Real estate newbie

[spex x]

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Actually no.


This is the time of the cycle that the true real estate investors pray for.

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LOL, not even near the bottom yet.

Anything the op buys now he can buy at least 10% cheaper in a year, and thats being conservative.

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In my experience this is a typical response from someone on this forum that doesn't do any real estate investing. Now is the time to invest in real estate. Most people think that you can't make money in REI in down markets. On the contrary, down markets are exactly where you make the MOST money in REI. Thats because in down markets you can MAKE BETTER DEALS.

The misconception that one should avoid REI in down markets stems, I think, from three fundamental misunderstandings about REI. First, people seem to think that RE investors mostly make money through appreciation. In fact, most serious RE investors look at appreciation as cream - profits come from either positive cash flow (creating income) or buying below market value (creating equity).

Second, people seem to have the idea that if you pass on a good deal now in order to buy for 10% less next year, that you did a real smart thing. Thats not necessarily true. If you could've bought the property for 30% under market value, improved it, and sold it for 100% of market value 2 months later, then obviously you did the right thing buying now rather than waiting. Besides, we don't really know if the prices will go down or not. We're just guessing.

The third major misconception stems from the idea that RE markets have anything to do with making good deals. Market determine the value of a property. They have nothing to do with the price that YOU might pay for a SPECIFIC PROPERTY right now. In other words, if you find a sufficiently motivated seller, you can make a deal that is so good that even if the market deteriorated 10% in one year, you can STILL MAKE MONEY. That happens if, for instance, if you buy for, say, 20% below market value.

I detest the attitude of some people on this board sometimes. I don't try to give anyone stock advice. I don't know [censored] about stocks. It just seems so crazy to me that everyone appears to be a real estate expert, despite the fact that many of the responses to RE questions are plain wrong. Being wrong isn't necessarily the issue. Its the attitude of 'you're an idiot of you want to invest in RE'. Thats ridiculous. I think lots of people here would benefit from asking questions rather than making statements.

[Thremp]

I like spex posts.

[spex x]

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My own personal oppinion is that RDPD is probably the best book for someone that has no idea whatsoever about investing. Many people that dislike Robert Kiyosaki don't realize the positive effects that this book has done to the world.

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No, no, don't get me wrong. I liked the first two or three RDPD books. I think that there is a lot to learn from those books. Later on Kiyosaki started recruiting "rich dad's advisors" to write more specific books about different investing strategies. I read a few of these books several years back, and found them so very poor and full of complete [censored]. The books written by Kiyosaki himself are fine and a GREAT place to start reading about investing.


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My own personal oppinion of John T Reed is more of disgust than praise. I think he is an individual that is a bottom feeder. He uses very dirty manipulative ways to criticise someone. Often quoting one sentence and then proceeding to bash the hell out of the author who wrote it and devaluing an entire individual based off 1 sentence he took out of context.

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Fair enough, Reed is either loved or hated. I like his books. I don't agree with all his opinions. Overall, I think that a new investor can get the best realistic advice from John Reed's BOOKS, not necessarily his website. I've also read many of the books that Reed recommends and they are invariably good recommendations. His books are cheap - get one and if you don't like it, get something else. Not a huge commitment.

[spex x]

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Probably you should stay away from the Rich Dad, Poor Dad stuff - the REI advice is way wrong

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can you elaborate on this as i have heard that RDPD is a great book and a must read?

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"Rich Dad, Poor Dad" is a brand. The brand publishes lots of books, seminars, 'bootcamps', etc. Most of the stuff published by the RDPD brand for the last 10 years or so is NOT written by Robert Kiyosaki. The stuff that IS written by Kiyosaki is very decent, IMO, and a good way to get started. I think Kiyosaki has shown poor judgement in who he allows to publish under his brand.

[The once and future king]

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In my experience this is a typical response from someone on this forum that doesn't do any real estate investing.

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Wrong. I have done very very very well out of real estate inthe last 5 years. I just realise that now there are much better ways to invest my money. Get out at the top and in at the bottom.

