Real estate deals

[Cutten]

Quote from SteveD:

Real estate has very inefficient pricing.....how do you think people make money at it????


Single family residence, good shape, purchased by owner occupant for a 10 year hold is probably the most efficiently priced assuming close proximity and comparable square footage. Good agent representing seller....no distressed sale...


All other real estate has many variables that provide opportunities for smart buyer....

I bought 12 acres in the "hood" for $300,000...sold 10 acres to homebuilder for $300,000....kept 2 acres commercial frontage and sold for $265,000....took me about 10 months....seller simply did not know what to do with 12 acres...I did....

OldTrader is correct.....

SteveD

Of course if you are a pro who can buy 30% below market and flip, then it is a buy because you can quickly exit at a profit, even if the general market falls a bit more. But what are the chances of a typical real-estate part-time amateur being able to do that?

For most people on this board, who are amateurs in real-estate, the only way they are going to make money is buy purchasing a typical market property, and then making money on market appreciation. Comps don't help there.

The best way to bottom-fish is to wait until the whole market is at a huge discount to reasonable assessments of fair value. I don't see much evidence that we are at that kind of huge discount yet. Where are the prime houses selling for a 10% gross rental yield? Where are the condos selling for 2 times average earnings? Where are the buildings selling for a 40% discount to replacement cost, with the land thrown in for free?

 

[QQQBALL]

you guys pick a deal or two & and apply it to a gigante market.

yeah, i bought an improved property for 65% of what the underlying land was worth - the broker based price on improved value & not the value of the land to its Highest & Best Use, whcih was as apartments. i got the dirt for a song & improvements (interim use) for free. i met the broker previously & told her if she brought me a deal she could have both sides of commish. i got this deal right b/f it hit the market & tied it up at essentially full price (which was way under market) in like 2 minutes and managed to get other concessions from seller. too many times people are riveted on the sale price. i bought another investment property that was FSBO. it sat there with a tiny "For Sale by Owner" sign nailed on it - the seller's dad had died and he had no idea what the property was worth. after we tied it up, the seller asked "whats it really worth?"

as to "how would people ever make money" - say someone in Socal bought a beach property in 1980 and overpaid - they made a hell of a lot of money and they paid too much.

there are always deals for smart people. but overall, the market is generally efficient for properties that are openly marketed with well-informed buyer & seller acting in their own best interest. there will always be mis-priced properties, but consider the overall amount of real estate transactions & the market is fairly efficeint.

love those deals like Steve detailed. zero cost basis on the remainder he holds - figure the yield on that! awesome.


the CRE will be at its weirdest near the bottom - wherever that is....

in addition to what Cutten says, there will be a mass psycho swing that people dont wanna own real estate for whatever reasons. you watch, as Cutten says, properties will sell at a disco to replacement cost with the land for free and people wont touch it....

 

[kowboy]

Cutten, Excellent observations.

The current price momentum is trending down, and sales volume is contracting. IMO, under these present circumsatnces a perceived 30% discount for a flip is still too risky if you factor in the resale commission of 7% and a discount of 10-15% in order to get an actual resale. This only leaves you about a net 9-13% profit for all the risk involved, providing nothing else goes wrong with the deal and the market doesn't go any lower while you're holding the property.

I like your suggestion to wait until the whole market is discounted and agree it's not there yet. The good deals QQQBALL describes are great, but have been rare for me.

 

[MattF]

the RE Agents (who know jack squat and are a a big pain in the ass in this process)

hahahahahaha

Those are the ones getting KILLED right now...still pricing homes over like it was 2004 and wondering why they sit on the MLS and not sell (then reduce it 8 times..too late by then!)

 

[arealpissedgoy]

Quote from hilojack:

My point was that 1) the house was over-valued to begin with 2) any "price drops" are completely arbitrary. More to the point-- that moron RE brokers are the ones making these decisions. As many have mentioned since my original post, real estate markets are VERY inefficient. As a trader and investor, when I look at real estate, I consider what I would pay for it-- not what others might, the substitution value, or what some real estate agent tells me its "worth". You forgot that you can rent instead of buying.

