Posted by Pit Bull on October 31, 2006 at 14:52:45:
Posted by Pit Bull on October 31, 2006 at 14:52:45:
HOW AE WE GOING TO MAKE MONEY ON THE CRASH?? - Posted by Tommy
Posted by Tommy on October 25, 2006 at 04:45:37:
Guys we all know Now!! At least i have finally learned we are in for a crash landing. The question is, How do we make money on the crash? ALL ideas are appreciated?
Re: HOW AE WE GOING TO MAKE MONEY ON THE CRASH?? - Posted by speednxs
Posted by speednxs on October 25, 2006 at 08:43:55:
Short sales. Old timers are still nostalgic for the good old days of the Resolution Trust Corporation, bargains galore, make me an offer!
Buying discounted 2nds in certain states. It is my understanding that in California junior liens are wiped out if the first lien forecloses. To make a fair playing field, the second is allowed to bring the first current and foreclose from the second position. They are allowed the full value of the note plus the necessary costs to bring the first current and foreclose at auction. After a successful foreclosure by the second (no buyer at auction) the property is owned “subject to” the first lien and and the first has to foreclose the second to enforce the “Due On Sale” clause, which they may be reluctant to do. Therefore it may be possible to buy seconds very cheap if the first is foreclosing, but it is a big hassle get your money back. You own a house with only the cash to buy a second about to be wiped out, plus costs (“subject to” the first mortgage). There essentially has to be equity equall to the first and second (plus a little) to make this worth while. I understand other states are completely different and the second can’t necessarily make good on the first and stop the foreclosure from the first position.
Buy low, Sell high. We are headed to “Buy low”. If rents move downward slower than prices, CAP rates improve. Buy and Hold paradise.
This is a crash?? - Posted by Frank Chin
Posted by Frank Chin on October 25, 2006 at 07:54:58:
The bottom of the last crash here, NYC was in 1992-1993.
Newspapers got pages and pages of auctions, and I can go to dozens of foreclosure auctions a week, and I’ve gone to some where I was the only bidder showing up.
I don’t see that yet.
Re: HOW AE WE GOING TO MAKE MONEY ON THE CRASH?? - Posted by Mike-OH
Posted by Mike-OH on October 25, 2006 at 07:04:22:
The “crash” provides an excellent opportunity for making money with rentals. As prices fall and foreclosures increase, there will be an increasing opportunity to pick up rentals at a great price. In addition, as the people who bought houses with gimmick loans lose their houses, the demand for rentals will increase and the number of landlords will decrease. The real estate FAD is over and millions of get-rich-quick wannabes are leaving.
It is a great environment to be a landlord.
Re: HOW AE WE GOING TO MAKE MONEY ON THE CRASH?? - Posted by Sailor
Posted by Sailor on October 25, 2006 at 05:07:24:
Most of the investors I know liquidated their residential RE early
last year, & have since been using their ca$h positions to invest in
raw land, MH, MHPs & paper. I’ve seen smaller, yet more
profitable, deals. Although I’ve always been an advocate of bread
& butter housing, these days I’ve set my sights lower, & have
focused on meeting the needs of families in lower income
brackets, & doing my own financing for folks who cannot qualify
for bank loans. Providing decent affordable housing has been
rewarding for both my bank account & my soul. though I
recommend any investor have a good grip on demographics & an
eye for the direction of development in own’s own territory. I try
to get deals in place before the bride & hwy projects begin. How
are others changing focus?
I think its the start of a crash - Posted by Gene
Posted by Gene on October 25, 2006 at 16:58:59:
In my area (Central CA) we are definly on the downslide. But we have a LONNNNNNG way to go.
I am only buying properties which are very discounted that I have multiple exits and I can make some quick $$ even as the market continues to drop.
Re: This is a crash?? - Posted by Berno
Posted by Berno on October 25, 2006 at 09:33:07:
In my area (Eastern Iowa) it seems that we peaked about 1 year ago and now we are getting into the slide. The ‘average home’, in the $140-200,000 range, is sitting on the market MUCH longer and sellers are dropping the prices. I’ve only been in SF homes for about 10 years but I’ve watched the market here throughout that time and I see things getting worse. Of course, that’s better for those of us who buy, hold and rent! We probably won’t have the big corrections that other, hot areas have but I think deals are going to be plentiful.
