Why I'm planning on sitting out a bit longer

[Frank Adams]

Those of you who know me from my posts know that I've been an active investor for 30 years, and that I've seen some big market swings. I lived in Houston in the "boom and bust" late '70s and '80s (when the average house lost 1/2 its value and we got the innovative Resolution Trust Corp). I've evolved from a buy and hold with the occassional flip, to a guy who just flips and seller finances that flip.

I've stayed in touch with my market in the TX Hill Country until our move and I only did 2 deals there in the last 2 years, one thin, one fat! Our market in CO still looks like it's dropping so I don't see any reason to jump in it.

I'm sometimes a little impetuous, I often suffer from "gottadoadealitis" but as I've gotten older I've learned to slow down a bit and have not regretted it. I'm afraid that this might be exacerbated a bit because my income from seller financed mortgages has dropped from $85K/year to $30K/year with people selling and/or refinancing. Of course the upside of that is that I'm sitting on a pile of cash should a deal come my way.

Some of the evidence I've been looking at lately includes:

1. Although prices have dropped somewhat here, many of the new listings are going up at the high side of the market. Which tells me that reality hasn't truly hit the sellers, or that the agents are just taking the listings without explaining the facts of life to the sellers.

2. There are a fair amount of REOs on the market and some are selling (our local paper lists the transactions and one week the "sellers" of 32 of the transactions were lending institutions). Unfortunately the number of REOs has not reached the point where those sales prices are down to where I think they should be.

3. I see some "investors" advertising short sales where they've gotten permission to "deal" with the lender. But they're still trying to get above (the dropping) market. No thanks.

4. I'm just now starting to see increasing numbers of stories about how (formerly) middle class people are having to sell important possessions on ebay and craigslist. One said that CL's sales in March were up 70% from a year ago.

I am an optimist though. Reality hasn't hit enough people yet. They're still driving king cab, dually pick up trucks to the grocery store (although not as many people are buying them) and while starbucks sales/profits are down I still see folks in there putting the lattes on credit cards.

Another thing that makes me an optimist (about finding deals that is) is that I know that even in good times some people get in trouble. The problem is finding the ones that are (a) in trouble and (b) have enough equity in their property and/or their Lexus (did I mention we may be in the market to replace on of the cars?). It's a combination that's hard to find, not impossible, just hard.

Anyway if you find something let me know. Meantime I'm curled up with a big cup of coffee and contemplating some mailings.

all cash

[Michael Shadow]

I'm seeing the same things happen in my area. I was working on a deal that should have been a slam dunk and I even got word that the woman selling the property wanted to sell it quick at a low price.

When I found out about it she had already gone to a Realtor and placed the property on the market at 2x what she told everyone in town she wanted for it. I looked at the property and it needs a bit of work but at the price she told everyone she wanted it was still a do-able. I offered what she told everyone in town she wanted for it and she refused my offer flat out. I called her and soon found out that the Realtor had poisoned her mind in telling her that she could get what she had it on the market for and she believed him. So I waited another month and put in an offer so she would get what she told everyone after the Realtor commissions. She came back this time with a 15% drop from the list price but it's still not where it needs to be. I told my Realtor we'll wait another month because I know no one else is going to put in an offer on it because it is way to pricey. I don't know why our local Realtors are telling people they can get the prices their properties were worth 2 years ago.

It sucks because I feel like I should be buying some properties right now and I'm ready to go but on the other hand the Realtors in our area are afraid to tell their clients what the property is really worth. Then they sit on the market for 6 months and wonder why they haven't had any offers.

-Michael

[Frank Adams]

Yep, sounds like what's going on here. Our neighbor told us the other day that she's getting ready to list and told us the price. She's $116K MORE than what we paid! Granted she's on the golf course side of the street, and has a 3 car grog, versus our 2-car, but still! Oh, and she's got 115 square feet more than us.

She did mention that she'll drop the price "like a rock" if she doesn't get some quick action. Wife and I just smiled at each other when she said that.

all cash

[Ken Hicks]

All Cash, Do you have an extra cup of coffee? I just sent out 10 mailing. the other day just to test the water. I don't expect to purchase anything till end of summer if I can.

