In France, they get two months paid vacation and when the government tried to do away with it, there were riots in the streets...
The funny thing is, those bastards live better than we do. Yes they pay high taxes, but get it back in form of services (Free health care, etc) The also have less stress, good wine and wonderful women... But if you are not French you would always feel an outsider no matter how many years you live there...
The funny thing is, those bastards live better than we do. Yes they pay high taxes, but get it back in form of services (Free health care, etc) The also have less stress, good wine and wonderful women... But if you are not French you would always feel an outsider no matter how many years you live there...
Eddie -
You're so naive...
It's not about quality of life...it's about adhering to idealistic political and religious principles regardless of the practical impact on individuals...
If we could figure out how the French do it..... nobody in France works and they all seem to manage to live just fine. You should try shopping there. Everything is closed 4 days a week and the banks are only open a couple of hours 1-2 days a week.
Easy to run a business when you're overhead is so low from being closed more than half the time.
Much brick and mortar overhead is nearly fixed (rent/mortgage, utilities, insurance, etc), so having the business open for less than half the time actually makes it MORE difficult to run profitably...obviously labor costs are reduced, but when labor costs are at $0, so is income.
Actually the opposite is true for an astute business owner.
rent/mortgage is non-existant because he ownes it outright.
utilities are not being consumed because they are closed.
insurance is much less because there is a much less chance of it being needed.
As far as getting your taxes back in the form a free health care, If you paid for it in taxes how is it free? And what good does it do you when you have to wait sooo long to see the doctor? I would have more stress in such cases. No wonder they had to develop such good wine to dull their senses and kill their pain while they wait to see the doctor while the women put out all those red lights to make additional monies just to get by.
No wonder they had to develop such good wine to dull their senses and kill their pain while they wait to see the doctor while the women put out all those red lights to make additional monies just to get by.
Yup, wine was only developed to give French people something to do while waiting for the doctor. And France is the only country in the world where prostitution occurs...
J Scott - I like your site. Lots of useful information - I like your post on how to flip houses successfully - http://www.123flip.com/education/flipping-in-2009-part-1.
I agree with you that you should have the best house in the neighborhood AND at the same time it should be priced 10% below market value. Flippers who adhere to that rule - specially if they focus on what is selling in their market - are making a killing in this market.
If we could figure out how the French do it..... nobody in France works and they all seem to manage to live just fine. You should try shopping there. Everything is closed 4 days a week and the banks are only open a couple of hours 1-2 days a week.
Easy to run a business when you're overhead is so low from being closed more than half the time.
Much brick and mortar overhead is nearly fixed (rent/mortgage, utilities, insurance, etc), so having the business open for less than half the time actually makes it MORE difficult to run profitably...obviously labor costs are reduced, but when labor costs are at $0, so is income.
Okay, sorry...it wasn't so far fetched an idea that the joke was obvious. I expect that you would understand that concept (yes, I do highly respect your intelligence despite my teasing)...but a lot of people would actually think that what you said was the truth...
Plus, in the spirit of Josh's b-day, I'm taking your advice and not writing anything controversial today... :D
Btw, what kind of animal is that you're holding in your avatar? Very cute...is that a baby fox?
As far as getting your taxes back in the form a free health care, If you paid for it in taxes how is it free? And what good does it do you when you have to wait sooo long to see the doctor? I would have more stress in such cases. No wonder they had to develop such good wine to dull their senses and kill their pain while they wait to see the doctor while the women put out all those red lights to make additional monies just to get by.
First, no one said that health care in Europe is free. Of course somebody have to pay for it but since it comes in form of a tax, the burden is more spread out. Most of them prefer to wait for a doctor rather then die from lack of access. With regard to stress, it is a fact that American live much more stressful lives, work (Or should I say overworked) more and eat worse. Yes, despite the Camembert and other "Fromage" the French do eat better then us.
Okay, sorry...it wasn't so far fetched an idea that the joke was obvious. I expect that you would understand that concept (yes, I do highly respect your intelligence despite my teasing)...but a lot of people would actually think that what you said was the truth...
Plus, in the spirit of Josh's b-day, I'm taking your advice and not writing anything controversial today... :D
Btw, what kind of animal is that you're holding in your avatar? Very cute...is that a baby fox?
No sweat...lol. The French were mentioned here and I like the example of their construct of the work week. I don't know that it has anything to do with politics so much as just a culture of enjoying life. Personally I don't think there's anyone here who isn't trying to get as much vacation time as possible. Time does not always equal efficiency.
This brings me to another European and I believe Asian line of thought - that "home ownership" isn't necessarily the "dream". Think about it. People here are encouraged to go into a quarter of a million dollars in debt as soon as they are possible and to be beholding to that debt for 30 years - nearly half the average life expectancy. You'd have to get a lot of people to repeat this not necessarily beneficial behavior to stimulate a "recovery". This isn't even Biblical. I believe it's in Proverbs where it says to prepare your field (your cash flowing business) before working on your home. I think this "crisis" may be one of the best things that could have ever happened to the average American.
