Equities are hot Potato - Is RE next?

Question

In Q1 of 2015, $55 billion of outflows from equities according to this article. People are running for the hills - I believe it! A lot of this money is finding its' way into RE. Multifamily is overheated as all get-up, and now days everyone is a RE investor. If you got big money, then you are a fund competing against me in multifamily. If you got less money, then you are giving it to a turn-key operator some place in the mid-west to buy you some pigs.

One way or another, everyone is in RE - welcome to amateur hour y'all. Eventually, though, RE will become the hot potato that equities already are. When - that's the big question...

Any guesses @Serge S., @Brian Burke, @Brian Gibbons, @Account Closed ?

One way or another, everyone is in RE - welcome to amateur hour y'all. Eventually, though, RE will become the hot potato that equities already are. When - that's the big question...

Any guesses @Serge S., @Brian Burke, @Brian Gibbons, @Bob Bowling ?

Serge S. · Answer

Interesting @Ben Leybovich. The big question is what is offsetting inflows? The stock market has not tanked so clearly there is money coming in as well. In my area of AZ, I see all the signs. Luxury SFR segment is red hot, homes that were sitting for a year or more are all going pending and the ones closing are getting asking price.

I also see the movement from equities. Searching for a decent multifamily has become a fruitless exercise. Its always the same profile of seller ... purchased in around 2011 for well below rebuild, repositioned and trying to get top cap rate on proformas. They are selling without a full reposition and calling it "value add." Hardly value add as what they are leaving undone typically cannot be done (RUBS, rent increases that the market cannot absorb).

I was looking at 160 pad mobile home park. Called the broker 2 days after listing. He said the park was a complete dump, it was a full time job and priced at a 6% cap in a secondary market. He thought it was way overpriced yet had 4 cash offers! He has been brokering parks for 20 years and said that this is the hottest he has ever seen the market. He is working with a new generation of buyers, those that cannot source multifamily and typically 1031 exchanging from a small coastal multifamily into a larger flyover mobile home park. He is seeing 6-7% caps on fully depreciated junk that just a year ago would have been sitting waiting for a buyer. Now that is some crazy shit!

I have personally decided to sit out this cycle.

Brian Gibbons · Answer

People need to live somewhere Ben and credit is tight and I don't think it's going to loosen up for quite a while so I think housing is going to stay hot that's my opinion

I always want to buy a good school districts and safe neighborhoods I don't want poor neighborhoods and high crime and that schools just don't want it

Brian Burke · Answer

When?  As soon as you get in on a big deal, Ben.  The day after close of escrow.

Joseph Gozlan · Answer

Good point @Ben Leybovich

I'm not a big shot investor, don't own hundreds of units (yet) and after 7 years of investing, getting a realtor license and dealing with tenants; I just now feel I know enough to take the next step and get a small multi-family (under 75 doors)

Call me conservative, cautious, scared or insane but reading posts in this (wonderful) community of young, inexperienced wanna  investors aiming at apartment buildings as first investments with 16K total cash reserves or questions like "how to start with no money at all?" Tells me that the RE market is way too hot and is due to corrections sooner than most believe.

I have a de-ja-vu from the 2004-2006 party before the subprime blew up in everyone's face.

Just my .02

Raymond B. · Answer

@Doreen Chaisson,

To Make the @ work do the following:

Hold down the shift key and type the following: @?

Look below this Window, and you will see a list of list of names of people who have posted in 	this thread.

Click on the name of the person that you want notified via an email that you responded to them.

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Look below this Window, and click on your Colleague's name.

They will be notified via an email about your post in this thread.

Raymond

Reed Starkey · Answer

@Raymond B.

Thank you for the tip.

Verna M. · Answer

I have but it doesn't suit my needs. I have a tax strategy in place for the draw.  :)

Thank you : )

Doreen Chaisson · Answer

@Verna M. - there is no need to cash out your IRA to invest in property.  You'll pay taxes and an early distribution penalty if you do, and also taxes on any revenue generated by that investment property.

Have you considered using a Self-Directed IRA to purchase an investment property with your IRA funds as an IRA asset?   The IRA owns the property, any revenue flows back to the IRA tax-deferred until retirement.  If you have a Roth IRA, you won't pay any tax on the revenue generated by the property, nor will you pay taxes on any gain on sale of the property later.  All expenses for the  property - taxes, maintenance and so forth - are paid out of the IRA funds.  You, and anyone in your ascending or descending lineage (grandparents, parents, children), can't use the property personally, nor can you make any repairs or do any work yourself. It has to be a strictly arm's length investment, and most self-directed IRA custodians will require that you hire an unrelated 3rd party property manager to ensure it stays this way.

Verna M. · Answer

I believe it. I have done very well in the stock market, and I am contemplating cashing out my IRA to buy an  investment property. Im under 40 with no kids, own a primary residence with equity.  So someone like me doesn't have much to lose, really.    Then you have a whole class of people who thought they could sell off their stock at 65 and earn a living off the interest in a safe CD account.  That is no longer a reality.

I have traditionally been a value investor so my goal is to get a dreaded J-O-B in the RE biz while its hot. Then, when it falls apart be waiting on the sidelines with cash in hand. (cynic? yup.)

My biggest regret in (my financial) life was not  not picking up the homes that went into foreclosure in my neighborhood back in 2007-2008.  I considered taking a loan on my 401k to do so  and I am glad I did not as my company filed Ch 11 in 2014!  I saw co workers have their notes called in and it was ugly.  No, I still regret it. I could have re fied!

Chad U. · Answer

As long as interest rates stay as low as they are (which will likely continue for some time yet), and lenders ever so slowly loosen the purse strings, this hot market will continue unabated.

Equities are hot Potato - Is RE next?

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