All Forum Posts by: Jeff Petsche

@Matt R. iMHO it will be a combination of things. We can't be blind "again" that double digit appreciation years is NORMAL. It's not normal, it's artificial. And when something is "artificial", it eventually gives out at some point. 

Yes we've been spoiled in CA to have such crazy appreciations, and I've personally benefited from 3 Up cycle sales, clearing over $400K in tax free equity. Not complaining at all, but I'm just being realistic. 

I think the following will great a "correction", not a "recession" as you called it:

1. Historical cycle. We've been on an uptick since mid 2010, so our 7-8 year cycle is rearing its head.

2. Seasonality for certain parts of the state. We have already seen a dip in prices in our area of 2% because we are leading into the Fall and then Winter months. I'm seeing more and more price reductions in the MLS and houses sitting longer before going under contract. Buyers are fed up and not playing the game. Or at least the ones I work with! Lol

3. Increased inventory over the next 12 months will cause appreciation to slow down. 

4. Affordability is LOW and will automatically slow the demand because the average person doesn't make enough to qualify for the average home price. Good news for landlords. 

In my area of Orange County (very expensive RE market), I believe  the average year on year appreciation for 2017 will end between 6-7%. Last year it came in around 6%. I believe 2018'will be slower and end around 4-5-% and after 2018, depending on what happens with the overall economy because many predict a "Depression Coming" in 2018, the RE market could see flattening or a loss in appreciation due to an overall economic slow down. When this happens, states like CA, NV, AZ and FL typically get hit the hardest. 

Again, just my observation and opinion. 

If I'm wrong, then God help my children and their children because they won't ever be able to afford anything (buy or rent) in SOCAL. They will be part of the continued migration of 1.75 million people who have left CA since 2000 and be moving out of CA to Midwest states! 

Thanks for the replies and comments. I'll be getting on a plane early next month to visit two markets, Columbus, OH and Indianapolis, IN. I'll spend 3-4 days in each market and see what my best options are.

There are sooooo many markets and opportunities out there I can't possibly visit every city, so I have to go with my initial research and connections made to this point and see where it takes me, and right now that is Ohio and Indiana.

Time to get to work!

@Aaron Mazzrillo

I've been selling real estate in Riverside and Orange counties for over 14 years, and I lived in Corona for 15 years. I'm very familiar with the Riverside market as a whole, and it says you're an investor in Riverside, but do you live there as well?

I only ask because you said in your post that they are building apartments down the street from you and rents are between $3,000 to $10,000/month. PLEASE tell me you live in Newport Beach or a similar city because I don't believe that quality of an apartment exist ANYWHERE in the Inland Empire, and if it did, people would be IDIOTS for paying that kind of rent in such an area. 

Riverside city currently has a rolling 12 month median sale price of $362,000 with a median household income of $57,196 and 18%+ poverty rate. 

My office is in Newport Beach by Fashion Island and the new luxury apartments called Villas Fashion Island range from $3,195 to $6,925 for 1 and 2 bedrooms, and this is a city with a median sales price of $1.6M. 

So, where in the heck are these apartments you're talking about?

@David Song @Jerome Kaidor 

It's crazy that any investor would think a CAP Rate of 4.8% is a good deal and be knocking down the door to buy it, but that's just my opinion.

David got the good deal at $450K, but with a rough analyzed NOI of $57,600 (40% of GSI for vacancy and operating expenses) cI'd personally pass on ever buying this 5plex at a projected $1.2M price tag: In fact, if I wanted my minimum 8% CAP, I wouldn't pay more than $720,000, and that's not factoring in any deferred maintenance issues.

If it were me and I really could get a buyer to pay me $1.2M today, I'd sell NOW and run to the next deal!! Lol

But that's just me. Especially with a CA property where prices are going to be dropping soon, and demand will slow!

@David Song I wasn't judging at all. It was just my opinion about the CA market for what I'm looking to do as an investment! If I came across as judgmental, I apologize. I think there is an investment vehicle for EVERYBODY, if they are willing to take that step.

Good luck in NORCAL.

@Tom Depuma WOW! Budapest sounds like our California market ($60K+ a year in appreciation). My advise if you are looking at a HELOC to invest elsewhere, BE CAREFUL!! If your market gave you $200K in 3 years, it sounds like a market that can TAKE IT BACK just as fast. I'd hate to see you over leverage your position. However, I'm just basing it on a similar market in CA. Just my 2 cents.

