what's going on with real estate?

[Smart Money]

Quote from Arnie:

The Kin,

You bring up a good point. I have noticed that you can rent a high value house much cheaper than buying (comparing monthly payments). Yet, with the lower vlaue homes, the rents are much closer to the mortgage payment and may even have pos cash flow.

This was my criteria for buying the last two units I purchased. I noticed that the rent was more a function of the number of bedrooms and (to a lesser extent) bathrooms. However, the payment was a function of square footage. So I looked for small places with lots of rooms (relatively). They did cash flow when not much else did. Now I'm looking at 1 BR/1 BA because nobody is making them anymore.

FWIW, the house Kin showed would rent for $750 to $775 in these parts. If it was financed right, it would cash flow at the asking price.

SM

 

[prt_systems]

Quote from The Kin:

......
Since my models assume zero percent appreciation. I'm really not too concerned what prices do in the short-term. All I care about is the rental stream. If they do have some ridiculous appreciation, I sell.

And this is as it should be ...... anything in the portfolio that is not at least cash flow neutral - after EVERYTHING is included in the equation - better have an exceptional reason for being there .......

 

[niravmd]

Quote from andrasnm:

those places are little shitholes and you could not rent them out for more than $500/month (750 sqf) built in 1955? fuck man you are deranged to think you will make a lot of money with fixer uppers like that in FL.

yeah thats not a real good example. i just closed on 2 homes in indiana. built in 1998, 4/2/2 approx 1600 sq ft at 100k each. rent out for 1050. the insurance quote for replacement value is 135k so its undervalued from that aspect.

there are 3 types of investors:
1. value - who buy undervalued investments
2. growth - who buy fair or over valued investments with the hope of growth
3. income investors - only buy if the investment generates a positive cashflow

no one is necessarily better so long as you know the risks invovled and you're following the strategy that suits your personality and goals.

 

[The Kin]

I got beef with growth investors, especially in this real estate market. The risk/reward payouts at this level cannot be justified IMHO.

Correct me if I'm wrong but these are the people who are experiencing negative cashflow but plan to profit solely from appreciation (the reversion).

I can understand buying an undervalued property, fixing it up, and re-selling it. But to purchase a property you know to be overpriced in hopes someone will pay even more than you down the road just reeks of a bubble to me.

 

[niravmd]

Quote from The Kin:

I got beef with growth investors, especially in this real estate market. The risk/reward payouts at this level cannot be justified IMHO.

Correct me if I'm wrong but these are the people who are experiencing negative cashflow but plan to profit solely from appreciation (the reversion).

I can understand buying an undervalued property, fixing it up, and re-selling it. But to purchase a property you know to be overpriced in hopes someone will pay even more than you down the road just reeks of a bubble to me.

This people aren't growth investors. they're speculators.

I'm guilty of this myself. but i have a small section of my "portfolio" dedicated to such high-risk investments. I put down a few thousand and if by the time the house is ready, if its appreciated to a point where i can quickly sell and pocket 20-40k after holding & selling costs, i'll go ahead and close on it. else i'll just walk away.

the people who're buying in over-priced areas solely for long-term appreciation aren't even speculators. they're morons who'll lose their shirts in the next few years.

you could argue that these people might have 30 yr loans or have paid a hefty amount down, but in my experience, people who're smart and have built wealth don't make a lot of amateur mistakes like buying at the top of the cycle.

 

[The Kin]

I'm guilty of this myself. but i have a small section of my "portfolio" dedicated to such high-risk investments. I put down a few thousand and if by the time the house is ready, if its appreciated to a point where i can quickly sell and pocket 20-40k after holding & selling costs, i'll go ahead and close on it. else i'll just walk away.

As in new developments? I use to this a few years back... I would purchase a condo at pre-construction prices. Once built, I would be able to flip it and make 40k+ in some cases. It's not bad considering I only put 5 to 10k down. I never owned more than two at any one time and I justified the risk to myself because I always bought a place I could see myself living in. I figured if the market did tank between construction and the time I sell, I could instead easily use the condo as a secondary residence.

I've since left that game. Prices for new condos are a tad above my tolerance level. $400 a sqft is outright ridiculous, I don't care how fancy the builders claim the building will be.

I'm personally rather modest. I bought my current place a couple years back for 139k. (4 bedroom/3bath/motivated seller/Jax,FL). It's now valued around 240k. Kind of a waste since I'm single and I'm rarely in it. What I really want is a 3bedroom/2bath high-rise condo in Miami, Atlanta or New York. However I just can't bring myself to justify such a large purchase, especially in a place like Manhattan were the prices are just insane. I'm honestly hope there is a bubble that pops so I can swoop in and purchase my dream home. However in the mean time, it's just silly not to own my current residence as I wait. I honestly don't understand renters.

 

[dandxg]

Quote from The Kin:

As in new developments? I use to this a few years back... I would purchase a condo at pre-construction prices. Once built, I would be able to flip it and make 40k+ in some cases. It's not bad considering I only put 5 to 10k down. I never owned more than two at any one time and I justified the risk to myself because I always bought a place I could see myself living in. I figured if the market did tank between construction and the time I sell, I could instead easily use the condo as a secondary residence.

I've since left that game. Prices for new condos are a tad above my tolerance level. $400 a sqft is outright ridiculous, I don't care how fancy the builders claim the building will be.

I'm personally rather modest. I bought my current place a couple years back for 139k. (4 bedroom/3bath/motivated seller/Jax,FL). It's now valued around 240k. Kind of a waste since I'm single and I'm rarely in it. What I really want is a 3bedroom/2bath high-rise condo in Miami, Atlanta or New York. However I just can't bring myself to justify such a large purchase, especially in a place like Manhattan were the prices are just insane. I'm honestly hope there is a bubble that pops so I can swoop in and purchase my dream home. However in the mean time, it's just silly not to own my current residence as I wait. I honestly don't understand renters.

Don't understand renters, hmm cmon...while I don't have the article to post, it is cheaper to rent in So Cal than to buy, your view if regional at best which is understandable. I am glad you made some money.

 

[Longhorns]

Quote from The Kin:

However I just can't bring myself to justify such a large purchase, especially in a place like Manhattan were the prices are just insane.

Quote from The Kin:

I honestly don't understand renters.

Apparently you do understand renters in areas like Manhattan.
$800-$1000 per square foot for a decent place. That 3 bed/2 bath you want would be minimum $1.5 in anyplace remotely desirable.

 

[andrasnm]

too many people have bought 'courses' on real estate and have seen r/e people driving the big mercedes 600s and not the stock speculators. I am guilty of this myself to some extent. Now many of these people (investors) bought end of last year with dubious mortgage rates.
1% and 1 1/2 percent mortgages that will ruin the buyers credit rating for a quick flip. Guess what - much of the quick flip sale never materialized....
I have gone to r/e seminars and local (california) meetings to have local speculators try to sell (flip) a property in a crack infested part of town, under the market. Now I know that the place might be cheap but the next buyer might never come....
there is definitely a washout for many would be r/e investors before the nicer (new) houses feel much of the dent in sacramento.

 

[Hydroblunt]

Quote from Longhorns:

Apparently you do understand renters in areas like Manhattan.
$800-$1000 per square foot for a decent place. That 3 bed/2 bath you want would be minimum $1.5 in anyplace remotely desirable.

800-1000? Try $900 sq/ft min going up easily to $1500. The kicker is that these condos are starting to resemble co-ops with certain rules and regulations. And then there is maintenance which has been going up and up.
I don't know who the hell is buying at these ridiculous prices, there is more than enough upcoming supply and the NYC market is overdue for a correction. There is definitely lot of financing behind this by consumers and people are gonna get bitten in the a$$. Plus, the big companies are doing a little too much PR regarding how great the market is, signs of a temporary top.

By the way, The Kin or anyone else, if you're interesting in buying into prebuying a condo floor loft conversion on 5th ave in the 30s, send me a PM with your email. Smth that came my way 2 weeks ago, ideal for someone who actually wants to keep the place instead of flipping it. I know it's done in FL all the time but here it's a bit rare without knowing ppl.