You say that "real" real estate investors should pray for a time like now. LMAO.

So as RE appreciated over 120% in the last 5 years you were going:

"These yearly massive capital gains are so meh, give me negative YOY growth any time, then Ill make a killing."

You talk about making an income, well I cant debate with you there, as I am in the UK. Here rental yeild is bellow what I can get just by putting my money in a standard current account. So income from rental is piss piss poor in the UK at the mo, I have to admit I am unaware of the US situation.

As for finding motivated sellars, that is all well and good, but is meaningless when there are no motivated buyers. Without motivated buyers and falling prices, the nightmare of negative equity become more real, however much you managed to discount your purchase by.

If you cant sell it on or rent it out, and the price continues to fall, busto. As the pool of buyers shrinks and shrinks, finding buyers who wont themselves demand a discount becomes harder and harder. I have just sold on the majority of my portfolio and it was much much harder than even 6 months ago, and we still have positive growth in the UK. It is turning into a buyers not a sellers market.

Prices will fall for at least 3-4 years. The reasons are crystal clear.

What has fueled HPI in USA is the massive supply of easy credit and fog a mirror mortgages. This situation has recently gone into massive reverse. Commercial and Investment Banks have had to make huge billion dollar write downs because of all the easy credit they handed out like confetti. Now they will do the opposite. They will try to attract savers, and will only lend to those with healthy credit and will demand more money down.

Thus unlike the previous 5-7 years, were demand was massively exaggerated by easy credit, much of that demand will have mostly disappeared overnight. This is because there has not been a housing bubble, there has been a credit bubble, and that bubble has totally poped, just as when the credit bubble inflated RE inflated, when the credit bubble deflates so does RE.

So in summary, in your synopsis of the market, you totally ignore one key element, buyers. Its one thing to buy at a discount, but without buyers to sell onto it can easily become a very costly mistake. Obviously if you can still get good rental incomes in Yankland, that goes a long way to mitigating my entire arguement and I would be interested to hear what yields are in Yankland. However Yield is allways pretty piss poor if the value of your house falls below the sum you paid for it, a very real possibility imo. Nevermind the ever constant reality of having voids at the same time.

In closing I would have to say that you sound like the typical RE investor, who has little understanding of other investment possibilities and the macro economics that set the context in which the RE market exists. You also seem to be making the typical mistake of judging future performance by past performance even though the economic geography of the whole market has totally changed in the last 2-3 months.

Op is total RE noob, 3 years ago he could have probably stuck a pin in the property pages bought waited a year and chances are he turned a healthy profit, now the opposite is likely.This might be a time when a very experienced RE investor can make some $$$ if he is super canny and lucky, but for a noob, it is not the time to get involved.

To the OP, I would say before deciding on a market to enter, learn general investing and economic principles, then examine the economic situation we are now in, you will see that there are a lot better possibilities to make money than Real Estate.

[spex x]

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Wrong. I have done very very very well out of real estate inthe last 5 years. I just realise that now there are much better ways to invest my money. Get out at the top and in at the bottom.

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I stand corrected, and I'm glad to hear that you made money recently investing in RE. Thats great. I like your idea about getting out of RE at the top and in at the bottom. Indeed, that is the exact point that I was trying to make. The problem is that in RE we never really know where those tops and bottoms are. I say you should take the great deals as the come, not pass them up on the hopes of maybe getting a little better deal tomorrow. A bird in the hand, and all that...

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So as RE appreciated over 120% in the last 5 years you were going:

"These yearly massive capital gains are so meh, give me negative YOY growth any time, then Ill make a killing."

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No, I was saying, "Goddam, how did my properties get so valuable? I guess its time to sell them off." And that is what i've been dooing for the last two years. Now I'm back to buying and I've been doing pretty good at it of late.

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You talk about making an income, well I cant debate with you there, as I am in the UK. Here rental yeild is bellow what I can get just by putting my money in a standard current account.

