Hi all, It seems to me that everyone I've talked to is waiting for the bubble to burst. Investors, people who are trying to buy their first home or people who want to trade up but can't right now. If the market drop 10% and everyone jump in, can we still find deals? I'm not even considering the hedge fund money...

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Sam C.

Lehigh Valley, PA

Sam C.

Lehigh Valley, PA

Replied Oct 5 2017, 08:27

1. This is a smoke and mirrors state in financial markets. The traditional means of valuing financial instruments (re, stocks, bonds, etc) have been abandoned and we have long been in a rigged game (for about 100 years but especially since 2008). It will correct. Don't know how but confident it won't be pretty for most people.

2. Our government is run as a criminal enterprise ( its just coming to light that about 21-23 TRILLION dollars has been laundried through HUD the last 30+/- years. So don't fool yourself into believing that we are not inconsequential to the people doing the stealing. Somehow this will come to an end if we don't loose our constitution first.

2. It's all about leverage. The people I have seen hit the hardest since I've been in re the last 30 years were the ones most leveraged and at the mercy of the lenders.

3. Buy smart and try to get the best fixed term rates you can. The cost of money is artificially being kept low. If that changes you want to be able to cover the changes in carrying costs through the cash flow you will be able to generate.

4. Buy, sell and finance what the market says are the better deals.

One deal i did was purchase a property at the height of the 2006 bubble. I knew it was worth maybe 60-75% of what I paid. But I had sold a couple of properties (for much more than what I paid a few years earlier in a very down market in the late 90's). Did a 1031 exchange to absorb most of the capital gains and have rented the property seasonally the last 11 years bringing my ownership costs down to about what it's actually worth in the market now and maybe even a little better. Not included is income from my free use of the property in-between renters and the associated write offs.

Another deal that worked was buying 5 SFR about 75-90 min from my "normal" purchasing area. Did them as group homes for about 10 years. The cash flows were off the charts and I was doing some good work helping people with limited or no ability to get housing through standard rental norms at the time. The SFR market in that area was about 50% (and even less!) of the prices in my normal area. Only one is still a group home but the market rents have grown. Being so affordable with high COC had them paid off in less than 8 years and they bring in about 25k net cash each year with not much of a time drain. Original decision required that:

A. Go out of my comfort area time/travel wise. B. Buy lower quality homes in a very depressed and struggling area knowing that price appreciation could not be taken into consideration. C. Willing to work with a segment of the population that most landlords (and people) find objectional or with a NIMBY attitude.

5. Work with property managers and maintenance techs that are dependable and you can trust. Even better if you help them succeed with some of their own "skin in the game". It's a cost of doing business that is well worth the investment. Don't get "stuck" doing it all yourself or with your spouse. ( Get to the end of the post to read why).

I'm still buying (and selling) but I have put more time and effort into repositioning my debt by lowering it (giving up some cash flow) and refinancing for better terms but fixed for as long as possible. A bonus of this strategy is that I'm in a good position to do bigger/better deals in the future if that's what the market dictates.

Of course they were my choices. Just like houses each one of us is different but looking for the same reward: a true financial freedom of quality. I'ts a game of musical chairs. But it doesn't matter if you can grab a seat when the music stops. What matters is that the music your playing to won't stop anyway. I don't "know" what's going to happen. And I've had my share of losses. Anyone that says they know what's going to happen are either one of the thieves I mentioned above or look at things with blinders on. One thing is certain: I'm writing this while watching the rain outside my condo in Costa Rica and will be for the next few weeks. But hopefully the rain will stop. It's been almost 3 days and it's getting depressing.

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