Re: This is a crash?? - Posted by Mike-OH
Posted by Mike-OH on October 25, 2006 at 08:42:24:
I agree with you. We are not even close to the bottom yet. Based on history, I don’t believe that we’ll hit bottom until early 2008. However, here in Ohio there are a tremendous number of houses on the market and prices are beginning to drop. There are beginning to be a lot of auctions and you can very easily be the only bidder at these auctions.
I have also observed that many out-of-town landlords and landlord newbies are being washed out of the market, which is GOOD.
Re: HOW AE WE GOING TO MAKE MONEY ON THE CRASH?? - Posted by Tommy_FL
Posted by Tommy_FL on October 25, 2006 at 11:06:53:
Great environment to be a lanlord, you are right, but not everyone enjoys landlording. I just sold my 40 unit building that is giving great positive cash flow about 5K a month because I can’t stand being a medium size landlord (1st experience). Small problems almost daily more like people problem with tenants complaining, lazy superintendent that demands constant control, small leaks here, no lights there. Just couldn’t take it anymore. Fortunately sold it with a great profit after just 11 months of ownership not without regrets. Now the money is sitting in a short term CD until what to do next. I still consider myself a newbie after 6 years of RE investing. I still have a JOB so I’m thinking of investing in a business and work at it? Any input? Thanks.
Re: HOW AE WE GOING TO MAKE MONEY ON THE CRASH?? - Posted by Gene
Posted by Gene on October 25, 2006 at 16:56:51:
>>>>How are others changing focus?>>>
Inexpensive eldery housing is going to be a growth market over the next few years.
Re: This is a crash?? - Posted by Sailor
Posted by Sailor on October 25, 2006 at 10:09:12:
You may well be right or it may take even longer, but I think this
is going to be a rough winter & a lot w/shake out come Jan-Feb.
Those w/ca$h w/get to cherry-pick. That said, there are still
areas that are appreciating, but in my neck of the woods, it is the
very low end of the market that is gaining the most. The wise
investors w/learn about demographics (check the Archives on the
Commercial RE Forum). I know it is more difficult now w/
outsourcing & the loss of manufacturing entities, but look for
areas w/a stable, yet growing, job market w/a diverse pool of
Re: HOW AE WE GOING TO MAKE MONEY ON THE CRASH?? - Posted by Sailor
Posted by Sailor on October 26, 2006 at 23:03:40:
So you are thinking about buying a job, kid. But isn’t the point of
a job that someone pays YOU? If you have half-way decent
benefits, you won’t begin to replace them in a biz, + you run the
risk of losing all your profits. I’d think about passive income, &
put your bundle into a bunch of small deals for protection. Invest
$30 in Lonnie Scruggs’ new book, “Taking the Mystery Out of
Money: Stop Working for Money! Start Making Money WorK for
YOU!” It’s a whiz-bang guide to increasing wealth the easy way.
Yes, it does work, 'cause I’ve used his advice to increase my
Re: HOW AE WE GOING TO MAKE MONEY ON THE CRASH?? - Posted by Dons
Posted by Dons on October 26, 2006 at 05:11:41:
Quote: “I still have a JOB so I’m thinking of investing in a business and work at it? Any input?”
Tommy, read “Wealth Without A Job” by Phil Laut and Andy Fuehl.
I’ve owned a business for the past 36 years (a retail business) and this book has been a real eye opener in a helpful, positive way.
Re: HOW AE WE GOING TO MAKE MONEY - Posted by Sailor
Posted by Sailor on October 25, 2006 at 17:23:58:
Yes, this is an increasing need, but you don’t get the same appreciation as in general housing. I’ve owned property in Sun City, & there are always lots of inventory because the residents need to go into care facilities or they die off. This keeps the mkt artificially low. It’s been a long time since I was involved there, so don’t know if my observations are still true.
If you are talking elder-care facilities, that is another story–
I just do not see a crash - Posted by j mac.
Posted by j mac. on October 25, 2006 at 22:27:57:
I don’t think this down turn will be anything like the last one, much less severe. Just like any other market, RE tends to over react to the underlying stimuli, and prices tend to overshoot going up and going down. I think we can all agree that prices overshot on the way up, and will probably over react and over shoot on the way down. But the fundamental of RE may be such that we may already be near the bottom.
It’s tough to call a bottom, but we may be near it on a national level. Although we are not looking at a crash, I think generally, we are looking at a mild bear market in which there will be good buying opportunities and it will be tougher to sell anything for the next few years, if the economy stays the middle course it is going.