Close - not exactly a fox. It's a 10 week old gray wolf. Being an avid hunter/fisherman automatically involves you in wildlife conservation these days.
This brings me to another European and I believe Asian line of thought - that "home ownership" isn't necessarily the "dream". Think about it. People here are encouraged to go into a quarter of a million dollars in debt as soon as they are possible and to be beholding to that debt for 30 years - nearly half the average life expectancy. You'd have to get a lot of people to repeat this not necessarily beneficial behavior to stimulate a "recovery". This isn't even Biblical. I believe it's in Proverbs where it says to prepare your field (your cash flowing business) before working on your home. I think this "crisis" may be one of the best things that could have ever happened to the average American..
You won't hear any words of encouragement for home ownership from me... It could hurt my business... :mrgreen: However, the encouragement of home ownership is completely driven by commerce. More specifically, by banks and other financial institutions. This is a lucrative business (At least it was until the crash) You get a 30 years compounded loan, you pay finance fees, you pay mostly interest for 7-10 years and then you are encouraged to refinance for 30 years starting the process all over again. Just think about the amount of securities sold which were backed by mortgages.
...obviously labor costs are reduced, but when labor costs are at $0, so is income.
Actually, not quite, because those "Socialists" pay their employees even if they don't actually work. In France, they get two months paid vacation and when the government tried to do away with it, there were riots in the streets...
The funny thing is, those bastards live better than we do. Yes they pay high taxes, but get it back in form of services (Free health care, etc) The also have less stress, good wine and wonderful women... But if you are not French you would always feel an outsider no matter how many years you live there...
This is what you said just a few posts ago when talking about France (which is part of europe), then you go on to say
Pay attention to the area of your quote that I put in bold for you. You are the one that gave the free health care as an example of the services.
I am sorry that you contradicted yourself but as Tim mentioned my reply was meant to be a joke and not to be taken seriously. Tim may have been talking about his post that brought out Jason's reply that I responded to in the same joking manner.
We often banter back and forth, and it is enjoyable, but this time I thought the ability to use all of Jason's examples in my subtle reply would give away the intended humor in my statement.
To set the record straight I have not looked into any other countries systems (health care or otherwise) as I believe in this one and have no intention to leave it. So I usually refrain from commenting on the worth or unworthiness of another countries services.
OK, so maybe I have misspoken when I said "Free" but it is as "free" as our medicare, our SS retirement, our elementary school education and our national protection.
France is a JOKE! The French are lazy and they expect someone to take care of them. Furthermore, one of the reasons that they can work so little is that they don't have to pay for defense (except for making those white flags). The USA takes care of their defense, which is something I am 100% against. When I'm elected president, I'm pulling our troops back from Europe and everywhere else that doesn't appreciate us. Let them fight it out (or in France's case - let them raise the white flag). What a joke!
France is a JOKE! The French are lazy and they expect someone to take care of them. Furthermore, one of the reasons that they can work so little is that they don't have to pay for defense (except for making those white flags). The USA takes care of their defense, which is something I am 100% against. When I'm elected president, I'm pulling our troops back from Europe and everywhere else that doesn't appreciate us. Let them fight it out (or in France's case - let them raise the white flag). What a joke!
Oh well, life in Ohio is so great these days that I'm sure you know what your're talking about. Employment is in abundance, home prices are up and the weather... Oh the weather is so great... feels like a Caribbean island...
Have you ever been out of the country, Mike? ( Carnival Cruise doesn't count...)
The French don't have much of a defence budget because they are smart. They have guys like you to defense them while grinding their teeth... :lol:
Oh, and one more thing. Just for the record, defense is not what drags this country down. Entitlement such as Social Security, Medicare and medicaid is 2/3 of our foreseen budgets... Are you ready to give up on those... Oh sorry,,, of course you do... You are MikeOh.
I agree with Mike on this one. The European Union is prosperous enough to provide their own military. It's time for the USA to turn their defense back over to them.
Close the bases and get out. Tell them they are on their own and not to call us for any help.
Making an exception for Britain, here, as they have always been the very best friend (and, sometimes I think, the only friend ) of the USA).
If military isn't the majority of expense, it would still help to cut back on it, specifically the part that doesn't benefit us in any way.
I agree with Mike on this one. The European Union is prosperous enough to provide their own military. It's time for the USA to turn their defense back over to them.
Close the bases and get out. Tell them they are on their own and not to call us for any help.
Making an exception for Britain, here, as they have always been the very best friend (and, sometimes I think, the only friend ) of the USA).
If military isn't the majority of expense, it would still help to cut back on it, specifically the part that doesn't benefit us in any way.
Ok, lets get serious for minute here. We defend the French, and other western European countries for that matter from whom exactly? The only threat those countries really face is from terrorism which we, the Americans don't defend them from... They don't have enemies because they don't have such huge footprint as we do. We are practically everywhere doing absolutely the wrong things and fighting the wrong wars that create the need for that "Defense budget" Maybe it's time to change the name to the "Offence budget".
