What kind of discounts are feasible in US real estate right now?

Here are the rules for buying Real Estate.

1. Make an offer so low that you are embarrassed to offer it and i mean completely embarrassed. You dont offer 30-40 cents of the highs of 2007. You offer 30-40 cents of the market price today!(not the asking price...the market price!)

2. Only make offers on houses that have been on the market longer than 4 months. If they have been on the market any less...you are wasting your time.

3. Get used to hearing the word "no" alot. You will probably make 100-200 offers before you get a yes.

4. Dont fall in love with a house.

5. Dont fall in love with a house.

6. Avoid Realtors. They will kill your deals everytime. Or steal them. Watch out for lawyers and mortgage brokers too. They will also try to jump in front of your deal if they get too much information.

It happened to me once. I found 16 townhomes where all the people moved out so they were all forclosed on. Townhomes were brand new, but the builder screwed up with the water main so nobody was able to get water. Builder skipped town. It would cost over 100K to fix the problem, maybe as much as 250k. The townhomes had sold for 120k each and the banks were asking 40-70k for each one now because of this problem. I was trying to get them all under contract from all the different banks and owners, but i was a little slow and let too much slip out about the deal to different people. Someone got it 2 days ahead of me as i was trying to find someone to loan me a million bucks. Worst part is, this was in vegas right before the boom. The guy that bought them, sold them 2 years later for 250k each. It would've cost about 1.2 million to buy them all and fix everything, and the profit would've been 2.8 million. I still kick myself for not moving faster on that one, but even if real estate didnt go up, i had estimated at that time i would've probably come out with about 350k or so if i resold right away, although i knew i wanted to rent them out and sell later.
 
Quote from jnorty:

how do you make money paying 75 cents on the $? i've bought 8 properties threwout the country the past 12 months and won't even look if its not 30-40 cents on the $ from the bubble highs.many places in the north just didn't correct enough to get me interested. i'm finding huge bidding for low balled reo's and short sales the last few months but its also knocking the values down again in some areas. what scares me know is when the 80% or so of the mkt wakes up( those who have been paying there mortgages on time) and wants to move in the next few years and sees there home is worth 30-40% less than the highs and many times less than there mortgages. how do they react? does this continue the wave of foreclosures and prices to even lower levels?
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So what do you do with the property once you own it? Wait for the market to turn, fix it up, rent it? What's the exit strategy on this stuff?
 
7 of the 8 are rented. I paid on avg 31 cents on the $ off bubble highs. i'm making around 14% a yr on the rentals as all were cash sales and looking to sell a few in 3-5 years and bank a final payoff of 40-50%. all in all they'll be good investments. of course if one had closed his eyes and bought the ugliest stocks in march a return of 300% or more was easily doable.
 
Quote from drobin:

A very wise and very wealthy R.E. investor once told me that stocks and bonds can and sometimes do go down to zero, but real estate never goes down to zero.
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Sounds like a bull market baby.

Tell that to the owners of the Pontiac Silverdome, which just sold for way less than the cost to tear it down.

Tell that to folks who bought a $200K condo in some shithole in Orlando, where the condo fee is now $1200/mo.

Tell that to huge swaths of Detroit (and other old industrial cities) where homes sell for less than a couple of years worth of taxes.

If you bought Lehman, it may have gone to zero, but all you lost was your investment (unless you bought on margin). Try owning a piece of re whose value has dropped far below its original value, you can't get decent renters, yet you are still required to pay taxes, insurance, and maintenence.

Oh yeah, if you walk away from your Lehman, you walk away. Try walking away from a mortgage. Best case - your credit gets trashed and you take a tax hit for the amount of forgiven debt. Worst case - you are in a state in which the lender can come after your other assets.

As you can tell, I hate stupid trite sayings like that. A bad investment is a bad investment. Its probably a heck of a lot easier to go broke in re than it is in stocks or bonds.
 
Quote from ralph00:

Sounds like a bull market baby.

Tell that to the owners of the Pontiac Silverdome, which just sold for way less than the cost to tear it down.

Tell that to folks who bought a $200K condo in some shithole in Orlando, where the condo fee is now $1200/mo.

Tell that to huge swaths of Detroit (and other old industrial cities) where homes sell for less than a couple of years worth of taxes.

If you bought Lehman, it may have gone to zero, but all you lost was your investment (unless you bought on margin). Try owning a piece of re whose value has dropped far below its original value, you can't get decent renters, yet you are still required to pay taxes, insurance, and maintenence.

Oh yeah, if you walk away from your Lehman, you walk away. Try walking away from a mortgage. Best case - your credit gets trashed and you take a tax hit for the amount of forgiven debt. Worst case - you are in a state in which the lender can come after your other assets.

As you can tell, I hate stupid trite sayings like that. A bad investment is a bad investment. Its probably a heck of a lot easier to go broke in re than it is in stocks or bonds.
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Great post Ralph and some much needed reality as it seems all of the bull market platitudes are making an unfortunate comeback.
 
I have to add one to Ralph"s post.

Enviromental liability or clean up. Clean up a hazardous site will put you in the negative forever. Speaking of Detroit, if the city tears a house down and leaves the debris in the basement and cover up the site with dirt, you have a mini dump with contaminated waste and soil.
 
My only advise to anyone out there buying R/E is to never listen to a Realtor. They are salesmen, nothing more.
There are plenty of seasoned investors out there and I would recommend finding 1 if you are lost.
BTW. If you really want exposure to R/E, buy a REIT!

Take a look at the site below. Don't ever fully trust someone else's opinion, try to find hard facts (fundamentals) to back up your purchase. Check out how far some of the markets still need to go inflation adjusted. This can be seen on the left side of the homepage. Don't even bother reading their opinion, formulate your own.

http://www.housingbubblebust.com/
 
Quote from drobin:

A very wise and very wealthy R.E. investor once told me that stocks and bonds can and sometimes do go down to zero, but real estate never goes down to zero.
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Hope your wise friend never invested heavily in Flint RE as he might found the value on some of his propeties being less than zero......
 
real estate flipping is a dangerous game. have people not learned a single thing from 2003-2006?

real estate buy and hold is a pain in the ass game. tenants will screw you any chance they can get. the headaches are 100x as much as owning stocks. subtracting leverage, real estate buy and hold is no better than buy & hold with stocks.

if i ever invest again in R/E, it will be with REITs only.

whoever said "real estate can never go to zero" apparently has been in a closet the last few years and never heard of Katrina or detroit.
 
i saw some foreclosures in the Inland empire (40 miles east of los angeles, out in some godforsaken dump). there were homes selling in the 300 range that were a couple of years old. the price was below replacement cost. you'd think it'd be a good deal to buy a home that costs $350k to build for only $325k, but once you add in property taxes and the fact rents are bad in that area and the local economy is struggling and there's a 15-year surplus of homes, you realize that it's not a good deal. who cares if they sold for $650k new??

don't ever look at replacement cost or repair costs as justification to buy real estate "on the cheap". all you care about is rent, occupancy rate, expenses, and competition from other rental units.
 
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