Real Estate is dying? Investment-wise what is the next Asset Class Du Jour?

Bill,

Got your PM and, to be completely honest, I am on the fence with holding versus selling.

I am a trader, I am not greedy and have good gains on all my properties in SB. Do I sell now and hold cash and anticipate a retail money flow into the equity market and move money there or do I not kill the golden egg laying goose?

Who knows what the equity markets will do but here is my dilemma, these SB properites are CASH COWS. I have two rentals near Hope Ranch that rent for 2200 a piece, I have over 70% untouched equity in each, my monthly mortgage payments are a 1/4 of the monthly cash flow and the rental market here is strong. I have 5/1 option ARMs on both (some risk there, but nothing to keep from cash flow positive until rates go double digits). I own two homes in Montecito and more units in Goleta all with great gains over the last few years, I know several people in my position as well and they all seem to be waiting for a local sell signal. Is it here yet?? Do we look to LA for confirmation?

I have three properties in Santa Monica as well so I have a slight feel for the LA RE market. Strong rental market there, over 80% combined equity in three separate properties, good demand, still buyers out there. Do I get out and wait for this dip everyone seems to be foreseeing?

I am paranoid. I've always been paranoid and I hate being in cash - IMO being in cash is money that might as well be slowly burning.

Bill, what would you do? What if things continue upward and we have 5 more years of 10-12% per year appreciation? What if Oprah (or someone of similar wealth) decides to buy all of Montecito (you never know)? I have no emotional attachment to property, I just like the potential, there doesn't seem to be that much downside at the moment. LA has wealth, everyone from there wants to live in SB/Montecito, a good portion of my tenants are from LA currently renting and looking to buy.

Maybe I will sell after new years to lock in some gains, but what if that is just a lost opportunity? The herd mentality IMO seems to be saying that we are at a top - but, do we really know how high things can go?

Regards,

Mike
 
First, I know how you probably feel about those areas. They are gems. 10s. Used to surf by Hope Ranch.

I personally don't get emotional about any of them. A 10 just gives me more options.

My Dad's almost always right on RE. He knows values will fall from this point. But he knows they will come back because of the scarcity and the wealth factor, but he can't carry too many empty buildings. He's 85. This is his deal now:

I'll go to my Dad's current solution in Capistrano Beach. He owns a series of commercial space free and clear. He got 30% down and took back a variable rate loan on the balance. So he still has great cash flow, cash in pocket, safe position if buyer goes to foreclosure, and if inflation hits his int. rate returns rise with it.

There will always be another rental to buy. Or if emotions won't allow, how about hedging by selling enough so there is no way you can't carry the others? Simple and not so emotional. Keep a couple of coconuts, but be up in the tree.

In his situation he wants the cash for some traveling. Me, I'd want to put the cash in the next real strong trend. Value or Growth? I don't know any other thing well except geology. I can read and understand the stuff. And I know we are in a pending oil crisis because of China demand. So that is just me.

I'd be real worried about CO. I never should have moved here. But my kids loved it. RE here is a lead anchor. Market order for me on CO. Foreclosures just too costly to get back here and crooks play games with you. I've bought about 60 ForeC. during more honest times. Filthy racket now.

All the best and stay rich.
 
http://www.dqnews.com/RRSCA1204.shtm

Indicators of market distress are still largely absent. Foreclosure rates are low, down payment sizes are stable and slight increases in flipping rates and non-owner occupied buying activity have leveled off, DataQuick reported.


I currently own 5 properties in Southland and selling one.
Don't worry. Be happy. :p
 
Bill,

I wouldn't take anything others say on here personal.

If others want to believe the inflation numbers the Gubment is touting, GREAT...... The reality in my world is far from those percentages. As OWP has noted about prices in their neighborhood, same thing here in South Orange County. The gubment is the better at cooking the books than ANY company in America......... including Worldcom and Enron.

The contacts I have in the Palm Springs and South OC area are saying the same type of statements as the poster from Mass. The market is not as strong, appraisals have a tougher time meeting sales prices, offers far below asking prices, inventory stays active longer, few if any bidding frenzies, reductions in prices occur frequently, etc........ That doesn't sound like a rocketing market to me. I've been looking for a home in the La Quinta area and have noticed many homes on the MLS for 4-5+ months.

Not to mention, houses here in OC that have had price reductions and still get offers far below the reduced asking price. The old, my neighbor sold their home for X a year ago, why can't I gat the same or more........

EVERY, and I mean, EVERY, person that I know who has purchased a home in the last year, sans my sister, purchased using some type of ARM. Many are stretched to the hilt. The ones that have the 5 or 7 year locks are going to be in the worst shape, IMO, because the first adjustment can be up to 5% in most cases. Some of these people can barely avoid the current payment, let alone one that could increase substantially.

