Bakersfield Ca, wheres our market heading??

Question

Good evening all.

So I have a quick question for my fellow Bakersfield Bigger Pocket members or anyone in the know of Bakersfields current market. I've narrowed my excuses for not jumping into investing down to my families current living situation, which is that we have our home ready to sell, with equity just waiting to be used on a flip, after we purchase a new home for ourselves, my concern is that the rise will continue after i sell and i could be missing a bigger pay off by rushing to sell. Any advice on the direction our market is heading towards? My neighborhood seems to be on the rise, would another couple months be worth the wait or will it stay pretty stagnant? thank you for your time.

Gene Hacker · Answer

Hey Matthew,

I think you are making a very good choice by trying to understand where Bakersfield is in the market cycle.

I work in Bakersfield but invest in Lake Isabella so I don't have a opinion for you but I do have a few suggestions that could help you find the answers.

IMO its all about the data.  There are a few resources that I recommend...

1 - There is a book on real estate market timing by Robert Campbell.  The book is really good and will help you learn what to look for.  If you follow the book you will be way ahead of 99% in terms of understanding what will likely happen to your market. I personally don't agree with many of Mr Campbell's macro economic predictions (he sells newsletters) but his book gives you the basics to understand your market.  You can get it cheap on amazon.com.

2 - Gary Crabtree is a local appraiser that has a ton of insight into the local market and seems to have a pretty good track records.  I think he sells a local report.

3 - Bruce Norris is a investor and analyst which seems to get it right again and again.  He is more focused on So Cal but anything he says about the overall market/lending environment is well worth listening too.  His website (google "the norris group") is full of information (radio shows...etc.)

Personally I don't put much weight on what the economists that work for CAR or NAR put out.  They have proven over the years to be cheerleaders rather than true economic analysts.

But overall, get the raw data that pertains to your area and follow what it says.  Its the best way to invest in a rational (non emotional) way.

Gene Hacker · Answer

Account Closed, I don't put to much emphasis on wages when it comes to real estate trends.  Look at the last run up from 1997 to 2007, in my area prices tripled during that time. I am not sure exactly what wage growth was but I know it was dramatically lower.

Total affordability eventually becomes a driving force when you are at the extremes, but I don't think Bakersfield is anywhere near the point where affordability becomes a factor.

Data is mixes right now, Most areas are no longer at the bottom, but it doesn't look we are near the top yet.

Sure there could be some really bad news which is unforeseen that causes declines, but I don't think we are seeing a bubble nor do I think we are really close to a cycle peak...yet.

I guess what I am trying to say is...its not as good a time as it was a few years ago, but I expect its a better time to buy now than a couple years from now.

There are some lake view properties that are pushing new lows, that is what I am interested in right now.  I think the drought will end eventually and the values will return.  I have seen nice houses in Mt Mesa sell for less than 1/2 of what they sold for during the last cycle.  Sales have really started to climb so prices increases might be coming soon.

Account Closed · Answer

@Matthew Joyner My wife and I are in the same space as you right now.  We see a continually rising market in Bakersfield.  We're looking at small multifamily properties, and so as the price goes up, rent per door can't keep up due to people's incomes not rising, so that squeezes the cap rates into undesirable territory for us.  I suppose you could say we are "waiting" to enter the market, but I call it prudence for now.  I might feel differently later, but I don't think so.  In the old story of the tortoise and the hare, the hare (fast guy) doesn't win the race.  I'm more like the tortoise, making conservative decisions.

I can't see prices rising much longer due to wage stagnation of those who pay mortgages and rent.  There is so much that affects this dynamic though, i.e. availability of credit, macro-economic considerations as well as micro considerations.  Where the appreciation is going or when it will stop and reverse is anyone's guess, but my gut and my research is telling me we could see a pull back toward the end of the year in 2015 or perhaps into 2016, but that's just my opinion based on my nights-and-weekends research.

@Gene Hacker@Matthew Joyner@Aaron Mazzrillo I'd love to hear what you guys are seeing in our local market and what your gut and or research is telling you as well.

Jonathan Guerrero · Answer

I really appreciate you going in depth with this. I've listened to your podcast many times and it's one of my favorites. I'd really love to achieve the lifestyle you have achieved and I'm trying to learn as much as I can do I can get there.

Jonathan Guerrero · Answer

What would an ideal situation be? What terms would be appropriate?  Also, is there a particular reason why you're not wholesaling much? Is it because of the market rising and deals are getting scarce?

