Posted by Mark (SDCA) on September 27, 2007 at 07:34:16:
I buy strictly SFRs at this point. I really like the stability and ease of management evenif the cash flow isn’t as good as multis.
I live in the SD area although I am not currently invested here.
BEHLE Butler Vaughn- interesting points - Posted by Truth Teller
Posted by Truth Teller on September 26, 2007 at 10:53:52:
I copied and pasted this out of a News letter I got in my Email today! _________--------
Last week the Federal Reserve cut both the fed funds rate and the discount rate by 50 basis points. The Markets loved it and everyone had smiley faces on. There is just one problem…
The Fed only makes cuts of that size when they are VERY scared of something.
Curious that the cut was enacted at the same time that the Fed chair Bernanke was also saying publicly, "“It is not the responsibility of the Federal Reserve – nor would it be appropriate – to protect lenders and investors from the consequences of their financial decisions.”
Bernanke clearly wants the losers in the Sub-Prime meltdown to take their lumps.
Instead he justified this large rate cut by saying it was in order, “to try to get out ahead of the situation and try to forestall potential effects of tighter credit conditions on the broader economy.”
What “situation” is the Fed scared of?
In one word … Recession
What he is essentially saying is, “Look … this rate cut is not for you folks losing money on bad mortgages and their derivatives, it is because something supremely nasty is on the horizon and we want to soften the blow.”
I can imagine the Chairman cringing as he checked the 1/2 point box, hoping the wall street traders didn’t interpret it as a bail out.
Here’s why they are scared…
Several Fed Governors, including Fred Mishkin, are predicting a whopping 10-50% fall in single family housing prices depending on the market.
This lays a double whammy on the economy.
Consumer spending will be dramatically slowed because consumers will no longer be able to tap their homes for equity. The “Wealth Effect” caused by the run up in home values in the last 5 years is officially dead.
The fallout of the Sub-Prime collapse is only just beginning. If you examine the amount of “at risk” loans on the books, only 10-20% of the foreclosures expected have actually occurred. This is just the beginning of the ripples.
Our job as investors is to find the Commercial Real Estate “Silver Lining” in the coming Recession.
Wait… look in the footnotes of the Fed’s discussion and it is right there…
With so many former home owners now flooding into the rental market and rental availability tight in many cities, the Fed governors expect rental rates will climb steeply… approaching 4% annualized in the last quarter of this year. AND vacancy rates will fall.
Bernanke himself is indirectly telling us to buy Multifamily.
Compare the positive expectations for Apartments to the effect a nationwide Recession would have on the Retail and Office markets…
With the Fed’s crystal ball telling us macroeconomic forces point to an explosion in rental demand … its time to go into Multifamily buy mode.
Now its not all milk and honey… you will have to put up with a little more hassle to get the loan - for the moment - AND it will be well worth it in the long run.
Do you old salts agree???
Barbara Blankenship - Posted by Andreas Wilder
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Re: BEHLE Butler Vaughn- interesting points - Posted by John Behle
Posted by John Behle on September 27, 2007 at 15:25:20:
Except for the “old salts” part, I think your analysis makes sense. I would tend to agree and come to the same conclusions, but my experience has taught me the opposite. Not the opposite of your conclusions but the lack of my ability to predict. Instead of being more sure of my predictions, I am less sure of mine or other people’s predictions.
Almost any time I have made a prediction about interest rates or some other market trend or factor, it has not necessarily proven out. It seems like there are many un-predictable factors like earthquakes, tax law changes, foreign investment, etc.
I don’t know all the factors that Bernanke is taking into account or what he hopes to accomplish with his actions or statements. I think lowering the rate could be loosening up money just before many lenders and home owners take a hit. I don’t know that that little of a drop will make much difference, but the fed may think so. I could see a larger drop making it easier for people to refinance, and bringing more money into the market. Surely it will help in some way. I think a raise in rates would have terrible consequences. At the same time, the Fed wouldn’t move rates too much too quickly. Possibly if they follow up with more rate decreases, it will make a difference with how many lenders and homeowners take a large hit.