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Obviously rental yields dependon your market. I'm only innterested in outstanding deals, so my returns are 25%+ on cash invested, and 10% plus cap rates. These returns are adequate for me.

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As for finding motivated sellars, that is all well and good, but is meaningless when there are no motivated buyers. Without motivated buyers and falling prices, the nightmare of negative equity become more real, however much you managed to discount your purchase by.

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Sure, theoretically there is unlimited downside to any investment. For a long term buy and hold RE strategy, the short term market fluctuations maybe don't make such a huge difference. For a short term strategy, all you have to do is price the projected market decreases into your offers. Another thing that you could do is try out a strategy that works in down markets - such as lease options.

Besides, in the subdivsion that I'm developing I haven't had any shortage of buyers at all. In fact, I've got a waiting list right now of people that are excited for me to finish some homes for them. So I'm not really feeling the pinch. But I make it real easy for people to buy from me because I carry my own paper. The point here is that there are a million ways to invest in RE. Believe it or not, some ways of investing in RE work really good in down markets.

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Prices will fall for at least 3-4 years. The reasons are crystal clear.

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Not where i live. Subprime hasnt' hurt my local market hardly at all. Fall and winter are always slow here. Meh, not impressed.

[The once and future king]

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Not where i live. Subprime hasnt' hurt my local market hardly at all. Fall and winter are always slow here. Meh, not impressed.

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Subprime isnt about local. Subprime will effect every aspect of the American economy and probably put the entire American economy into recession. Well the credit crunch will.

Also this isnt just about subprime. Look at how AAA tranches(securities on supposedly good credit) are performing on the ABX as one commentator puts it:

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To return to the point I have made again and again: the AAA tranche attaches at 30%, which means there have to be 30% of LOSSES (not defaults) before the AAA is affected. On the assumption that 100% of all mortgages defaulted, and the collateral (i.e. the houses) sold off with a 30% loss, the AAA would be unaffected.

For the AAA to be affected, not only do there have to be a massive number of defaults, but the 'loss given default' has to be massive as well. The only way for that to happen is for house prices in the US to collapse by 50% or more.

In other words, the ABX index is pricing in collapse in the US housing market on an UNIMAGINABLE scale.

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[spex x]

Wow, that all is way beyond my area of expertise. All I know is that I live in an area that has a strong, stable economy will lots of jobs for low/middle income workers. I guess in the face of catastrophe its lucky for me that I've got plenty of rentals and mobile home parks to house all the people that go busto and lose their house. Sweet.

For anyone considering a flip, I'd try to get properties that can be turned around within two months. That way when all those people go busto a year from now you will have turned six properties. The one that you're stuck with, at least you bought for cheap enough to rent it out at a market rent and still make a few bucks positive cash flow.

Look, I'm just a simple RE investor. I don't know much about credit markets and the ABX and whatever. So to the newbies, maybe I'm wrong and I just don't understand. FWIW.

[maxtower]

I think its pretty clear you guys are arguing about two different things.

Spex appears to make money by finding super motivated sellers and buying houses below their intrinsic (not market) value. Intrinsic value in real estate is pretty easy to calculate if you know what the property will rent for.

People arguing against spex are talking more generally about the real estate market. You can't just go out and buy any random house because they are still so overvalued. Its tough to even make low ball offers, because the price is so disconnected from the true value (from rents) that sellers will laugh at you. Part of the problem is that even if the seller is motivated, they can't sell to you at a lowball offer, because they owe more than that on their mortgage, so they'll have to default anyway.

I would like to hear more about how to find motivated sellers who are willing to sell for a 30% discount off of current listings. Thats about what I would need to profitably invest here in AZ.

[jaydub]

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I think its pretty clear you guys are arguing about two different things.


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They also live in very different areas. From their posts I would guess that spex is in the rural south (or an economically similar area, eg rural midwest) while king is likely in a major metro area.

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I would like to hear more about how to find motivated sellers who are willing to sell for a 30% discount off of current listings. Thats about what I would need to profitably invest here in AZ.

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Phoenix area? Step one might be move to rural alabama....

J