Should I Buy in this California Market cycle?
Lender · Los Angeles, CA · Member since 2015 · 184 posts · 92 votes
So I'm just closing on our first investment property in Atlanta, GA in the next 1-2 weeks. I should have enough cash in the bank left over for putting a deposit on our first live in residential place in California. I'm trying to make sure I'm buying at the right time however.
Everything I've seen thus far about the market in California is pointing us towards hitting our peak of the market within the next couple years or so and there's not much to grow, also we're only predicted to have a small bump down in the market from what I've seen and not like the crash of 2008 from what I've seen. However, with mortgage interest rates predicting to go up this year and the next upcoming years and with their still being some room to grab some minimal appreciation along the way, I'm trying to determine if now is a good time for my family to buy a home before rates start going above 5 and maybe even to six in the next few years? Any advice would be appreciated...
@David Faulkner - completely agree, that's why I flew out there multiple times and have driven the streets, gotten to know the neighborhoods and which suburbs and suburb neighborhoods are booming and up and coming, which have good and bad crime situations, where are the good schools located, got acquainted with other investors, wholesalers out there. I would bring property management on board of course which I have interviewed multiple property managements. I've read a lot about atlantas plans of development including the belt line transportation expansion, MGM grand developing casinos, Mercedes coming to town and much more going on. I definitely didn't just get excited, jump on google and say Atlanta sounds fun. But can you point to some reasons why you think it's a bad place to invest? I'm curious cause I can't still pull out of this deal if there is a compelling reason.
I hope it works out for you, but you are still basically going off of Google and advice of others. I don't think it is realistic to become familiar with a market visiting it one or two times ... I recommend newbies live in and study a market for 1 year before buying, and I practice what I preach ... the few times I did not follow this, I have come to regret it. I have been investing both in and out of state over the last 15 years and have nothing to sell you either way. I can say that I've sold all of my out of state stuff and if I had to do it over again, I would've stayed local.
The issue is not so much really whether Atlanta as a whole is a "good" market or not ... the issue is that you will be giving up nearly 100% control over your investment to others, and others may not be competent and/or have your best interests at heart. There are far more bad realtors than good ones ... there are far more bad PMs than good ones ... there are far more bad investment properties (in any market) than good ones. At best, you as a newbie are looking for a needle in a haystack that is 2,165 miles away ... I just don't like those odds for you my friend.
If you really like the Atlanta market, then my honest advice would be to move there, study it then, and invest as a local.
How long are you planning to stay in CA? If the answer is 5-10 years then rent and wait. If the answer is for the rest of your life, then I would buy as soon as you can find a great deal (compared to comps) that you can afford in a place you would like to live. I agree that there is likely not too much growth left in this cycle (but who knows really) ... however, the longer your hold period, the less that will matter. For example, my parents sold out of a property many many years back because they thought it was the top of the RE cycle. They were right, and they got out at the top of that cycle. They sold for $150k, and that was a triplex a few blocks from the ocean in Redondo Beach. You can be right in the short term but still very wrong in the long term.
@Account Closed - Thanks for your thoughts but can you please explain.... In my opinion Atlanta is one of the best places to invest at the moment. Rising appreciation on the way coming from an influx of population, job/economy growth in these coming years and is one of the best cash flowing cities and median price to rent cities you can invest in. For buy and hold, it makes perfect sense, you would be the first of the many I've talked with to tell me I'm wrong with this assessment. What am I missing?
@David Faulkner - Good points. Yea we're looking to stay in California forever but not in this house forever. My thoughts were to build up some equity along the way and get locked into a good interest rate on a humble starter home and then when I sell 5-7 years down the road and trade up, I can use that equity (from appreciation, forced appreciation, and payments towards principle) towards a downpayment on our true family home.
@Account Closed - Thanks for your thoughts but can you please explain.... In my opinion Atlanta is one of the best places to invest at the moment. Rising appreciation on the way coming from an influx of population, job/economy growth in these coming years and is one of the best cash flowing cities and median price to rent cities you can invest in. For buy and hold, it makes perfect sense, you would be the first of the many I've talked with to tell me I'm wrong with this assessment. What am I missing?
What you are likely missing is that most of the many you've talked with were in the business of selling Atlanta property or are otherwise personally vested in it.
@David Faulkner - Good points. Yea we're looking to stay in California forever but not in this house forever. My thoughts were to build up some equity along the way and get locked into a good interest rate on a humble starter home and then when I sell 5-7 years down the road and trade up, I can use that equity (from appreciation, forced appreciation, and payments towards principle) towards a downpayment on our true family home.
Then buy as soon as you can find a good deal that you can afford and would like to live in. It does not matter that you plan to sell in 5-7 years, you need to get into the market as soon as you reasonably can to fix your cost of living and insulate yourself from (and benefit from) long term appreciation in price and rent increases. I will point out that the other requirements are very important too ... you don't want to overpay, you want to make sure you can afford it, and you want to live in it. This is because it is true that in the short run the market can be volatile ... however, the only ones who lose out are the ones who panic and sell, are forced to sell, or get foreclosed on, but every other owner has won big time over the long haul in CA ... if/when you decide to buy, make sure you will not become one of those people (thus the added requirements).
One other thing to think about that I've had success with ... rather than selling in 5-7 years to trade up, consider saving and/or cash out refinancing the down payment on your next place to buy without selling. The problem I have with selling and trading up is that you have to buy into the same market you sold into and do it under a time pressure. If it is a cold market, you may buy low but you had to sell low first. If it is a hot market, you sold high, but then bought high too. If you hold, then you decouple the sale and the buy transactions ... so, for my primary residences, I like to buy, wait till the market tanks, buy and move ... This is after you've already secured your primary residence, though, and locked in to a large extent your SoCal cost of living ... the risk/reward on this kind of timing just isn't there IMO for your 1st primary residence purchase.
@Account Closed - I appreciate the thoughts guys, really do. Can you point to something specifically though that makes Atlanta a bad place to invest at the moment. I understand you think it's not a good place to invest but maybe you can elaborate to explain why?
@Account Closed - I appreciate the thoughts guys, really do. Can you point to something specifically though that makes Atlanta a bad place to invest at the moment. I understand you think it's not a good place to invest but maybe you can elaborate to explain why?
I can point to a map of the United States that Atlanta is 2,165 miles away from Pasadena. You are therefore in no position to judge if it is a good place to invest or not, nor are you in a position to assess or manage the risks, or control your investment there. This is not something you can "Google" or go by the kindness of strangers to steer you in the right direction.
@David Faulkner - I see, some good points! Thanks for your thoughts David.
@David Faulkner - completely agree, that's why I flew out there multiple times and have driven the streets, gotten to know the neighborhoods and which suburbs and suburb neighborhoods are booming and up and coming, which have good and bad crime situations, where are the good schools located, got acquainted with other investors, wholesalers out there. I would bring property management on board of course which I have interviewed multiple property managements. I've read a lot about atlantas plans of development including the belt line transportation expansion, MGM grand developing casinos, Mercedes coming to town and much more going on. I definitely didn't just get excited, jump on google and say Atlanta sounds fun. But can you point to some reasons why you think it's a bad place to invest? I'm curious cause I can't still pull out of this deal if there is a compelling reason.
sorry I can pull out. (Stupid auto correct)
@Account Closed - I appreciate the thoughts guys, really do. Can you point to something specifically though that makes Atlanta a bad place to invest at the moment. I understand you think it's not a good place to invest but maybe you can elaborate to explain why?
I am sure Atlanta has some decent and profitable locations to invest in for long term buy and hold. It may have some locations that are not so great too. LA likely has many more locations and far fewer less profitible locations long term. LA was #1 in the nation for total profits (cash flow + equity gains) since 2000 for SFRs. San Fran and San Diego were #2 and #3. As mentioned this investment fact is known and reinforced by investors world wide.
