Investing in A Down Market - Posted by Fred

Posted by Gene on April 27, 2007 at 16:36:24:

Good advise.

I look at it much the same way.

I sold much of my portfolio in fall of 2005…it was obvious that CA was going to have problems. I initially put the proffits strait into a money market account which gave me 4.5%.

Sence then I have moved it all to short term private money morgages. They have ballons due in 2010 which is when I think there will be some great buying opportunities.

My living has been investing in real estate…but these last couple years it was obvious that I needed to expand my horizons if I wanted to prosper during the downslide.

Gene

>>>>>>>>>For example, in the SF Bay area, it is not unusual to have a property that returns 4 - 5% per year. In those cases, ING Direct will provide the same or better yield with none of the risk. So those properties are not priced to move quickly if being sold (and they don’t, it takes years to find a buyer).>>>>>>>>>>>>

Investing in A Down Market - Posted by Fred

Posted by Fred on April 23, 2007 at 19:51:52:

I’ve been buying multi-family units and also rehabbing flipping since 1998. I’ve managed to make a few mistakes here and there, but the appreciating market in SoCal has pretty much been my safety net.

Now that the market has slowed and in some areas actually declined. How does one calculate for a potential depreciation in the value of the home?

Some say that current home values may lose up to 40% of its current value by 2010. I just want to make sure I plug in the appropriate risk when making an offer.

It would be nice to hear from those that were around during the crashes of the late 70’s and early 90’s.

Re: Investing in A Down Market - Posted by Eric (MI)

Posted by Eric (MI) on April 24, 2007 at 15:10:10:

Not an expert by any means but ALL I know is investing in a down or flat market since Mid-Michigan has been that way (with a few exception) forever it seems. Some areas have fallen 20% in the last year and they weren’t high end houses to begin with.

The approach I have taken to is acquiring property for what is owed on them and only if it is significantly enough below FMV. When there are thousands upon thousands of homes on the market and the average time is 10-12 months it isn’t hard to do. I haven’t delved into Multi-Family yet (soon) so I am not sure how to apply it or if it is feasible to do so in that situation.

It is amazing what 1 or 2 thousand dollars and taking over the balance of the mortgage can get you in a down market. I routinely find houses that people are willing to take the above for their equity and move on with 40+% equity in the place.

Re: Investing in A Down Market - Posted by Rich-CA

Posted by Rich-CA on April 23, 2007 at 20:27:01:

Multi-family units are traditionally priced based on their yield or Cap Rate. I had seen a lot of sales (I’m in NorCal) where the “appreciation” amounted to a reduced return. I think you will need to return to basing your price on the income the property generates minus reasonable operating expenses in order to be sure of finding a buyer. With all of the wannabe money evaporated from the market, you will be back to the same customer base who traditionally bought multi-family properties and they will want to know how much it adds to their bottom line each year.

For myself, I only look at potentially double digit cap rates (that means they would be double digit if fully rented) and my minimum and am much more attracted to properties that have better returns than alternative investments.

For example, in the SF Bay area, it is not unusual to have a property that returns 4 - 5% per year. In those cases, ING Direct will provide the same or better yield with none of the risk. So those properties are not priced to move quickly if being sold (and they don’t, it takes years to find a buyer).

As far as those who still expect a return to the fast appreciation - over the past 50 years this has been a very minor exception, not the rule for the changes in property values. Besides, in a rental market, if houses aren’t being sold, there is more demand for rental units. And those displaced by foreclosure still need to live indoors. Increasing rents helps increase the asking price (or Cap Rate if you’re trying to get numbers that will attract a buyer).