Real Estate Bubble: Which side are you on?

[HuskyInvestor06]

Hey guys,

Its seems all the buzz these days in the real estate market is about this "real estate bubble" that's beginning to form in the United States. They say its particularly evident in the major cities along the east and west coasts, and in florida. Where I am, in boston, conservative estimates put properties in the area as being at least 14% overvalued. As rates have risen steadily since last June, and as we await yet another decision by the Fed tomorrow (Tuesday) people say its only a matter of when, not if, the bubble pops.

How do you guys feel this pending "pop", if you will, affects your business as real estate investors? Those of you with flipping businesses, how do you proceed in conditions like this? I'm looking to get into the business, and worried I'm going to buy a property and then watch its market value plummet before I can realize my profit. I was wondering what your take was on it.

Also, given the interest rate environment, how do you think it affects the future feasability of the Subject To method of financing purchases? How are people planning to deal with the likelyhood of more and more due-on-sale clauses being redeemed as rates rise?

Any thoughts on one or both of the topics would be appreciated! No holding back!

[Dan Auito]

husky, In these coming times I will be focusing more so on properties that I know can be acquired for at least 30% below true market value, this indeed limits acquisitions but I can still find these jewels through unconventional ways. I also purchase properties that the middle class can afford so the resale market is greatest.

If worse comes to worse I revert to the buy and hold strategy of screening for good renters and waiting out the downturn.

As for those Sub 2's to be honest they aren't my forey but if the margins were large enough I might be inclined to subsidize the owner until I reach the breakeven point after that, renogotiation would begin and the option would probably be let go if the homeowner wasn't being reasonable.

Next! :SM122:

[Just Information]

Housing Bubble - Will it burst?

Since the post, depression era real estate has remained stable!

So Is it full speed ahead?

Are we headed for a crash?

The housing bubble may burst!
It might inflate!
Rates might skyrocket!
Housing prices may plummet!

Two-thirds of Americans own their homes!

American's spend just under 40% of their income on housing and housing related expenses!

Approach home buying with the attitude of a well informed stock investor. We've long preached the

benefits of buy-and-hold investing. The same approach translates well to the home-buying market.

The Office of Federal Housing Oversight recently released its house price data for the first quarter of 2004. U.S. home prices rose 7.7% over the first quarter of 2003.

The median price for an existing home rose to $170,000 in 2003, up 15 percent from just two years earlier. Yet housing actually grew more affordable during that period as the typical mortgage rate fell to 5.74 percent from over 7 percent. The average monthly payment on a median-priced home was 17.8 percent of median family income in 2003, down from 18.4 percent in 2001, according to the National Association of Realtors.

"Our own sense is there will be a slowing of price appreciation but no widespread price corrections," said Nicolas Retsinas, director of Harvard University’s Joint Center for Housing Studies.

A government report issued last month startled many analysts, showing that home prices rose in the fourth quarter at an annualized rate of more than 14 percent, the biggest one-quarter jump in nearly 25 years.

David Seiders, chief economist for the National Association of HomeBuilders, predicts sales will drop only 2 percent this year from last year’s 7.2 million, which was a third straight record year.

How exactly should you play this one?

I say on your mark. Get set. Buy, sell, hold, build, borrow, or refinance.

I have been dealing with real estate for a long time and I use a simply approach in good times and bad times "KNOW YOUR MARKET"

Richard DeKaser, chief economist for National City Corp., ranks 99 major real estate markets based on how much they are under or overpriced relative to "normal housing values." http://money.cnn.com/pf/features/lists/home_valuations/

NEW YORK (CNN/Money) - No one's really sure if the nation's housing market is a bubble at risk of bursting, or fairly priced with more upside ahead. http://money.cnn.com/2005/01/18/news/economy/housing_bubble/index.htm

BigCharts.com has a free charting service where the Dow Jones Housing sector can be tracked. I am following KB Homes (KBH)- America's largest builder, Pulte (PHM), DR Horton(DHI)-largest cap builder. There are 31 builders in the DJ Construction sector. http://bigcharts.marketwatch.com (http://bigcharts.marketwatch.com/)

[Dan Auito]

Gee John is that all you have to say? We need some information! Just kidding, that was packed with some of the best advice one could give! :praise:

[Jim FL]

Husky,
Frankly, this is not an issue as far as I'm concerned.
First, the real estate market is not like the stock market, its regional, not national.
Home values might be stable in one market, declining in another, and appreciating faster than lightening in still others......all at the same time.
I even have 'pockets' in my farm area that are different.
There are areas where we have seen, and continue to see double digit appreciation, and others where home prices have remained the same for a couple years, while others crawl forward slower, or even decline a bit.
The key is to buy right in the first place.......meaning, well below TODAYS value.