But, I really don’t spend much time thinking about or analyzing market factors, rates, etc. I try to make sure that my strategies and plans do not “Bet” on the direction of rates, the economy, occupancy rates, or other factors.
I think others here are probably better set to make predictions. I’ve learned NOT to make them and not to operate by them or be dependent on them.
Re: BEHLE Butler Vaughn- interesting points - Posted by Helene
Posted by Helene on September 26, 2007 at 17:05:58:
Good Stuff!
But what about markets where investors poured in these last three years. They’ve now glutted the market with listings that aren’t selling. They then decide to rent.
Do you think this surplus will be absorbed? I sure would like for rents to increase. They’re quite low where I hold.
And then there’s all the foreclosures coming on. That will be more rental property glutting the markets.
Not an old salt but agree - Posted by Kenneth Hocking
Posted by Kenneth Hocking on September 26, 2007 at 13:51:32:
Truth:
As you know I build and sell Cash-flow properties in Houston and we are already seeing an increase in the demand of our product from folks that are normally Appreciation buyers ( High end condos Lake view Homes, Golf Course Homes,) that are now buying cash-flowing rentals and parking the money they have made in those other properties until the market stablizes and stops falling
Simple and true As people can not afford to buy they rent
Rental pressure is and will continue to come to many markets…
You just have to make sure that the properties you decide to buy as rentals pay for themselves and you are not having to feed cash in each month to keep it afloat…
Buy cashflows!
Re: BEHLE Butler Vaughn- interesting points - Posted by Mark (SDCA)
Posted by Mark (SDCA) on September 26, 2007 at 13:37:36:
Yes, I expect rentals to be tight and rents to increase. So I agree with buying rentals- multis if you wish.
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John Do you still TEACH? - Posted by Kenneth Hocking
Posted by Kenneth Hocking on September 27, 2007 at 19:08:42:
Just wondering?
Re: BEHLE Butler Vaughn- interesting points - Posted by Mark (SDCA)
Posted by Mark (SDCA) on September 27, 2007 at 07:32:18:
“And then there’s all the foreclosures coming on. That will be more rental property glutting the markets”
I would think the majority of them would go OO. I think foreclosures will put much more pressure on prices than on rents.
Re: BEHLE Butler Vaughn- interesting points - Posted by Sailor
Posted by Sailor on September 26, 2007 at 18:25:06:
Rents have been going down in some areas, & I have lowered one of my own units. One of the major consumer responses to the economy has been to combine households, & I have lost one family to this & am about to lose another tenant this way. They had to go back & live w/other family. This is so widespread that there was an article in USA Today last month on the phenomenon, & it has created a new demographic statistic.
My tenant base is near the bottom of the barrel, so I w/be less affected by competition than other landlords. This winter would be a great time to be a renter wanting a slightly upscale 3/3 or 4/3 or perhaps a waterfront condo.
My tenants have been hit hard by energy costs, which in some cases exceed rent. Interestingly, Section 8 tenants have become very picky, only wanting units w/upscale features. I had one call today who insisted she had to have bedrooms large enough for her kingsize bed & her sister’s queen.
It’s going to take a long time for the surplus rentals to be absorbed in some hard-hit mkts. It w/turn after developers stop over-building, but the impact of the wars & gov’t spending w/take years of recovery. Don’t forget that when things start to get better that we w/be competing w/foreigners whose currencies are worth more than dollar$.
Tye
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What kind of rentals do you typically invest in? - Posted by Truth Teller
Posted by Truth Teller on September 26, 2007 at 13:44:31:
Just curious! Daly City here you are in San Diego area?
Re: John Do you still TEACH? - Posted by John Behle
Posted by John Behle on September 28, 2007 at 08:45:16:
I don’t right now, but hope to again. I have some severe back problems that make teaching near impossible. I’m hoping a surgery I am waiting for will do some good.
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