Posted by Young Jedi on September 15, 2005 at 04:42:34:
Joe, managing the risks is fundamental. Good judgment is the key. And education and experience are the building blocks of good judgment.
That’s a great point about educated optimism. Pessimism stops you in your tracks. Blind optimism leads you to skate on thin ice. Like a shark, you have to keep moving forward to survive, so action is necessary for a real estate investor.
Being smart and keeping the risks at a tolerable level lets you sleep at night.
Posted by Young Jedi on September 15, 2005 at 04:11:33:
Yes…as a property buyer, I like to think that a contraction in general real estate activity and prices would work to my advantage. Then again, perhaps not.
If there is more distress in the local markets, finding deals would become easier for a distress market player.
But then, would selling or renting these deals be proportionately harder as well?
Maybe you can find more deals, but have a harder time with your exit strategy. If you are just working on the spread, then you should be fine just adapting to the current conditions as they change. Being light on your feet will be a benefit to you (as it usually is.)
Counting on continued appreciation is never a good strategy. At least, this is true in my local market.
I am not sure what will happen to rents if the real estate market activity slows significantly. If there are more foreclosures, and less new homes built, then it would be logical to assume that more poeple will be converted from homeowners into tenants. Rentals should weather the storm, if you don’t have to sell them for some reason. I have been selling some of them and using the proceeds to pay off the debt on the others that I am keeping. All of the other keepers are on good fixed rate financing.
Your last sentences nail it. Those who mock the bubble stories might be taking too much risk. The others who worry too much about a decline are missing opportunities.
The sweet spot is somewhere in between.
Perhaps I should have included this middle-of-the-road position in my original posting as a third position.
Tunnel Vision and Vested Interests - Posted by Young Jedi
Posted by Young Jedi on September 15, 2005 at 04:27:53:
Thanks for responding, Jack!
I figured the vested interest portion was at play in the media. Doom and Gloom sells.
I also thought that most new real estate investors with big holdings were vested in the current belief that prices will continue increasing forever.
Wishful thinking is rampant among the new investors at the real estate club I frequent. They only know how to make money from appreciation, so their greatest fear is that this party might end. They pounce on any evidence to support this belief, while ignoring anything contradictory. Tunnel Vision.
Posted by Frank Chin on September 16, 2005 at 07:48:31:
Young Jedi:
I got my 200K HELOC lined up.
I’m a “buy and hold” landlord. The funny thing about the rental market around here is its the STRONGEST at market tops and market bottoms. Reason is there’s always a core group looking to rent.
At the current market top, there are many owners cashing out at the peak leaving few rentals in many towns, and it made no sense for others to buy at these prices to rent and make a decent return. So we have limited supply and higher demand. Then, add to this group others that rent because they think prices are to high, or just sold their homes to lock in gains prior to moving to a cheaper area, or retirement.
In fact, this is the opposite of the conventional wisdom that the rental market is bad with low interest rates since everyone can afford to buy a home.
At market bottoms, we have people who rent waiting for prices to drop some more, or afraid to buy thinking prices will fall. While there are more rentals available at market bottoms, most newbie landlords either charge too much, or offer terrible units since they expect tenants to paint and rehab. So I don’t have problems at market bottoms either.
Bottomline, bubbles shouldn’t concern “buy and hold” investors. The best opportunties come when the bubble bursts.
Hey, we weren’t attacking anyone, talking about economics. You generated good discussion, Young Jedi. Bill in Mobile obviously is having it rough, we feel for him and his.
where are these bubbles taking place? california/ bigger cities. where i live in illinois i dont think we can have a bubble or crash, most of the houses are about the same price they were about 8 to 10 years ago. we never had much appreciation to begin with. they went up a little but not much. a nice 2/1 i lived at in 1994 i paid 36k for. then about 2 years later i sold it for 42k doing nothing to it. i can by that same house now for about 42 to 45. it still looks the same nice house nice neighborhood. it is a small town with not much going on. i have been looking at multi units in a bigger town about an hour from me and i think they are all overpriced and people are expecting appreciation. so when do you buy? next year, the year after. what if next year nothing happens then what?