Johnny Hoang · Answer

Reviving an old thread. Any input on predictions for Bakersfield's market now going into next year 2018?

Matt Owen · Answer

Derek,

I know we were discussing something similar on the other thread but I was curious where you located that 3bd? I'm assuming this was an off market deal as everything I've been able to find on the MLS has been sub 1.4%. Although my focus has been small multis and not SFRs so I could easily be incorrect on that. What part of town is that property located in?

Any insights on what you expect from Bakersfield following the oil crash? Did some reading online and Forbes and other articles stated a ~18month lag time between crashes and housing market adjustments. We should be coming up on that figure shortly and I'm curious if you have any prior experience with that. Cheveron has another 250-300 employee layoff happening in a month or so as well so the cuts keep coming.

Matt

Derek W. · Answer

The part about houses getting too expensive and squeezing cap rates interested me. I just bought a 3 bed in Bakersfield for the exact same price I've been buying them for the last 5 years.  Fits 2% rule.

And I've been asked to sell a duplex for a friend who bought in 2011. Prices on MLS have gone up some, but not drastically.

Aaron Mazzrillo · Answer

It has most certainly gotten more competitive out there. Lots of investors who came to the market during the easy days of short sales and REOs are now struggling to pay their overhead (a move I highly recommend you avoid!) and everyone has jumped in on the mailing campaign. I've considered shutting it down until all these fools blow their wads and run out of money. They will eventually.

The most successful single family investors I know, and I'm talking guys worth solid 8 figures behind them, typically have very tiny offices, one assistant and no partners. Overhead is what kills people in this business. I've seen it again and again; they start making money, they get the office, business cards, new car, bigger house, hire some staff, then the market shifts and suddenly they stop showing up at the real estate investor meetings, the websites go down and they disappear. I just hope it was fun for them while it lasted!

I am rehabbing more because I am closing less deals, but still seeing activity in the market where I am getting them. So, it makes sense to list those houses myself and take those bigger checks instead of slicing off a tiny piece and passing them along. Quite frankly, I like it when we have a 'clearing house' event and a few investors disappear.

My lifestyle is pretty simple. I have very little personal debt. I only owe money on the house I live in. By doing a few more rehabs, I can maintain my income level while doing less overall deals. FYI, my work load has not changed. I bought a house last month that I just listed today. I never saw it and have no intention of ever seeing it. Why do I need to? Stroke my own ego? My contractor is the one who has to fix it. So, he goes to see it. He does the work. When he finished, he sends me photos and picks up the Realtor lock box (supra) to put it on the house. I put it in the MLS and let the agents selling it show it. Too many investors go get all involved with their rehabs for no reason... other than to stroke their own egos by post pictures of their investor tan walls, Home Depot kitchens, and Berber carpet on social media.

As for buy and hold, my goal for this year is to up my gross rent income up to a certain level. I still fully expect to hit that goal, but I have yet to find the right deals. It is only June so I still have 6 1/2 months. At this point with prices the way they are, the property needs to be well located and either very well purchased (cheap!), or very favorable terms - subject to a 30 year fixed, low interest rate or seller financed with affordable monthly payments. I've made a few offers, but haven't closed them... yet. Those potential deals are still on the table until the deed transfers to someone else.

A lot more info than you asked, but I had a great day fighting my friends at the dojo and now I'm chillin at home feeling a bit type-ative.

Aaron Mazzrillo · Answer

Market is doing great, but I certainly wouldn't be sitting on the sidelines waiting. That's not conservative. That's an excuse for inaction. I've stopped wholesaling and started doing more rehabs and flips. Why should I sit on the sidelines and watch all my friends get wealthier?

You need to learn to adjust your business in response to what the market is doing. In this kind of market where prices are really high and seem to continue going up, you get in, grab some equity,  and cash out. I would never consider a buy and hold strategy now, unless I got seller financing.

A friend of mine purchased a 2/1 house for $55K 2 years ago. I just closed on one for $145K 1 mile from his. We were talking about it and he thought I overpaid. I laughed and said there are 3 on the market for $220K-$240K. I'm putting mine on the market for $219K and expect it to sell in the first weekend which should net me $20-$30K.

Get in, rip equity, get out, but DO NOT SIT ON THE SIDELINES WATCHING.

Bakersfield Ca, wheres our market heading??

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