Asset Bubble Going on now?

Question

A real estate guru in one of my groups believes that we are in an asset bubble now and its best to hold off investing for 12 months at least.

Is the consensus here that we are in an asset bubble currently and if so do you agree with holding off on investment at the moment?

Thanks,

Tim

Erik W. · Answer

We've been in an asset bubble since 2013, according to some.  If you invest according to guru predictions, you will never invest.

The better way to think about this is what assets are still carrying themselves sustainably.  If you live in an area like I do where rents are still relatively affordable compared to average median income, then even if values have been increasing for awhile they should still be able to hold or maintain the increase.  Bubbles only "pop" when the cash flow and/or other returns on investment are no longer sufficient to sustain them.  Then the value falls back to the level where the cash flow is once again sustainable and attractive.

Rather than spending your time listening to "gurus," get out there and do market analysis.  If you don't know your area's median household income and median rents, that would be a good place to start researching.  Next would be look at business trends.  Are businesses moving in and thriving?  You can find information on this at your area Chamber of Commerce.

Russell Brazil · Answer

If your friend was able to predict such things he would be a billionaire. Is he a billionaire?

Tanh Truong · Answer

I've seen a lot of data showing commercial is hurting in more expensive areas (ie, NY, San Fran), but I think if you bought at the right price with sound operating fundamentals, the investment should be fine.

Happy investing.

Craig T. · Answer

@Tim Rainey

Yes, we are in an asset bubble (see the stock market) driven by near-zero interest rates. With that said, it doesn’t mean you can’t find deals that make sense in this market. Best way to play things in mind my is to remain a consistent investor through all cycles (good and bad).

Richard W. · Answer

My group invests/manages retail, multi-tenant plazas in FL, so my visibility is very specific and somewhat narrow.

While we did acquire assets over past few years, we were regularly edged out by liquidity buyers that had no interest in 'ROI fundamentals', especially with regards to income degradation risks. Basically, CAPs went to shit!

My biggest concern now is that the tenant demand side has ebbed greatly in the past few months and even existing tenanted units are looking to lower their 'monthly nut' based on retail sales. Tenants, national and local, are telling me they are not making their numbers and if my location isn't net positive for their business then they will either shut it down or demand meaningful occupancy cost reduction with a view to revisit the new norm within a year or two!

My real worry is that, at least in my asset class, capacity far outweighs demand and it feels like I'm merely delaying the inevitable. Moreover, most tenants I deal with are retrenching. Worst still, entire industry models' are getting decimated in mass, cinemas is one example.

At this point, only saving grace for people like me and 'others' I talk to on an honest basis is our low leverage. Which is why you see behemoth REIT's like Westfield forced to hand over trophy assets like Countryside Mall in Clearwater to note holders.

In order to make money in this environment, we need to focus on what we have, not just what we can buy at bargain basement numbers.

Honestly, I feel we ain't seen the half of it yet. And I'm the optimistic one in our group!

Tim Rainey · Answer

I am always looking for deals and will keep doing so. An issue for me is just locating deals.  Being in a tertiary market and looking mainly there, I think is limiting me so I am going to start looking further out but I also wonder if I am missing any better means for searching.

Loopnet, Cityfeet are the main ways that I search for commercial investments. Multifamily, Mobile Home Parks, Self Storage are my primary goals, but anything income producing is also on the radar.

My experience has been that when I inquire about a property on loopnet, cityfeet seems like only 50% of the time the listing agent actually responds?

Any other suggestions for search?

Thanks

Zachary Beach · Answer

@Tim Rainey it’s very asset dependent but I think that inflation is much higher than the government admits. The CPI was specifically created to make inflation look lower. The extra money in the economy has to go somewhere and that place is asset prices. I believe that waiting 12 months to buy now is foolish even if it’s a massive bubble (I don’t think it is I think it’s inflation) the government is kicking the can down the road and I don’t see it crashing in the next 12 months. Of course I don’t know for sure but I have been betting against a crash this year and it’s been paying off very well. I also cash out my profits by selling or refi and then bring the money back in with value add for more profit so waiting and losing 100%+ ROI even if it crashed in 6 months would be foolish in my case as I could still cash flow and hold my properties.

Joel Owens · Answer

These guru's have the dumbest statements IF that is what they said.

Whether someone an (individual) would chose to invest in a certain deal size, asset class, geographical location depends on a TON of factors.

Without knowing an individuals specific goals you are looking into an empty crystal ball.

Don't listen to guru's. Keep learning and map out your goals and timelines for YOURSELF. Your IDEAL life you want to live might not be a fit for others. One situation does not fit all. There are active versus passive yields, stabilized properties, half vacant, completely vacant, ground up new development for various asset classes.

If someone is not asking you questions back for what your goals are, risk tolerance, and expected hopeful returns for being active or passive then high chance you need to run away from that person.

Tim Rainey · Answer

I agree with yall. Seems like waiting for that long may lead to missing out on a deal.

Joe Villeneuve · Answer

Is your guru's name Henny Penny?

Asset Bubble Going on now?

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