High Priced Market - Posted by Anna

Posted by Jim Locker on December 19, 2000 at 19:34:17:

I mainly look to see if I can put together a deal that cash flows. In many cases, I would prefer the high price neighborhood because I am more likely to find attractive tenants, which makes my life easier.

Deals are occasionally available even in the most expensive neighborhoods; you just have to be patient, and quick off the mark when you find the deal.

I think that concern over the market faltering is very valid at this time; you need to be properly positioned to withstand it. In my area (Ohio) I do think a downturn is starting, and I also think that I am well positioned (as the owner of a lot of B and C apartment complexes) to benefit from it. I would be worried about buying a high priced property in a high priced neighborhood at this time.

However, your region is different than mine; perhaps the coming downturn won’t affect your area greatly.

The Fed today shifted to an easing bias, but didn’t lower rates. Thing is, the economy is slowing quickly and I fear the Fed is going to get behind the curve. In which case, we are headed into a recession.

If we get a recession, the high end rental market will likely be adversely affected, and the mid and low end rental markets will likely do well, with improving tenant quality. Rents at the high end of the market will probably drop, and rents in the middle will stagnate (although occupancy will increase).

A lot of recent (and weak) home buyers will be shaken out and will be looking for rentals. This probably will put pressure on housing prices, affecting flippers. I rather suspect that we will see a secular change in that marketplace, which will last for many years. The last several years of profound economic growth have led more and more people to buy their own homes. Many of these people are weak buyers, for one reason or another, and are very dependent on continuing “good times” to meet their mortgage. Many of them have done second mortgages up to 125% of equity, and have blown the money. They are now fully extended.

When they are shaken out, they will have the “once burned, twice shy” mentality and won’t try again for a long time. This bodes well for the rental business, but less well for the buy/sell business.

High Priced Market - Posted by Anna

Posted by Anna on December 19, 2000 at 18:36:20:


I would like to start investing in real estate,
but I live in Cambridge (MA) where the market is
highly expensive! In fact all of the surrounding
area is expensive. I’m afraid to buy a house now
even though rents are thru the roof only to be
stuck with a super expensive mortgage if/when the
market falters. I was wondering what you
experts do in such a situation if you have
some excess cash to invest.

Thanks much!!!