If I were in your position here in CA, I'd sell, cash out tax free (capital gains) because I lived in the house for 2 of the past 5 years. Protect my equity of $200K to invest and either rent until the market corrects (and it will) and buy back in lower..OR just buy another primary residence, but I'm sitting on the $200K tax free.

In fact, I just did this in December. Bought my primary house in 2012 for $265K and sold December, 2016 for $420K. I used my VA loan to get into the house in 2012 and was out of pocket about $2,500. After selling and paying all closing costs I had about 117% ROI. I'm now sitting on a good amount of cash to invest in BUY/HOLD out of state and I'm renting in CA because prices are stupid high and I won't buy into a SELLER MARKET.

Again, just my 2 cents!

As someone who is from Southern California and a real estate Broker in the SOCAL area, I can't sit by and not "chime in" because for the past 14 years working in the real estate business, I've seen a lot in my area, and I WILL NOT invest in CA for two main reasons: 1. Very tenant protective state, so BUY/HOLD is not an option here for me. It would take me over six months to evict a tenant and the tenants know the game here. 2. BOOM/BUST state does not appeal to me. I will not invest based on "appreciation speculation". No matter what REI book you pick up and read, I've yet to see the author say, "Invest where there is high appreciation". All say, "invest for CASH FLOW and if appreciation happens, then it's icing on the cake".

Here's an example of my market in Orange County (SOCAL): 

Average sale price has just hit over $675,000 county wide.

Affordability has just dropped to below 18% county wide.

Inventory is about 2,500 homes below what we would consider a BUYER'S MARKET, so that's a big reason why the prices are still rising and with low rates, demand is still there. Buyers in CA seem to be more stressed over interest rates rising, so they are willing to pay over inflated prices and go into bidding wars over a house that is already overpriced.

Average appreciation in Orange County for 2017 is going to be between 6-7%. Last year was about 5-6%

Homes that are listed on the market for $1M to $1.25M are sitting for over 197 days.

Believe it or not, anything that is at $750K  or below shows about 39 DOM

I'm currently showing property to a few buyers in Orange County and they are getting 'crap houses" for $580K and UP, with multiple offers on some. It's crazy stupid!

My girlfriend and I have decided to NOT BUY a primary residence here in CA at this time, and instead invest our money in BUY/HOLD stabilizing cash flow properties in the Midwest areas.

Thank you @Anthony Dooley for the shout out/mention!

@Jay Hinrichs Truthfully, this type of deal is way out of my league of expertise at this stage of the game and wouldn't even know where to start unless I brought in a more experienced partner to share the deal. Maybe I don't give myself enough credit to even process this type of deal, and it's probably my limited thinking because I'm new to investing, but I like where you are going with it.

 Sounds great on paper (your summary). Good luck and I'll send positive thoughts.

We have a starting capital of $200K+ to put into REI and we are looking for long term BUY/HOLD properties and CASH FLOW. Our question is do we focus on acquiring several SFR properties or go straight for the multi-family properties?

I'm leaning more towards 5+ units with an ADD VALUE play than SFRs. What are your thoughts on using the BRRRR strategy? Or, are there any other strategies you would consider with this amount of starting capital?

We ARE NOT interested in REITS or The Stock Market!  

There are three of us involved in the partnership and we ARE NOT looking to use any of the CASH FLOW towards our daily/monthly lifestyle. We will be REINVESTING the cash flow into more properties, along with each of us committing to saving $1,000/month ($36,000/year + the yearly cash flow) to reinvest.

Two partners have corporate jobs with good six figure incomes, bonuses, 401(K), etc. and I am a real estate Broker who focuses on my transactional business (six figure income), plus I am a retired police officer with a tax free monthly income (Approx. $54,000 passive income per year-tax free), so we are covered on our living expenses.

Two partners are not looking at retiring for 10-12 years because they love what they do for work, make good money and have pensions in place. I am already SEMI-RETIRED because my police retirement covers all my monthly expenses, and work in the real estate space because I have a passion for the business and make good money doing it.

Because of my business and flexibility, I will be the ASSET MANAGER of properties we acquire and can travel to other markets if/when necessary, go build relationships with boots on the grounds in markets and put a lot of focus into our investment business and goals.

Your feedback and suggestions will be greatly appreciated.

P.S. Two of us live in Southern CA (me and my girlfriend) and our other partner lives in Seattle, WA. Buy/Hold just doesn't seem to pencil in our backyards at this time, so we are leaning towards OOS investing where cash flow and COC seems to be more prominent. (Looking at Indianapolis, Kansas City, MO, Oklahoma City, OK, Columbus, OH and Memphis, TN)