No matter what method you use to buy properties, if you stick with purchasing only things you can get for 20% of more LESS than TODAYS value, and they cashflow well.........you will be fine.

Remember, an investor is different from a speculator......the latter buys now, and counts on higher value later.
That does happen, most of the time if not all, over the long haul.
So, since you buy right, less than todays value, you will make even more later when that long term appreciation kicks in.

Don't sweat the bubble.......in fact, I say, 'bring it on'.......with pin in hand!
Why?
Because when/if it does burst, someone will have to buy some of those properties from lenders who get them back........and I'll be ready.

My two cents, keep the change,
Jim FL

[Just Information]

Now that's want I'm talking about!

Its called "GUTS INVESTING"

Jim has shared the true heart of investing!

Look at it this way.

You buy a property with a market value of say $100,000 for the price of $80,000

You have just increased your net worth by $20,000

Your market would have to depreciate over 20% for you to loose!

Now if you are smart and buy properties using a sub-2 strategy how many homes can you buy with $80,000?

Since Jim knows sub-2, ask him?

[Jim FL]

Now that's want I'm talking about!

Its called "GUTS INVESTING"

Jim has shared the true heart of investing!

Look at it this way.

You buy a property with a market value of say $100,000 for the price of $80,000

You have just increased your net worth by $20,000

Your market would have to depreciate over 20% for you to loose!

Now if you are smart and buy properties using a sub-2 strategy how many homes can you buy with $80,000?

Since Jim knows sub-2, ask him?


John,
That is a good one.......hmmmmmmm......how many properties can one buy with $80k, using the sub2 method?
Honestly, the answer is 'it depends'........but the potential is UNLIMITED!
You can buy as many houses sub2 as you want, no limit what-so-ever.

Heck, with $80k, I'd park a large portion of it, use some for marketing, and the rest as an 'oops fund' for things that arrise within the business.
Perhaps a few bucks here and there for a seller's equity, but only small amounts of cash in exchange for LARGE amounts of equity.

In fact, I'm working a deal like that now.
Seller(s) are deeding me their house.
They owe $68k, and wanted to have $15k from the sale.......splitting it between the sellers, since they are divorcing.
The property has a current market value of approx. $130k, according to comps.

Here is the good news.
I talked the sellers into deeding me the house NOW, and I'll pay them the $15k upon resale.
Since neither they nor I want to wait to get paid, I have a CASH BUYER for this house, at $115k, buyer covering all costs to transfer title etc.
Basically, when all is said and done, I'll shake out approx. $30k plus in profit, and hold title for about 2 days.
I've only seen this house once, and don't plan to again.
My buyer is a neighbor who has relatives 'up north' she wants to move here.....and buying them a house is her plan to make that happen.
The nice part for my buyer is that this house is worth more than she is paying TODAY, and in an area where appreciation is very strong.
A good deal for all, and just one I'm working within a bunch........because there is NO LIMIT on the number of properties you can buy sub2.

John, good to have you here, you share quite a lot and I respect that.
You certainly must have some great systems in place to free up your time.....I see you posting all over the place in the yahoo groups etc.

Take care,
Jim FL

[Just Information]

Folks I will tell you if you want to learn SUB-2 Jim can bring it home to you!

You all need to test his knowledge on this - you don't need to buy 2 or 3 courses on this subject>

You simply need to find the teacher that can reach you at your level and go for it!

I like Jim, even though we my not agree on some subjects you can learn form this man.

So ask away folks and see what this man has to offer.

Ha Jim, yes I'm all over the net or should I say my staff is "Just makes me look good"!

I only post at 3 forums The Magic Bullets, The Creative Investor and The REI Club and the rest is my support staff. But don't tell Dan that cause when he finds me at another location he think it's me but don't tell him I told you so! LOL

Take Care.

[Dan Auito]

You cannot hide Sir John, I know when your naughty and when your nice! I see you regularly galavanting around the web collecting, networking and dispensing good advice.
Who am I to judge? or for that matter hold a grudge. It's a free country :SM020: So in keeping with the Bling Bling I encourage you my friend to keep doing your thing! :thumbsup: :rockon: