What was it like investing before The Bubble?

Question

For those of you who have been investing >10 years, and have accrued properties before the 2003 time period, what was it like buying properties before the bubble really started to pick up. The reason is I ask is because it seems when I read any real estate book, the strategy the author advocate seems to be entirely predicated on: 1) The time period the book was written and, 2) The location of the author.

Some books talk about how if you can buy CLOSE to the 1% rule, you should get close to or slightly cash flow positive and be fine. On the other hand, "Investing in Duplexes, Triplexes, and Quads: The Fastest and Safest Way to Real Estate Wealth", written in 2006 by a man in the Florida market advocates buying tons of property with $0 down and says to expect approximately 8% appreciation a year - LUNACY!

So I'd like to hear from some folks on the site. Pre 2003, were you using the 1% rule, able to buy at discounts, buying at auction, MLS combing, REOs, marketing for leads, all of the above? I'm sure the volume of REOs was substantially lower, but what type of discounts were you seeing? Was there less competition for deals or substantially more? Does marketing still work in a normal market, etc?

Would love to hear what these guys have to say:

@Jay Hinrichs , @Darren Sager , @Brian Burke , @Jerry Puckett

Thanks in advance!

Brian Burke · Answer

During the late 90s to 2007 era there were virtually zero REOs in the markets I was working in.  In the early 90s I started investing at the courthouse steps, buying properties, fixing them up, and selling them as quickly as possible.  Since I got pretty good at that I stuck to that strategy for the most part.  I did keep a few of the properties along the way and that allowed me to capture appreciation and do a 1031 exchange out of a couple of houses into my first apartment building.  Buy and hold wasn't my primary strategy so I didn't employ 1% rules or anything like that...I just looked for positive cash flow and good potential for appreciation.  I bought a couple of rental houses and a 4-plex late in the cycle and got my first up close and personal introduction to why it sucks to do that.  I still own those properties to this day and they fell by half in value and then came back to where I started...so they've done absolutely nothing for me!

Back then I didn't bother with MLS because there was too much money chasing too little property and I didn't market to homeowners because I didn't want to deal with the calls.  Besides, I was getting all of the deal flow I wanted so there was no reason to try anything else.

Discounts I was getting then resemble what I'm getting now and what I was getting during the downturn...I've never changed my requirements.  That said, it doesn't mean that discounts other buyers were getting has stayed the same.  In good markets many of the buyers squeeze their margins to get deal flow.  I just accept less deal flow...let them buy high, tie up their money, and then I buy low when their cash is tied up.  Sometimes there are too many buyers and that strategy doesn't work because when one guy ties up his money there is another fool waiting to take his place.  That happened to me in 2005 through 2006 and it worked in my favor...I didn't do much volume then which meant that I didn't get stung as badly when everything went to hell in the market.  It did wipe out a lot of those other guys though.  I can't say that I was all that sad to see it. :)

Steve Vaughan · Answer

In the days before youtube and BP, the returns were there more-so in 2003, but the money and information wasn't as much.  You had to actually qualify for the loan with documentation and a good rate was anything below 7%.  In my area, I was buying 5-bedroom homes for $105k and renting them out for $1150 w/pets. The 5-bed home was the outlier and I made it my niche. These days the same house would be $185k, renting for $1350.  Doesn't work anymore and the lending requirements have tightened again, though the rates are much lower.    I also picked up some multi-families in 2003 that were bank owned in a small town. I still have those today.  $25k per unit, renting for $400/unit average with seller (bank portfolio) financing.  This was also before BP and many other investor-friendly educational venues so there were far fewer investors chasing the same deal.  Most thought I was crazy.  Different mentality overall then with much less free info available.

Jay Hinrichs · Answer

@Riley F.

for me personally I was not in the rental game I have predomiatly been in the quick flip game or lending money game..

What was it like investing before The Bubble?

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