Pretty basic - if say 30% of all houses in some areas in 2005 were swooped up by flippers, well, now that they're gone, along with the bidding wars and the lines at new home developments, won't we now find the true value of houses?
I'm not sure if homeowners have grasped this simple concept. If you take away a big group of daytrading investors with unlimited hot money, and all you have left are real people with unstable jobs and limited incomes, well, your "$500,000 house" might only really be a $250,000 house.
Right?
Flippers Flee, Long-Term Investors Hold On
Dennis Balagtas doesn't flip over get-rich-quick schemes. A land surveyor by day, real estate investor on the side, Balagtas has a long-haul attitude about the four properties he's purchased in San Diego and South Carolina since 2001, and the two in Colorado currently in escrow."I don't anticipate selling any of my properties," he said. "Ever."
Balagtas's long-term perspective hasn't typically defined San Diego real estate investors, at least not in the recent boom. Periods of rapid appreciation in the housing market in San Diego a few years ago spurred a wave of investors looking to "flip" houses or condos -- to buy pieces of real estate, fix them up, sell them soon after for a profit and then move on to the next piece of property.
Now, in a depreciating market -- home prices year-over-year have begun to drop -- investors know they'll lose if they don't learn to hold on.
As prices have declined, sales have slowed, and inventory levels have risen in recent months, the get-rich-quick, house-flipping days seem to be over for a while. But that doesn't mean all forms of real estate investing are dead in San Diego -- they've just changed.
19 comments:
"well atleast now i really know that my words, emails with tons of links, and concerns have no value or respect. it must be my long hair.
what else can you do?"
Let me guess, brother in law is streight-laced, three piece suit type. Maybe they can really afford it.Wish em luck on their new home. I'm also the family member that no one listens to(youngest and dumbest, you all know how that works!)
I love theese ads:
Priced for quick sale second floor 2bedrooms/2 full baths unit...
Price Reduced: 05/11/06 -- $162,900 to $159,900
Price Reduced: 06/13/06 -- $159,900 to $157,900
Days on Market: 240
Free 42' plasma tv & seller will pay 6 mo. Assoc dues!
Price Reduced: 03/08/06 -- $149,900 to $145,900
Price Reduced: 05/30/06 -- $145,900 to $139,900
Price Reduced: 08/15/06 -- $139,900 to $136,900
Days on Market: 254
Anonymous said...
I love these ads:
{{Price Reduced: Incentives added as price is reduced 2% to 3% every few months for over 8 months.}}
This are classic examples of "following the market down."
Setting the initial price at 10% below comparables is the way to go now.
I spoke to one of the most successful realtors in Florida on pricing a house to sell. His guidance was appraise the house intelligently, appraise all the competitive houses with the same competence, develop a ratio of listing price/appraise price, and price the house so 90% of the competing ratios are higher. I think I kow why this man was one of the most successful realtors in Florida.
'F' it, make a low-ball offer!
Hey Mr. Realtor! Appraise this!
The article talks about holding long term. That type of thinking will be what brings the market back to reason. As of now, though, how can the guy in the article buy anything at current prices in San Diego without tons of negative cash flow? That seems more like a long-term strain on the wallet than a long term investment. Anyone in their right mind should boycott real estate until there is a true correction.
Anon: 5:32:06 wrote:
"...long term strain on the wallet than a long term investment."
I completely agree. Imagine even if the market stays flat for a 10 year period, your investment is not growing and yet you're servicing your debt. And I'm looking from the optimistic point of view. What if the market slowly drops to 40% spread over 10 years and then gradually goes back up for the next 10; then at 20 years, you'll be at a "break even" point. No..no...nonoooooo!! I don't think so. They can have the prestige of living in a McMansion, but not me. Prestige can't pay the bills and my retirement.
Anon 4:35:12 wrote:
"...appraise the house intelligently, appraise all the competitive houses with the same competence."
Realtors always say this and I agree, but is far from reality post bubble. Homeowners who are in the verge of foreclosure has no way of pricing their house "intelligently." To me, that means it should be in line with the average personal income in that locality. The big - big problem is that these homeowners bought their house at the peak of the bubble, where in most cases 40 - 50% overvalued. The question, how can one "intelligently" price it according to the fundamentals (i.e. price to income ratio)? They cannot. That's were the big disconnect is.
Decline in $US plus the Fed allowing inflation will save housing from a crash.
In reality the crash will be spread out amoung all American taxpayers due to the falling dollar.
In other words, hard working middle class gets screwed paying the speculators in a sense.
As long as Bush is in power it pays to speculate and get in debt, when Bush is gone then watch out as reason my and fisical responsibility will take root again as it did with Cliton.
On a recent flight from Ft. Walton Beach Fla. to San diego, while waiting for flights, talked briefly to a very nice woman realtor. She said, without me even asking, 'Everything is so ridiculously over-valued' even compared to Calif. She said, they have a 'long way' to come down to become even reasonable! Inventories are mounting, flippers disappearing or gone, worries over hurricanes...etc.
