Timing the Market? Where are we now? Crash coming?

Question

So I am new to Bigger Pockets, and I am listening to all the podcasts in order, have listened to almost 200.  I have one rental property, a town house i bought in April of 2007 (ouch) for $157k.  It's in Eagan, MN, 55122.  2 years later it was worth $90k, of course.  Now houses in that same neighborhood, identical to mine are selling for $180k.  This feels like things getting fast and loose again, right?  But I'm all excited to buy another rental property.  I like to buy near me and I live in Rosemount now, so basically anywhere in Dakota County is fair game, but I want to get a good deal, and I have to be able to afford it (planning on borrowing from 401K for down payment, or else being patient and saving up cash).  I don't want to screw myself by mistiming the market again.  Any advice, opinions, evidence or analysis would be much appreciated.  Sit and accumulate cash, waiting or a crash OR buy now?  That is the question.

Todd Dexheimer · Answer

Buy for cash flow and you will be fine, especially if you are getting 30 year money. I think our market has a ways to go, with that said proceed with caution and be conservative on your numbers. The last crash is a 75-100 year event. Could it happen again soon? Sure, but the likely good is slim

John Woodrich · Answer

I didn't read all of the other posts but did note that nobody is from MN.  The MN market is going to be quite different than the market in different states, the city of Minneapolis has it's own sub-markets.

I can't attest to your particular area but in general inventory is low in MN.  This is part of the reason why house prices have hung up for a while.  At the same time money is cheap, rates are down so more people can afford to purchase houses.  The rates have been trending up and if it continues it will start impacting purchasing power which may reduce the cost of houses for sale.  Right now the market has been slowing down a bit because the kids are back in school and winter is coming.  Nobody plans or wants to move in the winter so I expect prices to relax a little more.  From the purchase side that means less properties available however it also means some may sit longer and sellers may get desperate.

It sounds like your goals are to hold it for a while so from that stand point appreciation isn't as important.  You bought high before but if your prices are correct you still received 1.4% appreciation even though you timed the market poorly....  If you are going to hold it for a while I would be more concerned about investing in an area you know (relatively stable) and I would look primarily at cash flow in analyzing deals.

Kristina Heimstaedt · Answer

Bill McBride is the one and only way to go Bill McBride's Blog.  I 100% agree with @Kyle R. in terms of looking for indicators. There's been great job and wage growth. New home sales are doing well and Millennials appear to be moving away from expensive cities and towards suburbs.

I've heard some developers having concerns about continuing to build as land prices have increased as well as lumber prices by nearly as much as 20%. I've heard some lenders say that they're struggling to get some loans through as a result of appraisals. However, these issues seem to be appropriate checks and balances as opposed to turning a blind eye to some major issues.

You could argue that this up cycle is likely to be our longest because we had gone so far down the rabbit hole. If a typical cycle is 7-10 years, this one might be more like 12-15. Watch the numbers not your gut. Numbers don't lie. It's why the "Big Short" had some success stories.

Kyle R. · Answer

I wouldn't conflate appreciation with a coming crash. Unless you can pinpoint why the appreciation isn't organic, calling a market turn based on price alone is a loose speculation. The variables that caused the GFC (fraud, CDOs, asset liability mismatch programs, etc.) aren't anywhere near as prevalent today as they were prior to the last crisis.

In my opinion, sitting on the sidelines and waiting for a crash isn't a viable strategy. Timing the market is very difficult and few are adept enough to do it. Great deals are still around today, they're just harder to find. I would suggest potentially expanding your search outside of your county. Earlier this year I expanded my search to a 100 mile radius and found my best deal yet. I would also develop parameters as to what you're looking for (price, rent roll, etc.). Once you determine exactly what that criteria is, stick to it.

Brent Coombs · Answer

Don't you just hate it when you've waited years to get back in the game, and the market still stubbornly rises?

Brian Neisig · Answer

Yeah, I am stuck in the "Paralysis by Analysis" stage.  My goal is to be a buy and hold land lord, but I want to get a good deal so it actually cash flows beyond expenses/emergency fund.  Plus I am happily married and plan to stay that way, so I have to convince my risk/debt averse wife that it's a good deal too.   That's quite the challenge right there.

Jay Hinrichs · Answer

markets are regional. no one is predicting a nationwide melt down like 08..  at least Bruce Norris is not predicting that.

he said at the Oakland event that you need about 40% of properties on MLS to be bank owned or short sales to create melt downs.. and we are far from that in most markets.

Chris T. · Answer

welcome @Brian Neisig to BP

Real estate is local, so if you want a better feel on your market, go network in several of your local REIA and talk to other investors.

Everyone wants a good deal, and no one want to lose money. No one can predict a crash.

But if you have a goal to hold long term, then find a "deal" that can cash flow even if the market drops. Be conservative with your numbers.

Good luck!

Cody Evans · Answer

@Brian Neisig

I like @Ian Walsh

explanation. It is all about finding a good deal. Did you buy that house at market value in 2007 or did you say to the seller "I am willing to buy it for x amount that makes it a good deal for ME." You have to be willing to walk away. If the deal makes sense for cash flow then go ahead and grab it but realize you may have to hold onto it for a while because no one can tell you exactly when the market will crash. The crash could happen the day after you buy but now you still at least have a cash flowing property. If the market crashes that is the time for you to hustle and get a good deal for appreciation since there is nowhere but up.

David Moore · Answer

@Brian Neisig

I actually think you are right to be concerned about overpaying.   There are several things to consider.  Do you have a good team?  I have people sending me wholesale deals via email, and I have investor realtors sending me opportunities.   I research and buy slow.  Josh and Brandon say you should analyze 3 deals a day.  I don't do this enough, but I do analyze deals.

Your experience with your townhome is not wasted.  You learned from it, and had the beads of sweat from being in a situation where your property was illiquid...you could not sell it.

One other poster commented about the risk of overpaying on a 4 plex.  Others have said go for cash flow.  I go for cash flow.  On MLS, you will now routinely see 4 plexes selling at 400K.  But the four plex, how nice it looks, etc, is not the key.  The key is, how much revenue does it generate.  That is the basis for the right price.  And how much revenue should it produce.  That is the basis for calculating what your gain will be, regardless of the price you buy at.

On the block where our four plex is, there are six four plexes.  One charges $1100 in rent, mine charges $995.00, another charges $850.00, another $700.00 (he wants no turnover).  Finally, one building is for sale, started at $429K, now down to $399K.  He charges $875.00.  All 6 buildings are nearly identical. Which of these buildings are worth the most, in your estimation? (BTW, mine and the $1100.00 are very similar in rehab and condition, and tenants pay gas, but the $399K one is in decent shape)

Timing the Market? Where are we now? Crash coming?

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