The fed has created great conditions for the RE market. I think that the big thing that greenspan changed was that he developed a way of cutting rates very fast and early in the recession cycle, before we were actually in recession (this policy a reaction, I believe to criticism that he didn’t cut rates fast enough in the previous recession.). This new policy decoupled Real Estate from the rest of the business cycle. Real estate used to go down with the business cycle, then when we were in recession, the fed cut rates, and everything came back up together. With greenspan?s fast rate cuts, real estate recovered much faster than the rest of the economy. Now with rates up, RE will moderate ahead of the rest of the economy, but I think this downturn will be less severe than other RE downturns, because it is occurring at a nontraditional time, as the rest of the economy is expanding. This general economic expansion prevents RE from having a severe downturn on a national level. Presumably this pattern will prevail in the future, and should bode well for Real Estate, as the downturns should be moderate, and the boom times good as cars, RE and other interest rate sensitive items leads the rest of the economy out of recession when rates are cut early in the recession cycle in the greenspan-esque fashion.
But we need the moderation of RE in the downturns, because if prices get too high it isn’t good for the general population, and it could set up a future crash.
My prediction is that if we go into recession, look for massive and fast rate cuts and RE Boom II. If the economy grows too fast, and over heats, look for brief high rates and a very cold RE market, which will cool the entire economy and drop rates and revive RE.
If the economy keeps going as it is, the coasts might just move sideways high rates will cause bad short term pain on the coasts. At any rate, economies heavily dependant on manufacturing will have high rental vacancies and a poor RE market in any economic scenario. The energy areas, texas, etc will do great unless fossil fuels drop a lot. Areas that good high tech business and decent affordability will do great, except for a big recession scenario.
Having said all that I just cannot see a crash. There are futures markets for interest rates that predict rates will be low for a long time, with a very good history of accuracy. With rates below 7?, 8? for the foreseeable future, I think the RE market will overshoot on the way down, but unless something strange happens that makes commodities real expensive and causes stagflation, with high rates and poor growth, or something strange happens with currencies that causes high rates, I don’t see a crash.
Does any one have any thoughts on a realistic scenario of how a crash could happen, I just haven’t heard one?
Re: HOW AE WE GOING TO MAKE MONEY - Posted by Gene
Posted by Gene on October 25, 2006 at 17:32:05:
I agree with you on your observations. That is what it has been like…in the past…but I am talking about the future.
The Baby boomers are going to start retireing. They are the largest single demographic, and they have shaped the US economy sence thier conception.
Many have not saved and are going to have to down size in a big way if they want to retire anytime soon.
Its a trend that is already staring in my area.
Re: I just do not see a crash - Posted by Gene
Posted by Gene on October 27, 2006 at 11:16:30:
Are you a realtor??? Your argument seems very similar to David Lereah’s.
I would like to hear your opinion on a few things I am seeing…
Affordability is at an all time low. Historically the affordibility index never stayed under 20 for any amount of time. Right now many cities the index is in the single digets. It concerned the NAR so much that they quit posting the stats and “recaclulated” the index so it would “reflect todays market”. Thats what you do when you don’t want people to see whats actually going on.
It seams like the only “fundamental” you are looking at is the overall economy. I agree the economy has had a good recovery and is looking pretty good. But the recovery has been mostly a “jobless recovery”. Real wages have not kept pace with real estate price increases (in CA over the last 5yrs prices tripled and real wages are down). There are some great charts online showing median housing prices in the US when adjusted for inflation.
I personally think real wages and job creation are much more improtant to real estate prices than an overall good economy.
In a recent NAR poll 3 out of 10 said someone they are closely related to will loose there home to increased payments in the next year. The fact is “creative loan products” have put a lot of people in a bad situation. over 2 trillion dollars in loans are resetting this year. That means the “into teaser rates” expire and payments will double in many cases. There is going to be so many motivated sellers, and foreclosures, it going to drive the prices down. I would say this is a great thing for invstors (lots of opportunity) but if folks get on ths too early, the market will drop so much it could wipe out all thier gains.
ALL fundamentals show this run up was historic and off the charts. History shows…The bigger the boom the bigger the bust. This time is no diffrent.
My question is…Dose any one have any thoughts on a realistic scenario of how a crash could NOT happen, I just haven’t heard one?
Re: I just do not see a crash - Posted by Don (VA)
Posted by Don (VA) on October 26, 2006 at 13:07:22:
A very good analysis, and I don’t disagree with any of the facts you present–interest rates, general economic trends, and so forth. But what you may not be weighing heavily enough is the buyer mentality. Couple that with a few tangible problems, and you might be looking at a “deep slide,” if not a crash.
Consumer psychology is hard to gauge. But your own statistics help make my point. Interest rates right now are very, very good. The economy is doing very well. Inflation is under control. Unemployment is low. The Dow has hit a new high. (The Nasdaq is another matter, but…) Even energy prices, for the moment, are easing. (You see the glass “half full”–you note: “RE downturn…is occurring at a nontraditional time, as the rest of the economy is expanding.” Maybe I’m a glass “half empty” type–I’m concerned precisely because of the downturn when the rest of the economy is healthy.)
Given all these factors, why the concern in real estate–the drop in prices, the ballooning inventory, the slowdown in sales? Yes, some of it is a correction, the pendulum swinging a bit the other way, a correction from the “irrational exhuberance” of the past few years. Still, it’s more than that. With such good economic conditions, the real estate market should have slowed to allow the rest of the country to catch up, to resume a level of stability.
But in many areas of the country, the market is really hurting. I’d suggest that part of the reason is buyer fear or concern. There are actually people out there, regular ordinary homeowners, who are selling their homes and who plan on sitting on the cash…locking in their profits and waiting out what they perceive as the crash. There are many more people who’d like to buy now, but are concerned that the house they buy today might be worth 10% less (or greater) in a year or two. And they’re not willing to take a $50,000-$150,000 hit. I attended a networking meeting this morning. There were some financial planners, some IT types, a couple of home stagers (no Realtors, interestingly), a few mortgage brokers, etc. And they’ve all seen evidence of this fear/concern. A couple of people I talked to (an IT person, a party planner, a few others) told me that they were interested in buying…next year. Too risky today, they said. As they say, that was an unscientific sampling, but still…
In addition to the psychological issues, I think there’s also the very real issue of the types of mortgages many borrowers got in the past couple of years. Lots of people who bought in 2004 and 2005 used option ARMS, interest only mortgages, no-down firsts and seconds…that sort of thing. And many of those people are already upside down, what with negative amortization and a declining market…to say nothing of the 10% or so transaction cost in selling a property. Now, that’s OK if they’ve got the income to service the mortgages and they don’t need to sell. If they can wait it out 3, 4, or 5 years, they’ll probably be OK. But if they hit a bump in the road–a job loss, some medical bills, that sort of thing–they can easily lose it all…and quickly, too. A lot of these mortgages weren’t around during the last big slump around 1991.
Finally, the economy runs in cycles. (From your excellent recap, you probably know more about that than I do.) Still, the economy may weaken in the next 6 months to a year. What if oil prices spike up? What if we have an unusually cold winter on the East Coast, leading to heating bills double what they were last year? What if unemployment slowly rises by a percentage point or two? What if there are signs of inflation and the Fed decides to tighten the screws just a bit more? What if the Democrats win the House and Senate and big business becomes concerned about the economic implications of a Democratic-controlled Congress? What if Castro dies and his death leads to political instability in Central and South America? Sure, those are a lot of “what ifs”–some of which won’t happen. But, at some point–6 months, 3 years, whenever–the economy is going to slump. And that won’t be good for real estate, whether we’re talking your facts and figures or my “buyer mentality.”
So, to summarize, we’ve got a weak real estate market even when the economy is strong. If the economy weakens, that’ll further weaken real estate. Meanwhile, there is a definite buyer aversion to purchasing right now. Logical or not, it exists. And hanging over it all are lots and lots of very unstable loans and homeowners who are upside down. A continuing rise in foreclosures, a rise in interest rates affecting those new loan programs, growing buyer fear, a downturn in the economy…and you could have a very messy situation.
Not that I’m predicting all this. I suspect we’ll kind of muddle through…messy but no crash…a couple of years of discomfort…that sort of thing. But I do think there’s a realistic scenario for a sharp, painful decline in real estate.
Re: I just do not see a crash - Posted by Sailor
Posted by Sailor on October 26, 2006 at 22:51:45:
Interesting arguments, guys, & I appreciate divergent views. My take on the situation is that no matter how you play w/the statistics & longitudinal data, crashes have happened in the past & they are going to happen in the future. We owe too much, individually & as a nation, to avoid disaster. It may not happen this time, but it w/sometime. The good news is that there is $$$ to be make in both descending & ascending mkts. The bad news is that we are using up the world’s natural resources @ a fa$t clip, & the bill is going to have to be paid. It’s a whopper, too.