I sold my place in NYC in 2006 and have been renting since. When i tried to trade up, I found the prices to be way out of whack. So I didn't buy. But I just saw a similar condo in the same building selling for 100K less than what they wanted for the one I bid on. Where are all of the rich russian and italian buyers now? LOL

Prices will continue to slide as the economy slows and interest rate hikes are feared.

To close, check out that show "Million Dollar Listing" to see how these morons operate. I rest my case.

The vast majority of realtors are dumb cheer leaders. Not much brighter than their average customer.

All you need is a high school diploma to get licensed, and this low entry bar shows up in the quality of people doing real-estate.

 

[kowboy]

Quote from arealpissedgoy:

The vast majority of realtors are dumb cheer leaders. Not much brighter than their average customer.

All you need is a high school diploma to get licensed, and this low entry bar shows up in the quality of people doing real-estate.

We could do a whole thread on RE agents. During the last downturn, it was interesting to see some of the local so called "expert" RE agents working as clerks.

I liken them to liberal politicians. They're liberal as long as it's not their money involved, but only with your money.

 

[QQQBALL]

Quote from kowboy:

We could do a whole thread on RE agents. During the last downturn, it was interesting to see some of the local so called "expert" RE agents working as clerks.

I liken them to liberal politicians. They're liberal as long as it's not their money involved, but only with your money.

80/20 Rule is applicable... it would be interesting to see how many of the "20%" are truly ethical & honest.

 

[ThePipProphet]

Quote from arealpissedgoy:

The vast majority of realtors are dumb cheer leaders. Not much brighter than their average customer.

All you need is a high school diploma to get licensed, and this low entry bar shows up in the quality of people doing real-estate.

I have to agree in part with you. I am a real estate broker and own my own mortgage company and have been in real estate for 18 years. There is a large amount of licensed people who shouldn't be licensed or at least should have better supervison and training before dealing with clients. America for the most part are made up of not so smart people. It is hard for us to see because we are around educated people most of the time. As far as this downturn in real estate it is not due to mortgage brokers or real estate agents. This is due to wall street and investment banks. The initial subprime market was sound with good underwriting based on credit risk. As the appetite from investors grew because of the yield mortgage backed securities offered the quality of loans decreased due to not enough qaulified borrowers. Hence your no income, low credit score lending to expand the lending base. Now here is the whoopdeedoo part. Those mortgage backed securites was bonded for loss and at one time the bonding companies had to be more liquid. Thank former Senator Phil Grahm for pushing legislation to reduce the liquidity for those bonds issued. When defaults started happening, which was bound to happen because of the paper that was produced, when investors went to collect on the bonds, the surety companies couldn't perform due to not enough liquidity. The investors took their money out of the subprime market. The mortgage bankers, brokers and banks where lending the majority investor money and not their own, most became insolvement and folded. Price in real estate is determined by what one is willing to pay in conjunction with what one could get financed for. The real estate market in most places in america has been overbought for over 4 years. When loans are being produced above the median income of an area thats disaster and that's what happened. Thats a brief summary of what happened in real estate. Now is a great time to buy on the right deals. In my area you can buy property 25% below cost to build and in some areas you have solid rental property scenarios. As with any investment, it is best to be wise. Smart money will beat dumb money everytime.

 

[QQQBALL]

Quote from ThePipProphet:

As far as this downturn in real estate it is not due to mortgage brokers or real estate agents.

there is plenty of blame to go around including agents, appraisers, banks & mortgage brokers. somehow the demand was so high that bigger brokers got more power in terms of order flow... the conduit lenders, well thats another story all by itself.

 

[ThePipProphet]

Quote from QQQBALL:

there is plenty of blame to go around including agents, appraisers, banks & mortgage brokers. somehow the demand was so high that bigger brokers got more power in terms of order flow... the conduit lenders, well thats another story all by itself.

I agree, there is blame to be shared by everyone. However, the ones with the money(or control of) makes the rules and they gave to much rope to the real estate industry and the industry hung itself.

As I am sure you are aware QQQBALL, this problem is so convoluted you can point a finger anywhere and be right based on your point of view.

I will be happy when lending totally goes back to the early days when one had to actually prove the ability to pay or have enough equity in the property as to have low risk for the investor.