Time to exit market???

Question

Hello all, I was wondering if anyone has thoughts on the status of the Sacramento Real Estate market. I have several single family homes bought between 2009-2013 and and wondering if the market is topping and if it would be time to exit the properties and wait for the next cycle or if we believe that this is just the start of the continued growth as the Bay area becomes out of reach for the average worker.

Wes Blackwell · Answer

@Drew Pak

Not even close to topping out. The median home price is only $300-325k, and the previous peak in Aug 2006 was $375k and we'll most likely surpass that mark.

Market is super ridiculous hot right now, multiple offers on every single listing. I'm talking 10+ offers on regular occurrence. We have a ton of people moving here from the Bay Area right now and $300k for a nice house in a great neighborhood is NOTHING when all that buys you in the bay is a 500 sq ft condo in the ghettos of Fremont.

Peaks in land value typically happen every 18 years (Google it), which would place the next peak around 2022-2024. We've probably got another 2-3 years of steady growth before the market starts to soften a bit.

So, no signs of slowing down for now... we'll have to see how interest rates affect the market heading into the future. But even if rates hit 5-6% that's nothing compared to the 8-12% rates you saw in the 80's and 90's, so plenty of people will still be able to buy.

The people that will face the crunch the most will be first-time home buyers in the $200-300k range, since they're already at the max end of their budget. People who would've formerly bought a home at $350-400k can still easily find something at $300k without sacrificing much in quality of home or neighborhood.

Personally, I'd keep a close on the newspaper headlines, and if the Blackstone group ever starts selling off a large majority of their housing stock, it's time to jump ship.

Andrew Johnson · Answer

@Drew Pak My properties (not personal residence here in San Diego) are 100% out of state.  I'm trying to maximize for cash-flow rather than appreciation so it's definitely a little bit different that California.  I don't know a thing about mixed use commercial properties and I've never done a flip.  But if you have questions about buy-and-hold in out-of-state multifamily residential, feel free to PM me and I'll at least give you one guy's perspective.

Carrianne Mucho · Answer

@Andrew Johnson - Excellent point about interest rates.  I try to make this point weekly to non-owners who think they will save money by renting for 2 more years in the hopes that the market will top out and decline (so maybe they go up 5% annually, then drop 15% for a net drop of 6.5%?) Meanwhile, they've been overpaying for rent, missing out on tax deductions, and mortgage rates might have gone up 1.5% making their overall monthly payment a couple hundred higher than it would have been even though the price of the home might be lower.

@Drew Pak, @Yia Her, @Branden Smith - Market is hot right now.  Many builders are out of inventory and many of my clients even in the mid-range (400Ks) are competing with multiple offers.  Building moratoriums in Natomas which have only recently been lifted, high permit costs, and lengthy land development approval processes have limited the supply of homes, thus our low marketing times.

Steven Walford · Answer

I'm no pro but I firmly believe that you do not profit from a property until it has sold. I would ask yourself what your trying to get out of them $$$ wise and if you've already reached your goal then profit and start over again with the new properties. We recently sold our first rental that we had purchased in '09 and are now trying to get into 2 multi-family units that each will pay more per month then our single did but we will have more equity built into both properties.

Leslie Pappas · Answer

Hi @Drew Pak, if you're an accredited investor, decide to sell and want to defer your capital gains tax you might consider reinvestment into DSTs (Delaware Statutory Trusts). They are hands-off, institutional grade real estate investments, and they allow you the option to diversify. You can buy into institutional grade $50-125M projects with as little as $100,000. Professionals with decades of experience and very impressive track records do all the heavy lifting for you. You get potential cash flow, tax shelter and appreciation. Loans are non-recourse.

Joseph Hennis · Answer

Check out this chart here.

http://www.economist.com/blogs/graphicdetail/2016/...

Looks like we are mid-cycle. Prices are a little frothy but overall still affordable except in specific markets. Maybe 2-5 years more of growth, but who knows if it will drop or not. In some cycles the drop never comes, just a plateau, and it really depends on local conditions.

If you dabble in stocks... typically you sell THROUGH an up swing, and buy THROUGH a down swing. You don't try to time the peak, instead you sell off a little at a time as it goes through the peak. Same on the downside. Of course this only works if you have more than one property.

Gordon Cuffe · Answer

@Drew Pakyou just need to keep track and follow the supply of homes for sale in sacramento county to determine if we have hit a peak in values. I remember back in march 2012 the supply of homes for sale dropped below 3500 homes for sale and that was the end of homes declining in value and started our rapid appreciation . We only had 1700 homes for sale last month so home values will continue this summer. Just pm if you don't have access to the monthly supply of homes for sale . Just an FYI , you can always sell properties then do a 1031 exchange to avoid capital gains taxes.

Josh Cuthbertson · Answer

@Branden Smith Same thing up here Branden. Only 3 hours north of you, and entire subdivisions are being sold, house by house, before the slab is even down. When that stops and those sit, I'll reconsider what I'm trying to do. Craziest part about Redding though is rents will remain high, even during a downturn. Mega churches w/ colleges attached will do that. ;)

Time to exit market???

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