Posted by Smart Money on January 11, 2004 at 23:47:05:
I live in a college town and I’ve seen some of that stuff. Has a lot to do with the cost of renting a place and parents reading articles about buying a place for their kids instead of renting so they can get some of their money back.
I wouldn’t compete. I’d consider selling some (but not all) of my portfolio and look at buying where prices are more reasonable (outskirts of town, next town over, etc.) If you’re really ambitious, since you know that prices are crazy, consider selling off some of your property and developing. Contact a local builder to discuss costs, The buy a lot in a place that is zoned multifamily, and build something. I’ll bet you that construction costs will be around $70 per square foot if your builder is innovative. Labor costs probably haven’t sky rocketed yet, and you could make enough on a duplex to own one side free and clear if you sell the other. Heck, you might even be able to sell it before its built if prices are as crazy as you say. That seems like a really good way to cash in without exposing yourself to too much risk.
Just wanted to ask how to handle this situation. I live in a large college town (Southwest Virginia). I own a few rentals that are doing well, but within the last few years, competition for buying residentail properties (rental or otherwise) has increased greatly. Asking prices have sky-rocketed. Many properties are 20K to 50K over-priced and (believe it or not) there are buyers (3 and 4 deep) all offering more and more money bidding the price even higher. It’s not uncommon for a seller to be offered $120,000 for a house that he’s asking $115,000 for and that would be the FIRST offer with even higher offers to follow. Here’s an example, realistically, this is a $50,000 property: One bedroom, one bath it’s 60 years old in need of major repair… it just recently sold for $100,000. It would rent for around 450 - 500/month AFTER it was repaired.
Anyway, I’ve learned how to do a rather good assesment of markey value for my area, but because of the current buying frenzy, any knowledgable investor is priced out of the market or forced to try and compete (spend way too much) with all the idiots who have more money than sense. Has anyone else faced a similar situation. Any ideas on how to deal with it?
Some parts of California have been this way for 20+ years now. Most of California is that way today. Junky old shacks are being fought over! 30 year old mobile homes are selling for 100,000+ dollars!
Decide if the boom is for real.
Is there an increase in jobs in the area for some reason. Is the population increasing? Is the government not allowing new housing to be built? Is there a reason why new housing cannot be created such as a lack of private land or remaining land is swamp or mountainside?
Or are the builders gearing up and in a year or two the boom will be over and the area will be overbuilt?