If you mean you have to buy properties with extra discount in order to deal with the decline in value of properties while you're rehabbing them, then, you are absolutely correct.
In my opinion, different areas are going to be affected differently. We have lots of areas around here that are already hard hit with foreclosures and have seen pretty significant price drops. I don't really think we're going to see those decline another 30%, though that's a possibility. Other areas that saw huge runups may still have a way to go. If I look back at a house I used to have in Bakersfield, CA, it looks like its dropped in value about 20% over the last year. However, between when I sold it in 1999 until late 2002, the value was unchanged. From late 2002 until 2006, it more than doubled. So, the current value is still double what it was in 1999 or 2002. Do I think that's the real value? No. I think the real value is the 2002-ish value plus inflation. Which is about 30% below the current value, and close to 50% below the peak.
In that particular case, I think the pricing in Bakersfield was driven by people being priced out of LA and realizing they could get a nice place at a much better price. As prices collapse in LA, people may well move back.
So, I really think you have to try to understand your local market, and what's driving it. If you think 30% declines are a possibility, you're very right to factor that into your buying.
I agree with Jon. I would diffenitly look at the specific area and how it is reacting. Some areas are holding better then others. One example I am looking at is the corridor on I-15 from Murrietta and all the way to the northeast end of Perris, CA, in Riverside county. Thousand of homes were built in this old farming plain. This area went crazy during the boom because houses were $100 grand or more less then in San Diego or Temecula. Many lower middle class people bought here and Investors. Many got caught in the arm situation. I wonder What's % of investors are in foreclosure. Some of them were looking for the quick buck on continued appreciation and were caught. Many of them gobbled up these "inexpensive houses in these tracts" I know there are many areas in the country similar to this. There is opportunity here. The big question is( just like playing the stock market) when will it hit rock bottom. Maybe after the election will tell us. Any thoughts? John
Hello, I happen to agree that todays pricing might seen great but to tomorrows pricing it wasn't a steal! What we have to do is take each home/area etc on a case by case basis. I think we will be seeing some more value drops before things head back up. The only way to protect yourself is to get a built in pad and to purchase only in EXCELLENT areas or in area's where you can have a break even case flow when you are done re habbing.