Yeah, I would like to bring it back. I'd like to get your perspective on your area there Bill. I'd heard from some investors in Springfield that it wasn't as hard hit in most sectors because prices didn't go up as crazy as other areas of the country.
Hi Tim, I'm in a very economically diverse area, meaning very stable. We have unemployment, SS, REOs, but not like some areas. We are a regional health center, a state university and 6 private universities, KRAFT, a regional law enforcement bunch, a federal prison trucking companies, Army aviation repair depot, the list goes on. All of the REOs are over priced waiting for retail buyers and houses are selling, slowly, but they are moving. There is some trash on SS that they would have to pay me to take them. I really think things will be moving here this summer. . Commercial REOs have not really hit yet and I suspect they will be grabed up before anyone knows they are available, at least the apartments will be. We have some spec builders still building! What's that tell you about the outlook? Later, Bill
Thought I would revitalize this thread as in the past 6 months th economic outlook has soured again.
I personally find it hard to believe we are on the path to being a "third rate country" in the future because all other countries are facing similar situations. Developing nations are not experiencing exactly the same but have PLENTY of problems of their own (even things as simple as food and water for a billion people - and their own bubble's will bust as well). Will we be the lone dominant superpower we have been, no, but have we reached the apocalypse, no (Unless you believe the Mayans). We will remain a first rate country, but for the first time we will have company in that top tier.
The truth is that good times always come to an end and bad times always come to an end. In the short term the rental market will be great. Although people will move in together to save money, there are still plenty who can't buy a home and will rent (Not to mention our population adding another 100 million over the next 40 - 50 years). Vacancy rates are up of course, but I believe rents should be dropped accordingly (If you can cash flow at more conservative rents then you'll be fine).
I wouldn't expect property values to increase on the trajectory that they did during the bubble, they will increase in a more modest and healthy manner and will increase mostly due to the pressures of inflation which will grow much stronger over the next 2-3 years.
The real estate bubble can be likened to a stock bubble and other bubbles, but real estate as an asset is quite unlike any other asset in that it is a home where people live, it is a limited resource (land), it is part of the American dream (which may be altered now), and it is a nessecity to live (shelter).
Boom and bust is the story of any market, and the bigger the boom - the bigger the bust, and we are experiencing it now; But as the story goes, another boom awaits as in the future. The more fear in the market (even among investors and BP members i sense a lot of fear), the more opportunities you will find in the market. And I for one will be investing aggresively, for if we are entering super apocalyptic depression - everyone is going to be in trouble regardless of whether they invested or not - so i think it is a smart and opportunistic time to invest.
Turn off the news and you may notice that in your own life, things really aren't that bad, unless you've lost your job it really isn't as bad out there as the fear mongerers portray.
Think this way, if we simplified the decision into two choices: to invest and seize "opportunity" or to avoid investment and prepare for the worst of times. If the beliefs of the latter party come true, both parties will be equally "screwed". So why not roll the dice, the more people that watch the news and are scared - the better the opportunities are for me.
Two roads diverge in a (depressed economy), I will take the road less travelled by.
And frankly, the less people who take the road less travelled the better for me in the long run!
PS - A bar of gold will be worth no more than paper money in a doomsday scenario.
If America is SO terrible, please tell me which country you will be moving to that is better off than we are? And if your sticking around to fight the good fight (stockpiling guns and food), I think that is laughable as none of us know how to truly survive off the land anymore or you wouldn't be buying canned food you'd be planting crops - I say good luck to you Mr. Bear Grylls.
And a final conundrum for the armchair economist out there - explain to me why deficits matter?
Treasury auctions are receiving record amount of activity right now, but let's even say that disappeared and the Gov't had to buy and ALL of its own debt at auction - essentially pulling money out of one pocket and putting it in the other. Please tell me why this matters in a "worst case" scenario. Is the gov't going to foreclose on itself? Almost all countries have deficits and owe each other money. In the end - explain to me why deficits matter.
UNCERTAINTY UNCERTAINTY EVERYWHERE!
It's pretty certain that the future is uncertain. This is why staying as liquid as possible is essential. If you own income producing real estate free & clear you can't lose.
Stay focused on what is certain...Making money with no investment at risk is as safe as you can get. Yes, it requires innovation & creativity to find a niche. You will likely have to go against the grain & do things a different way but that seems to be the only play.
If you're a buy/hold investor & you don't own the property free & clear or can't liquidate for cash immediately for what your investment is you should consider flipping, wholesaling, a second job....something to generate additional cash to reduce debt & create more liquidity. Otherwise you are at the mercy of the market. Cash in hand is as certain as money can be so get more of it.
The risk of leveraging investments, i.e. your future on an already unstable market seems reckless at best. Stay focused on what is certain. If things get better you'll be in a great position to take advantage. If it goes bad, instead of losing your investments you take a diminished return. And if it really goes bad you join "J Scott on a beach somewhere out of the country"...but at least you have the option.