Back in 2015 UCLA/Anderson School said LA was about 50% into this current appreciation phase and predicted a normalizing appreciation after that. We are somewhere near that more normal phase today.
Good luck with your search!
@Matt R. - thanks for your thoughts Matt.
@James Allen @Account Closed All of you are right. James, you are right that the fundamentals in Atlanta look strong for single family homes (less so for multi family, because a lot of new supply is coming online). Vivek and David are right that your physical distance and unfamiliarity with the area add significant risk to your investment. I live, work and invest in the City of Atlanta, and in the current market, there are parts of town where I am an active buyer and there are parts of town where I would be a seller if I owned something.
So James, you may have made a good investment and you may not have, but you shouldn't worry that Atlanta is fundamentally a bad place to invest. If you would like to PM me with the address of your investment property I can share my thoughts on the specific location. I'm possibly biased as a resident of Atlanta, but I'm not selling anything.
@David Faulkner - completely agree, that's why I flew out there multiple times and have driven the streets, gotten to know the neighborhoods and which suburbs and suburb neighborhoods are booming and up and coming, which have good and bad crime situations, where are the good schools located, got acquainted with other investors, wholesalers out there. I would bring property management on board of course which I have interviewed multiple property managements. I've read a lot about atlantas plans of development including the belt line transportation expansion, MGM grand developing casinos, Mercedes coming to town and much more going on. I definitely didn't just get excited, jump on google and say Atlanta sounds fun. But can you point to some reasons why you think it's a bad place to invest? I'm curious cause I can't still pull out of this deal if there is a compelling reason.
I hope it works out for you, but you are still basically going off of Google and advice of others. I don't think it is realistic to become familiar with a market visiting it one or two times ... I recommend newbies live in and study a market for 1 year before buying, and I practice what I preach ... the few times I did not follow this, I have come to regret it. I have been investing both in and out of state over the last 15 years and have nothing to sell you either way. I can say that I've sold all of my out of state stuff and if I had to do it over again, I would've stayed local.
The issue is not so much really whether Atlanta as a whole is a "good" market or not ... the issue is that you will be giving up nearly 100% control over your investment to others, and others may not be competent and/or have your best interests at heart. There are far more bad realtors than good ones ... there are far more bad PMs than good ones ... there are far more bad investment properties (in any market) than good ones. At best, you as a newbie are looking for a needle in a haystack that is 2,165 miles away ... I just don't like those odds for you my friend.
If you really like the Atlanta market, then my honest advice would be to move there, study it then, and invest as a local.
I am concerned about appreciation levels in some areas of California. We certainly have seen significant appreciation in a lot of areas, and those days of massive double digit appreciation growth are behind us, especially considering the headwinds of rising interest rates going forward. That said, housing still looks more affordable on a relative basis compared to the peak of the last cycle, mortgage underwriting is much more grounded than it was. However, real estate prices tend to be a lot stickier than other asset classes because people don't want to take a loss on them and tend to hold out to at least break even. When a stock market crashes, it loses 10+% in a day. When a real estate market "Crashes" prices do down 10% a year. I just bought my personal house and locked in a low fixed interest rate since I plan to stick around a very long time. Once I account for Tax benefits, I'm only paying $1250 per month in real costs on a house that would cost $2750 per month to rent. My effective return on my down payment ends up being about 18%. That and I'm locking in a fixed housing payment for 30 years that won't go up with appreciation. Since I'm betting that interest rates and rental rates will rise long term, purchasing a home can be a excellent return on your money even ignoring appreciation, which is likely in the long term in CA. Any appreciation that might happen can then be leveraged at better rates than you would be able to get on a Non owner occupied property. I'd suggest crunching the numbers that you would get now vs what would happen if prices and interest rates change and you put that money into investments for a set period of time. Having those in front of me helps me make decisions and shows me what I'm giving up for each decision.
nobody can time the ups and downs of the market, period. Yes, they can sit on the sideline forever and wait for real estate to be cheaper at some point in the future but even then they don't know if it's the bottom or not, same with the top. Experienced stock market investors/traders (which I am) know this. Buy and hold at a good value always beats out trying to time the market.
you can "dollar cost average" in real estate as well. If I buy now at a good price that cash flows, I'm not worried about the paper value of my real estate dropping periodically. If it does drop, I continue buying and those new properties will cash flow better. When market cycles back up now all my properties gain back value.