She was Truly refreshing and Honest!
This is what's going to happen all over the place. Real estate "investors" who think of themselves as too intelligent to have actually made a huge mistake, will suddenly start saying they are long term investors and try to rent out there "investments" at a huge monthly loss for what they think will be a year or two at most of waiting out the "correction".
They will, in 2008 or 2009, of course, find out it would have been better to just cut their losses and sell back in 2006 before they were bled dry by monthly cash flow losses and could have sold for 30% greater than they could now in 2008 or 2009.
These kinds of articles will be especially funny to read in a couple years.
This guy "never wants to sell"...yeah, right...and real estate never goes down...tell me another one
Ok, I got it the housing is going down, everything will be in bad shape, etc, etc. But if we expect the guy next door to do anything about it while we keep complaining, then we don't go anywhere.
Any realistic plans on how to put this economy back on track? Are we going to refocus on manufacturing, selling technology, selling knowledge, or what? We can't keep going on inflating and deflating bubbles to think how great the economy is doing! I think we need something sustainable at least on the scale of 50 yrs until new research findings kick in. There's a lot of choices in research: biomedical, energy.
Housing Manifesto Update!!
9/7/2006: Keith issues "Housing Manifesto"
9/8/2006: 11,392.11 Dow up 60 points
9/11/2006: 11,396.84 Dow up 5 points
9/12/2006: 11,498.09 Dow up 101 points
9/13/2006: 11,543.32 Dow up 45 points
9/14/2006: 11,508.82 Dow down 35 points
9/15/2006: 11,560.77 Dow up 34 points
For those playing at home, that is 5 days out of 6 that the market has gone up since Keith rooted for its epic collapse.
For those looking for more proof, "view here"
Oh yeah, Keith's beloved Gold and Oil are in the crapper.
God Bless America
Trance wrote:
"Any realistic plans on how to put this economy back on track?"
I think what you've mentioned (i.e. manufacturing) among others will make a difference. The problem though is the outsourcing of American jobs overseas. If I may add, I think we must change our lifestyle. This at least we can do, as suppose to keeping our fingers cross about bringing the jobs back home. Changing our lifestyle can mean downsizing to an energy efficient (small) cars). No more 4WD SUV's. Next start SAVING. At least 20% of income should go to savings. We we want to buy something, let's save for it, rather than buying it through credit and pay it later. Americans generally have an appetite for BIG stuff. That has to change, from housing to durable goods.
Last but not least, vote out those people in D.C. that were responsible for this mess.
Reason and logic with Clinton? You must be referring to the reason and logic of the dotcom bubble when pets.com was worth more than GE and tens of thousands of people were quitting their jobs to become daytraders, which pushed the unemployment rate down. Everybody was a Warren Buffett back then
Dude, these so-called long term investors are a bunch of idiots.
Investors, by default, do not buy assets at a market's peak; that's classically known as the dumb money. Good investors buy undervalued assets when the dumb money is running away from them (i.e. Real estate in the mid90s, gold/precious metals in 2001, Japanese tech stocks during the 60s, land in western Europe at the start of the Marshall Plan, pre-gentrified neighborhoods, etc) or are momentum traders who buy and sell based upon market dynamics and volume (ala George Soros type).
These RE long investors sound like the chumps who bought an old Radio Shack franchise when a Best Buy just broke ground next door. Hence, the best they can ever hope for is to break even. Great business plan.
"...the best they can ever hope for is to break even." Or get "BROKE."
lowball the chart on the qqqq long term
Okay, I'm too tired to login, so I'll go anonymous. Dennis (my husband) is not an idiot. The properties that we have bought in Columbia and Denver (one fell through in Denver) have been purchased from the equity we gained from our San Diego properties. Those new properties in Columnbia and Denver are cash flow positive.
We are NOT flippers. We buy apartment complexes that cash flow positive and we sit on the property. We got extremely lucky in San Diego because we bought at 2000 and 2003. So we got the gains from there to help us purchase our new apartment buildings in Denver and Columbia.
In addition, we are both highly paid professionals (land surveying and software engineering) and real estate is a night/weekend hobby. We do not intend to buy in San Diego in the next few years because there are no longer any positive cash flow rentals, which is why we went after Columbia and Denver.
I hope this makes you all understand what we are doing. We are NOT losing any money on our investments, which is why we don't need to sell. Our cash flow is enough to pay off all the monthly loan payments, plus extra for the principal, and we still have a small profit from each of our properties. If you have the guts to get all those mortgages, the gains are there. You just have to study your markets carefully for positive cash flow.
Once again, we are NOT flippers. We are landlords. So as long as people wish to rent, we are happy and making money. By the way, this bubble bursting has only helped us. It has increased the interest in our rental properties.
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