Ken

[Account Closed]

Well, All_Cash, thanks for stepping aside as I am snapping up deals left and right. Sure those that are listing RETAIL are NEVER deals regardless of the market conditions.

So if someone is with a realtor, you already know their mindset. Marketing to those that are needing to sell is the same regardless of the market condition.

Using solid fundamentals has allowed me to be successful in up and down markets through my wonderful time on this planet. If you want to sit out, woudl you be interested in making solid returns on your cash secured by 1st and only position loans on real estate at LTVs no greater than 70%?

[Mike Seluk]

I'm a noob still who's still getting a feel for how a lot of this works, but those things you guys have mentioned seem to be consistant with my own observations.

Cash, pertaining to people selling stuff, I'll have to agree. I'm a gearhead, and I've always came out ahead on my hotrodding projects by buying and selling stuff to fund the hobby. So I read ads a lot, and have noticed the 'luxuries' flooding the market: car projects that ran out of money, weekend cruisers, motorcycles, Waverunners, boats, anything that requires lots of high-octane go-juice. I've cashed in quite well on this by re-selling!

And as for housing, there's still a pretty major disparity between what the agents think stuff is worth and what people are willing to pay around here. I've been scouring the area for a while, and some stuff has just been sitting for MONTHS. Some of the places looked like good deals, too. I've been out looking at properties and have only found one that seemed to be a really good deal - that one got picked up quick. I'm now wondering if THAT price is where the bar will now be set.

Good to know that people who have 'been there and done that' are taking a bit of a break. For me, that means more time to get my ducks in a row and save up some more. It's all getting pretty exciting now.

[Timothy W.]

AllCash, I know what you're waiting for and yeah....it's worth it. :D The only thing I did different was find an area close by where it has hit and invested there. I found it in a few small markets that are microcosms of what will happen to much more of the US.

[Frank Adams]

rmgt; I think you were reading something into my OP that wasn't there. Good for you for snapping up "deals" but if your market continues to drop, your profit will drop with it. I don't know if you're a buy and hold or flipper, but if you're buy and hold I can tell you that last time (in Houston) the big decline in rents TRAILED the decline in prices by a few years.

Those rents STAYED DOWN as a lot of the excess inventory was snapped up by BUY AND HOLD investors who then NEEDED to keep those units rented. In one of my neighborhoods I had my (and the market's) rent at $650 in '83, and it dropped to $550 in '85-86. I was lucky enough to sell my house to my tenant ('87) as it had a fully assumable VA on it. No way he could've gotten any other kind of loan. I actually paid him $2K to take it, but within 2 years of selling that one I was ACTIVELY buying in that subdivision and bought 4 units in 2 years.

Rents finally got up to $650 again in '92.

However, I no longer buy and hold. I strictly flip on seller finance. So I'm able to buy at market and resell at a profit, as my buyers DON'T CARE ABOUT PRICE. Still I don't see any reason to aggressively look for property in a declining market. There are a couple of bird dogs (aka "newbies") that work the town that has a lot of houses that are right in my wheelhouse.

I've always been an opportunistic buyer. Even when I was working 70 hours weeks and in an an MBA program (NO personal time) I "kept my oar in" and managed to acquire a couple. I dont' see any reason to cut into my golfing, skiing and traveling time in order to accumulate more financial assets. You see, I've already reached "critical mass".

Of course, when a pitcher throws a fat one right over the plate, I'm going to "take it deep".

all cash

[Timothy W.]

All Cash,
In markets like you describe - did you take large or small or any downpayments when financing out? Did you escrow taxes? I am currently holding property but would like to move south (Florida) in a couple years and with moving out of town I would like to explore shifting to holding paper. Any pitfalls I need to look out for?

BTW - I love this thread. Thank you. Most people with 30+ years experience in this don't bother to talk to newbies. My dad and grandfather have talked to me about REI during the Carter double digit inflation and the 80's S&L fallout. Advice like this is gold.

[Michael Shadow]

I couldn't agree with you more Tim!!!

Thanks AllCash for sharing your insight.

-Michael