My suggestion is don't buy investment property at retail, ever. That is why I would never buy a turn key, you're behind from day one and it takes years to get to a point you could exit without a loss excluding appreciation. No thanks. Expecting appreciation to make an investment work is a dangerous game.
nobody can time the ups and downs of the market, period. Yes, they can sit on the sideline forever and wait for real estate to be cheaper at some point in the future but even then they don't know if it's the bottom or not, same with the top. Experienced stock market investors/traders (which I am) know this. Buy and hold at a good value always beats out trying to time the market.
you can "dollar cost average" in real estate as well. If I buy now at a good price that cash flows, I'm not worried about the paper value of my real estate dropping periodically. If it does drop, I continue buying and those new properties will cash flow better. When market cycles back up now all my properties gain back value.
My suggestion is don't buy investment property at retail, ever. That is why I would never buy a turn key, you're behind from day one and it takes years to get to a point you could exit without a loss excluding appreciation. No thanks. Expecting appreciation to make an investment work is a dangerous game.
I would agree the majority who purchased the high retail turnkeys in poor locations ( 50%+ are located in that class seemingly) combined with post 2014, will regret such a move accordingly. Random sfrs in random cities were hardly ever going to be highly profitable investments under these circumstances as described.
Real estate cycles aren't something that is going to occur no matter what. There tends to be an upheaval associated with the typical 8 year cycle of a new president that affects the economy as a whole. I'm not familiar with the southern California market but in Silicon Valley, jobs and the economy drive home prices. If job prospects are good, prices go up.
Not all price ranges respond the same. When coming out of the 2008 downturn, cities near Google and Facebook started showing price increases before nearby cities. The local mid range homes (which are quite expensive compared to national averages) showed movement first. Lower priced homes followed. Luxury homes tend to only loosely follow the area wide trends.
Many people say to look at days on market to spot changes in demand. The seasonal variation makes it hard to use this as an indicator. If you look at selling price vs. list price, a change in demand becomes very prominent but statistics lag what is happening.
We have a huge amount of statistical data plotted for Silicon Valley. If you look at it you may get ideas for real estate trends you want to follow.
I expect in our market the number of sales will drop and prices tend to flatten. Sellers will not be very interested in selling and buyers will have fewer choices. Unless interest rates climb dramatically, I don't think prices are going to fall.
A lot of great info in this thread, but I'm wondering about the sustainability of the prices. For example; (Real numbers, from real properties) In 2012 a condo in a coastal California city sold for $150k, now the same condo is listed at $300k. I just see too much variability. For a tangible product to double in price in 5 years just doesn't seem sustainable to me, but I'm no expert.
we have the added issue in my small town that almost no homes have been built in the last 10 years, there is a massive shortage of rentals. I just rented a house that had 15-20 applicants and the couple I rented to had been looking for a place since last June. Some people are having to live in hotels.
A deal is a deal, if the numbers work pull the trigger!
There was a thread on here like a year ago "PROPERTY VALUES CANNOT OUTPACE INFLATION OVER TIME, ITS IMPOSSIBLE" something to that effect. There were some good points on both sides of the argument. So, what was the final consensus?
@Brian Filmore ... 2012 was when most of California began recovering from a deep downturn. Depending on the area current prices look like they are where you would expect if the valleys and peaks were flattened.
Coastal property is likely to act like recreational property with wild swings driven by the overall economy.
@Andrey Y. I don't know about the previous thread but there are a huge number of homeowners in Silicon Valley that will tell you home prices have outpaced inflation for decades. Maybe for the country as a whole that is true but jobs and people move affecting areas dramatically.