Should we keep our powder dry?

Question

It looks like it may be worth holding off on buying any more real estate.  Check out what's coming in this article:

http://www.inman.com/news/2009/01/26/banks-unleash-flood-reos

Any thoughts?

Jon Holdman · Answer

Others may be quicker, but for me it takes several months to get a purchase made, fixed, and rented.  So, even if we see continued declines over the next 12 months, its a dollar cost averaging situation as far as I'm concerned.

Not to mention, I'm seeing a slower pace of REOs coming on the market than a year ago.  Competition continues to be an issue, with multiple offers common on good deals.

Harrison Painter · Answer

I agree Jon....
            
            We have also seen very few REO properties released on our market, and I am assuming it is due to the "bailouts" and halts on foreclosures. 
            
            It is very tough on my business, and it seems that every time we find a business model that works, it comes to a screeching halt!!!
            
            We were almost put out of business when the mortgage crisis started. We regrouped and then got slammed by the Fannie/Freddie changes. Regrouped again, and now we have all of these programs slowing down the free market system.
            
            I am starting to feel that either the government does not want us (small business owners/Investors) to survive, or that I have simply become allergic to money!!!   :lol: 
            
            We can all get through this, and I still believe that the next generation of millionaires will be made out of this mess, but it is so hard to keep a positive outlook when the government will not allow the free market to take its natural course.

Today's events are just frustrating me, and I needed to vent.........LOL

Jenny F. · Answer

Why does anybody pay any attention to RealtyTrac? There data is useless & wrong in most cases (at least in my area).  If there data is WRONG how can they use that same data to make any ANALYSIS?  I keep hearing them used as a "source".

Tim B · Answer

Investing in real estate or any investment is a matter of assessing the current market using as much information as possible and making an informed decision. Lets see what is the current market?

1. Many more REOs will hit market soon
  2. Very few buyers - concerned about job loss, lower RE values,can't sell current home ect....

Basic supply and demand (economics 101)  seems to indicated lower future RE values.  No one is advocating waiting 20 years or trying to pick a bottom.   Waiting 6-12 months may reward you with much lower prices.

Some investors thought 3 years ago was a great time to buy - I wonder how that investment turned out - "flippers in trouble" blog.

I know it's tempting to snap up these amazing REO deals - perhaps 12 months from they may not seem so great.

Sometimes patience has it's rewards

Tim B · Answer

"keeping your powder dry"  probably depends on the local market - generally it's smart to wait 6-12 months for lower prices.  Recently I have seen major price concessions by banks in Tampa, Phoenix, Minneapolis, San Diego.  Only recently, formally good markets, Austin, Charlotte have started dropping in price.

After 20 years as an investor I'm sitting on the side lines - why do you want to buy today when it will PROBABLY be 10% cheaper in 6-12 month. This is called "catching a falling knife"  Just think what position you would be in if you accumulated property 3 years ago.  Check out a Blog "FLIPPERS IN TROUBLE IN ORANGE COUNTY"  May make you think twice about jumping in too soon!

Harrison Painter · Answer

I love that some investors are sitting on the sidelines and waiting. Less competition in a great investment market!  :wink: 
                                                                                                            
                                                                                                            It really does depend where you are investing. In my markets, 10% might only be a few thousand dollars on a deal. Not really worth trying to time a bottom for and risk losing out on a great property. 
                        
                        That said, I would use caution in the extreme hot/extreme cold markets and might be on the sideline there to some extent. 10% could mean a lot of money. So it really comes down to what market you have interest in . While investment might start in your backyard, it is extremely smart to diversify into other markets as you learn more.
                                                                                                            
                                                                                                            I also come from the school that believes that timing any market is a cocktail for disaster. Nobody really knows when a bottom happens, as it can not be calculated until the market is back on the way up.
                                                                                                            
                                                                                                            I am now seeing a "Reverse Bubble". Let me explain.....
                                                                                                            
                                                                                                            - When times were good, people thought the sky was the limit and bought properties blind. Did we all really think that homes could sustain an appreciation rate of 30% a year? Common sense tells us no, but investors actions during the boom shows us that many believed it was possible.
                                                                                                            
                                                                                                            - Now that times are tough, people are waiting and waiting. The feeling is that it will keep going lower. I am not saying that it will not, but I doubt even the most educated economist can predict that "Today is the day, we are at bottom". It just does not work that way. 
                                                                                                            
                                                                                                            I look at all of this bubble stuff as being greed clouded judgment. We are just doing it in reverse now. We are not going to be buying million dollar homes for $50K, it is just not going to happen. While some might feel this statement is extreme, once again, I am seeing investors actions dictate otherwise.
                                                                                                            
                                                                                                            I do not mean that to be offensive to anyone, as I think it is something that every investor struggles with internally. Greed is something that is inside each and every one of us. We can not get rid of it, but we must learn the discipline to keep it at bay. At the end of the day, If we did not want to maximize profit in the first place, we would not be investing!
                                                                                                            
                                                                                                            While I do not fully agree with sitting on the sidelines, keeping a conservative investment strategy will usually pay off much better in the long run. If an investment is a deal today, it is a deal, no need to wait. I know plenty of investors who bought 5 years ago and are still doing OK today. I see this argument a lot, and I understand it, but it just does not carry a lot of weight with me. 
                            
                                                                                                                                                                                              Like I have stated before. an investors "Basic" strategy should not really change due to market fluctuation, and in my opinion, balance is the key to any long term success regardless of market conditions! You are going to win some, and lose some (especially as a speculator), as investing is risky. If it were easy, everyone would be wealthy..... 
                                                                                                            
                                                                                                            Let's try to make every day profitable!

Michael Rossi · Answer

IF you had some magical way to determine the exact bottom, how many properties could you buy at one instant in time?  If your goal is to own one or two rental properties or buy one or two houses to hold for appreciation, then I agree that it's a good idea to wait because we're certainly headed lower from here.  However, if your goal is to be in the rental business, the rehabbing business, the wholesaling business, or the flipping business, then you better learn to make money in every market.  Unfortunately, in business, you can't make money one year and then sit on the sidelines for the next 20 years waiting for the exact bottom of the next cycle.

Mike

Jon Klaus · Answer

There should be good and great deals in the near future as this mess will take a while to work through the system.  However, there are good and great deals TODAY.  Trying to time the exact bottom is speculation.  Why do that when today we are in the best buyer's market (credit not withstanding)  that we have seen in our lifetimes.  That is if you are younger than 80 years old.

Should you keep your powder dry?  Yes, perhaps some of it.  But if you get a sure high-value target in your sights, you should pull the trigger today.

Jon Holdman · Answer

That's a paid membership to read the article.  Care to summarize the highlights?

Hal Cranmer · Answer

Sorry about that.  Someone sent me the article.  Here is the meat of it:

Statistics compiled by data aggregator RealtyTrac hint at the magnitude of the problem nationwide. RealtyTrac tracked foreclosure-related filings on 2.3 million U.S. properties in 2008, an 87 percent jump from the year before, with 861,664 homes making it through the entire process to become REOs.
The Mortgage Bankers Association's surveys of members suggest one out of 10 mortgages was either delinquent or in the foreclosure process at the end of September, and Moody's Economy.com estimates 12 million homeowners are "upside down" -- they owe more on their homes than their properties would fetch in today's market.

RealtyTrac senior vice president Rick Sharga told attendees at the Inman News Real Estate Connect conference in New York City this month that an analysis of 500,000 distressed properties in four states in the company's database found only about one in four were listed for sale in a multiple listing service, or MLS.

That suggests that as many as 75 percent of distressed properties have yet to hit the market, Sharga said, and that many of those homes will soon be putting pressure on inventory and prices as banks repossess them and put them up for sale. . . .

Joshua Olshin, president of New York, N.Y.-based Tranzon Integrated Property Group, said that the possibility that a wave of REO properties is about to enter the market creates uncertainty and puts downward pressure on prices.

"People see the foreclosure numbers, and that banks are not even selling what they have, and then we have a whole new load (of REOs) coming on, and that's causing people not to price things effectively and accurately," Olshin said. "It's kind of compounding the problem, I think." . . .

The government's TARP purchases of preferred shares gave some banks a thicker capital cushion -- if only fleetingly -- which regulators hoped they would use to make more loans. Instead, some banks have moved to acquire weaker competitors.

"Last summer, we began seeing banks be much more aggressive in the way they priced things," Olshin said. But banks may also not want to recognize losses that accompany the sale of properties at deep discounts when they are having difficulty raising the capital they need to meet statutory minimums, Olshin said. "To be frank, since the TARP money came in, they are still selling off (properties at auction), but they kind of took a step back." . . .

Real Estate Disposition LLC (REDC), which claims to be the nation's largest real estate auction company, held 300 ballroom auctions in 2008 and sold nearly 33,000 foreclosed homes for $3.4 billion -- a seven-fold increase in sales volume and nearly triple the proceeds the company generated in 2007.

Company CEO Jeffrey Frieden said he expects to "smash that record" this year as banks and lenders continue to amass a huge inventory of foreclosed homes and are more motivated than ever to sell their inventory. . . .

Some observers fear that if the massive amount of debt the government is taking on to stimulate a recovery, inflation -- and higher interest rates -- are inevitable consequences. Inflation can spur home sales because households are looking for an inflation-proof place to park their assets.

But rising interest rates can also reduce consumer's home-buying power, undermining prices. If interest rates shoot up, buyers who close a deal on a home with a subsidized mortgage could see the value of their homes plummet when subsidies end and interest rates shoot up. . . .

"It's almost like a tsunami -- you can see it coming and you know it's going to hit but you cant get out of the way," said Ann Stickel, vice president of affiliated services with Sarasota, Fla.-based brokerage Michael Saunders and Co.