Posted by ben on August 09, 2007 at 05:35:17:
Many millionaires (and many unfortunante losers) arose from the ashes of the RTC fiasco. In fact, there are still lawsuits from legit property owners who had suffered the confiscation of their performing assets. Our Gov at its worst. I say go with the flow. Today the flow (for the astute investor) is to quality. Today’s non performing junk is somebody’s treasure (mine for example). The wheels are already in motion.
Investors flooding to value as Spec areas fall - Posted by Kenneth Hocking
Posted by Kenneth Hocking on August 05, 2007 at 15:58:11:
I am very surprised as a developer of duplexes in Houston to have actually had a SPIKE in interest for anything Available to be bought now. ESPECIALLY THIS LAST WEEK
Houston like many other Texas Markets has been missed by MOST of the speculative run up in values that outpaced the Rental Market in most of the hot areas of the RE SPEC markets over the last 5 years
You can still buy properties in Houston for examaple that put off 1% of purchase as month rents ( ex. 235,000 … Brand new duplex that rents out at 1150-1250 a side on Section 8 assisted housing… thats’ 2300-2500 a month Gross rents on a 235K purchase) where in other markets people were buying 400K properties they could not rent for more than 1600-1800…
With all the planned 1031 exchanges for sales that have already happened… I think one will witness a radical flight to value ( Cash-flows) versus appreciation markets and values in the Cash flowing Markets will land much much softer that the run-up and crash areas…
Yes cashflow is not nearly as sexy as double digit appreciation but it will offer a safe haven for those that want to capture their equity and earn income off the gain over the last 5 years or so…
This last Week was not fun for anyone in RE…I myself got caught with Pre-sold units that did not have 20% down required this week to go stated income on non-owner occuppied properties… I have 4-5 duplexes that will likely not close this week do to the new 20% stated Non owner occ requirements for investment propoerties…and I will have to resell them likely to those in the middle of 1031 exchanges
I suspect my phone and e-mail will light up again with those that are fleeing depreciating markets and need value investments…for any bust-outs of mine that they can capture to cash-flow during this burst of the Bubble…
Texas Oklahoma Arkansas all seem to have great job bases and currently Cash flow very very well compared to purchase prices…
If one is to Hunker down and ride the storm out You might consider these Markets to park what ever equity you can pull. or hold out of porperties in declining markets…
Keep in mind as Foreclosures rise so does the requests for rentals… Buffet way to approach this down turn ( implosion) in the market is to buy cashflows ----- Period
Buy cashflows…Move whatever equity you can into cash-flow propeties in value markets… that is the focus to survive until the credit markets settle down.
I will continue to build and sell duplexes in houston until cash-flows stop being positive for investors…
Re: Investors flooding to value as Spec areas fall - Posted by Ben
Posted by Ben on August 08, 2007 at 11:59:26:
In parts of Ohio we are seeing a tremendous rise in rental applications. For what had been a weak rental market the past few years is now becoming very busy. However, here we have a dilemma.
Rents are not going up, not yet. But property is becoming cheaper than it had been. We are able to buy decent homes (< $5000 in repairs) for minimum 15% cheaper than last year. In some cases we are buying at 50% discounts. The dilemma is the overall market is taking a big hit on the value side. I suppose one way to manage a porfolio is to balance existing inventory with bargains.
So your point is well made that it is becoming a time to invest wiht caution. By the way in your portfolio are buying non performing notes secured by real estate? We are getting back in this market. I believe it has tremendous upside.
Paper can be powerful to ride tall waves - Posted by John Behle
Posted by John Behle on August 05, 2007 at 23:11:26:
Paper is a wonderful investment in times like these. I noticed your post and it reminded me of a conversation with one of the best known and original real estate gurus. We were chatting about the challenging times in the early and mid 80’s. I was helping him deal with some of the bad loans and challenges of his paper portfolio - though he is mostly known for real estate.
He mentioned with the challenges everyone faced, the thing that helped him ride it out and continue to be a millionaire while others went down the tubes was his paper portfolio. Most of his other investments and businesses went through rough times, but his paper investments held it all together.
We had a Thrift and Loan crisis in my state in the mid to late 80’s and they were all shut down but two. The only two thrifts that had the stability and capability to transition to a bank were because they had invested heavily in paper.
I have a friend in Florida that was President of a bank and then went off to be a builder. The 80’s hit him hard as it did other builders. Two thirds of builders went down the tubes throughout the country. This builder though had a knowledge of paper investment. He used that knowledge to bail himself out of a “doomed” situation that any so-called financial expert would see as un-questionably without hope. Almost anyone would see no other possiblity of bankruptcy. He bought paper at discounts and traded it for his loans at face value and came out on top.
I love paper.
Re: Investors flooding to value as Spec areas fall - Posted by Bob Smith
Posted by Bob Smith on August 08, 2007 at 13:41:23:
One problem I’m seeing in Florida is that while the rental market is becoming stronger rents in some cases are dropping. People with brand new condos they can’t sell because the condo market is dying are trying to rent them out, and apparently many tenants would rather live in a brand new 2 bedroom condo than a non-brand-new 3 bedroom house. Builders with new houses they can’t sell and construction loans to pay for are doing the same thing.
Discounts/yields - Posted by Kenneth Hocking
Posted by Kenneth Hocking on August 06, 2007 at 05:30:45:
John
Thanks…Quick question
I am looking at offering 10-15% down NOO at 8% for 680 and above for 360 months and either packaging up to a portfolio of say 2-5 million or finding a simo close partner who will take them down one at a time.
In this Market what do you think the Discount or yield the market will be looking to have for 10% NOO 360 n 8% contract rate on a face value of 211500…
I understand it will not net me the same as BANK financing but it may put me in a position to ride this out on volume
Also I may sell notes to take these down myself since they are cashflowing well…
TIA,
Kenneth
Florida Market - Posted by Ben
Posted by Ben on August 08, 2007 at 13:45:23:
Yes, I can see where it is a problem for existing landlords. The subprime meltdown may cause some serious problems for performing mortgages. If you have to lower the rent to remain competitive it may put you out of business. Do you think the simple fact that people moving to fla can offset any downward spike?
Re: Discounts/yields - Posted by John Behle
Posted by John Behle on August 06, 2007 at 11:04:48:
I don’t focus on those type of notes and do not keep abreast of what the going rates are. I just buy locally and my yields far exceed the type of yields you can get with the type of note scenario you described.
Michael Morrongiello brokers and buys notes Nationwide, so he would be the one to give you an idea of the yields in that area and how to go about it.
Re: Florida Market - Posted by Bob Smith
Posted by Bob Smith on August 08, 2007 at 16:47:18:
Moving might prop us up. On the other hand many movers have to sell in order to move. I’m not sure which is dominant. Note that it’s not just subprime. Well Fargo just announce it’s raising its Alt-A rates from 6.7% to 8%, and several lenders have followed suit. Heck, some have announced they’ve stopped taking applications altogether. This, plus the meltdown of American Home, who didn’t even do subprime mortgages portends a potentially profitable disaster. It probably won’t as good as it was in the late 80s with the RTC (which many old-timers have told me they greatly profited from).