I've run into more people that look at what they can rent vs. buy in the same areas. Moreso than in the past. As I wrote early, the buy for a total payment of $3300 vs rent the same place for $1400-1600 is beginning to take hold.

I see some numbers in the Dataquick information that are a bit disturbing.

We have a very diverse group responding in this forum, hammer slingers, financial pros, RE Agents, RE Investors, etc. We all have something to add, with varying opinions. We may not all agree, however, I feel very comfortable in knowing that others have opened my mind to new ideas/concepts.

My family meets the 2 year requirement for Cap gains exclusion of principle residence in January of '05. The place is going up on the market to sell quick!!!! I'm looking to rent at my new location and sit on the sidelines.

To me, this RE market feels a lot like the late 80's.
 
Hi Mike,
The real estate values are way overpriced with respect to the average income growth.
Also renting is way cheaper vs buying at these levels.
There used to be a common house value calcuation, One year rent times 15-20% premium(or sometimes no prem in bad econ times)*10 is the house sale price...
i.e your rent is 2500, yearly rent is 30000*10*1.2=$360,000
However currently in NY/NJ area those houses are going for 500-600K. So there is an anomaly at these price levels and it is due for a major correction when interest rates are in an uptrend..
The affordability of homes decreases when mortgage rates go up...
Anyway my humble recommedation to you is sell all of your real estate except your residence and cash in your paper real estate profits and stay on the sideways for the next buying opportunity.
I always is think that cash is king and the right time to buy real estate may be couple years away...
The major thing is one can not fall in love with his real estate and can not get emotional about it.
The real issue is when to move on and look for other money making opportunities that may come along.
I sold my house this May(bought early 2000) and I am currently renting and sleeping very well...
 
This has been an amazingly popular and widely read thread.

I wonder if Baron would consider allowing us to have a Real Estate Forum since a lot of successful traders own real estate investments.

Nothing to do with trading except that some of the same principals apply, ie. buy low sell higher, fundamental analysis, timing, cost of capital, etc.
 
First, I too want to thank everybody who's participating in this fascinating discussion. It's always very interesting to observe the prevailing psychology at the top of a bubble.

Quote from Covertibility:
Why would American's go bankrupt if housing prices decline by a third?
More...

Anyone with more than 66% of the current value of his house in debt and no other assets would be bankrupt if the value of his house fell by a third. I have no statistics, but with all the stories of zero-down mortgages and home equity loans, I bet there are a lot of Americans in this precarious situation. Especially in California and other hot RE areas.

Nobody answered my question, so I'll just throw in my guess. For me it's easy to see that at least one in four Americans are forced into bankruptcy by the coming housing crash. But I guess a bankruptcy does not mean that much over there...

What would cause a Japan style of housing price decline in the US?
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What cause do you need? There have been many potential triggers discussed, but bubbles can, and do, collapse simply under their own weight. Was there any actual cause that made the tech bubble burst 4 years ago?

Hard to see a crash.
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Of course it is! It is always impossible for the big majority to see a bubble collapse. Especially if they are heavily invested in it themselves, and are threatened by financial ruin. People simply do not want to see it.
 
Moo, I agree with all your points, but I can't step into your question. Dog poop would get thrown at me.

RE is not like stocks. People get so darn proud. And home ownership is a status deal here (not for me). Women are the principle buyers. All smart builders design for women. And women want a nest and men want to give it.

Safety? Financial and Marital. Take your pick. Move your wife into a rental and you'd better get a lawyer.

I build high end stuff. It was so hard to stuff MY ideas. I finally had architect, realtor, designer all very stylish women. If they said tear it out. Boom gone. They all wore white on white and drove a white/cream Lexus. Me an old jeep. But my places went away fast, a lot in 1 day. Never list before you are done with every last spec of dust.

Like throwing a lure to a bunch of starving bass.
 
Quote from Mike805:

This is a link that got me thinking about 'stupidly overpriced' in CA. This should grab some attention regarding overbought conditions in CA, 21 mil+ zip codes in the top 30. I live in 93108.

http://money.cnn.com/pf/features/lists/million_zips/index.html
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Uh, TWO MILLION for a median house. Definitely and absolutely insane. In the most expensive areas over here prices are a third of that. Even that is crazy.

Mike, have you asked yourself why are you so obsessed with investing in Californian real estate? Why don't you just cash your money and go (invest) somewhere where prices are really cheap? (the same could be asked from every Californian house-owner)

In Thailand, Croatia, or even in Finland you could probably buy a huge estate with the money you can get from a single "93108" house.
 
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