recession and dropping values - Posted by keith hutson

Real Estate Investing
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Posted by Ronald * Starr(in No CA) on July 09, 2003 at 19:45:51:

Brandon-----------

I do not recommend having holding periods of two to five years. Either resell as soon as possible or hold forever.

I don’t think it is a good idea to plan to hold for two to five years. Slumping markets can hurt you too much. That is why you should not plan to do that. If you invest as I suggest, you don’t worry about changes in property values.

The only reason I can see to hold two to five years is to get some tax benefits which are available to those who hold properties for investment or production of income. If it weren’t for the tax issues, you would follow my suggestion of doing a quick turnover of the property. When you do quick turn over you don’t have to worry about the direction of prices.

If you do a quick turnover you will get your profit out sooner. You will have taxes to pay. But then you can take your remaining cash and invest it again one or more times during the two to five year period that you propose for holding the initial investment.

I suspect that if you make some reasonable assumptions you will see that you make a whole lot more money doing several quick turnovers in the two-five year period, paying the income taxes, than you will holding the one deal for two to five years and not pay taxes because you exchange out or perhaps do an installment sale.

Nope, I still don’t see any sense at all in planning to hold properties for two to five years. Unless maybe you are going away to prison for that time and and want to wait until you get out before you sell. No, that doesn’t even sound like a good reason to hold two to five years. How are you going to do a good job managing the properties when you’re in the big house? Nope. Either quick resale or hold forever.

The new tax brackets just make it better to do quick reselling. Less taxes to pay for quick turnover properties.

Good InvestingRon Starr***

2

recession and dropping values - Posted by keith hutson

Posted by keith hutson on July 08, 2003 at 08:15:57:

I spoke to a few investors who have been cautious in their buying houses. Their fear is a “recession” and with that, the fear that the real estate values will decline.

Just curious, “if” we do enter a recession at some point in our lifetime, how do we invest. In other words, what would some of you do as far as your plans to invest? Money is always made in real estate in any economy obviously, just wondering what approach you would take if there are declining values.

Thanks
Keith Hutson

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Re: recession and dropping values - Posted by Ronald * Starr(in No CA)

Posted by Ronald * Starr(in No CA) on July 08, 2003 at 14:27:59:

Keith Hutson------------

If you are a real real estate investor, you just ignore the whole talk about recession, “bubble,” property price changes and so on. It does not apply. It is just people listening to the news media which are always trying to find something “new” to blather on about. So they talk about changes in the real estate marketplace, since so many people own real estate and thus will pay attention to the media. The media like that since they sell advertising based on how many people pay attention to what they say, not how important what they say is or how accurate.

If you are a long-term rental property investor stop and ask yourself “What difference does it make to me in my rent collections if the prices of houses are going up or down?” In general, pretty much “NOTHING” is the answer. Oh, when houses are easy to buy more of the good renters become home buyers, making it harder to get in good renters, but that is not likely to cause you to significantly shift your operations. Maybe advertise a little more. Be a little more or a little less selective in to whom you offer your rentals. Not much change at all. When property values are falling, there will probably be more renters reluctant to buy houses and thus they will continue to rent longer, increasing the supply of renters for you. But, again, really not much change.

While there might be some minor changes that you might want to make in your rental operations because of changing property prices, really the simple answer is ignore the whole discussion. That is close enough to the exact action to take as to be extremely effective.

If you are a real estate merchant, buying and selling for a profit, again, you don’t pay much attention to short-term changes in the property values. You only own for three to six months, and during that time the market values will probably not change much. Just do the same thing you were doing before the price flucuations. Make sure you are paying well below current market value. Then resell at or slightly below market value for a quick resale. No big changes. Maybe slightly adjust the margin you require to buy at to insure you make enough profit. But, if you are a successful real estate merchant, this should be no big deal.

In Summary: ignore all the talk you hear about property values changing. Just invest sensibly.

Good InvestingRon Starr*****

4

Re: recession and dropping values - Posted by Sean

Posted by Sean on July 08, 2003 at 09:46:02:

If recession hit really big time, I’d just start considering section 8 or other government program assistant tenants.

Housing is a NEED, not a want… should a horrible recession hit, there will be a lot more renters and a lot more of them paying via government check, directly or indirectly.

And as to values declining, since my strategy really does not rely heavily on appreciation, and I am never into a house for more than 75-80% of its value at the top end, and the area I live in really doesn’t have huge appreciation or depreciation swings, I am not really worried about that. Rents would have to drop significantly 30% or more before I would be in the red on my properties, and with typical appreciation in good times being 2-3% the likelihood of a 30% reduction is pretty poor.

In fact if property values did decline, I’d probably be buying, provided the capital is still around to utilize to do so.

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Re: recession and dropping values - Posted by Brandon

Posted by Brandon on July 09, 2003 at 17:47:15:

Mr. Starr,

How will changing property values affect holding periods of two to five years?

Thank you,

Brandon

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Re: recession and dropping values - Posted by Dan-Fl

Posted by Dan-Fl on July 08, 2003 at 15:14:42:

Ron,

That was great advice,you hit the nail right on the head.

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Re: recession and dropping values - Posted by RichV(FL)

Posted by RichV(FL) on July 08, 2003 at 10:33:30:

Sean,

I agree. I would lower rents or maybe do sec 8.

Housing is a need not a want and if you buy right you can most of the time ride out any recession.

Regards,

RichV(FL)