Replies to post #2556 on Real Estate Bubble (RUBBLE)

[littlefish]

dickmilde- out here in the NW it has been a bit different recently. The REO properties on the low end got hit pretty good (some easily down over 50% from peak on single family, more so on condos) while the upper end has held up some but down more than your area and still a bit softer (not as many qualified buyers) than the low-end recent turnaround. I started looking more in earnest around Oct-Nov at distressed stuff and making a few lowball offers. I swear about 2 weeks after I started, the whole lower end (REOs in avg/OK neighborhoods) caught fire.

Now if I see a cheap 'hot' listing, it will have 5-14 offers in a day/couple days with "last and best" coming back from sellers/banks. I have seen a couple sell close to 20% above the list price. Before that, I could spend 3 or 4 days deciding on which one to bid on (out of maybe a dozen) and then lowball it by 10-15% and work from there with counters or whatever. Managed one small property doing that and got it cheap last year.

This year it has become too competitive now so I'm about ready to call it quits and be happy with what I managed. Maybe more inventory will show up but aint happening right now.

Just not enough supply to deal with right now. It's a waste of time to see a place that you could buy for 5-10% less than list price 2 months ago now go above the list when it first lists and with many offers to boot so no bargaining leverage/wiggle room on price.

The 11% you mentioned- is that your rate of return after paying all cash and calculating in taxes/insurance (and HOA dues of course) and maybe a repair and/or vacancy cushion? The condo I picked up would give me an 11.8% annual return on all cash purchase if it rents for 10 out of 12 months and doesn't have repairs. If I put in a repair amount it gets closer to 10% but still... Conversely, if it rents all 12 months we're talking over 16%. If you leverage the property with a loan, it gets better as far as rate of return on the upfront cash used to buy although there are all those fees with a loan.

Tricky part with condos of course in part is understanding whom the owners are, looking out for potential special assessments in the future, how many upside down owners, how many owners not current on HOA dues and such. I had to do a fair amount of background looking before figuring out the place I bought and that was a bit tiring.

The HOA has had decent cash cushion for several years and dues have only modestly risen. There are a couple longtime owners of a few blocks of units too but not so much to be near majority-control levels and they've owned the units since the early 90s or earlier w/o leveraging the properties so they're generating good cashflow as well. Hoping to meet them at the next HOA meeting and owuldn't mind picking up another unit or two in there if price is right.

In general though, I'm a bit leary of some of the risks with condos (such as upside down HOAs with special assessment risks or jumping HOA fees or both and large amounts of underwater owners). Would rather have single family home where you own the property and building outright but that market is running away and was just getting to my buy area when it turned almost on a dime.

Good luck with your RE investments! If we get any price appreciation on the units, that'll make for a nice kicker.

[littlefish]

Wow, was just reading that foreclosures in Jan rose 8% nationally from Dec but down 15% YOY. Conversely, out here (Washington) foreclosures fell 18% (in one month!) from Dec amd down 58% YOY.

Guess that explains my frustration in not finding more properties right now. I don't think the 5 big banks are going to be enough to saturate the market on low end to drive prices down so think we hit bottom in Oct-Nov around here.

[swampboots]

I get 4% before any financing.

[swampboots]

What state are your properties?

Some observations on your posts.
In my opinion Real estate investment is mainly luck, you are lucky that you were able to have money when prices were at historical corrections.
I bought a property years ago whose cost only demanded 5K as a down payment and returned 3-4 million in net rents over the decades and is being offered at 2000 times the down payment. It is exaggerated luck, although I was a slave to the building and had no management so probably put in 25K per year
in torture touring every crevice, but juxta-positioned me into thinking I was hot shit.

I find any well appointed apt needs only a partial renovation every 15 years, so in my opinion top apts are not a weighty pressure. The apts I rent attract people who make 1/4 million per year and I can re-freshen their apts in 2 days per 1000 sq.
I like the Condo model best as sick of taking care of whole building, roof, back yards, garbage and boiler and plumbing, utility interferences, floods etc.
In NYC real estate taxes are getting too high now as city wants conversion to Condos (or co-ops) so they can raise taxes considerably , cost me $800 an apt per month, large grab off my bag.

So Real Estate best when price is below replacement costs and geographical dynamics, change in zoning etc changes dramatically ( slum turns into gentrified palace to live.
Unless unless one has have 40 million and bid on rarest apt which appreciate the most anywhere in this environment. Or simply have access to funds which offer a minute down payment, and rising prices offer refinancing for branches of geming up even in modest of rising climate.
Another point is that I like Condos with more than 300 units, I am in one which has 450 and that keeps the maintenance 20% lower by virtue of having so many apts pay for the staff which does not grow as much once over 100 units.

[swampboots]

Yes that was the time!!!!