Sometimes I wonder..... - Posted by michaela-CA

Posted by DJ-nyc on June 12, 2008 at 13:49:02:



(I need some sleep, up late looking at CNN)


Sometimes I wonder… - Posted by michaela-CA

Posted by michaela-CA on June 11, 2008 at 10:18:18:

…if I’m the one that just doesn’t ‘get it’.

I run a social group here and at a lot of events the topic of Real Estate market comes up. I’m always amazed how many people are telling others that NOW is the best ever time to buy a house, that we have hit rock-bottom here in the SF Bay area, that they can’t lose, because from now on the values will only go up again etc. I seem to disagree with pretty much everyone I have a discussion with. To me it seems so obvious that we haven’t even seen the worst, that it’ll be another few years until we have caught up on the backlog and that there will be more backlog in the future than we have now.

Isn’t it obvious? Or am I just totally thinking wrong about it? I know a lot of you here agree that we still have some time to go, but do you also have this experience with other ‘non-investor’ people, that most seem to think that the worst is over?


Re: Sometimes I wonder… - Posted by Mary (CA)

Posted by Mary (CA) on June 16, 2008 at 15:35:22:

I’m with you. Same thing here. The Record (Stockton) published 3 full pages of trustees’ sales on Friday and on the same day a realtor told me we’re at the bottom- that he’s getting multiple offers on REOs etc - though prices have dropped $100,000 across the board (I agree with him there).

But I don’t think either the valley or the Bay Area is at a bottom for home buyers.

Methinks these buyers will be complaining if I’m right and the market continues to drop.

There used to be a lot of “must sell” ads on craigslist, but I rarely see them now. The FSBOs seem to be overpriced (bubble priced?) Maybe desperation has given way to surrender - it’s easier to walk away if house is under water than solve the problem… certainly easier than dealing with the banks.

On the 11th, there was a WSJ quote that said a gal in Sacramento with a price way under what she paid was going to buy a similar house while her credit is good, pay half the price she paid for her current house, then walk away from her current home and take the hit to her credit afterward.

And yes, I also wonder…


You got it right - Posted by George

Posted by George on June 14, 2008 at 24:09:59:

I’ve been a lurker on these boards for years. During the boom years of '04 to '06, anyone who expressed anything but the most bullish viewpoints on the housing market was almost run out of town on these boards. But the reality is the housing bears were right all along. Housing just experienced the greatest housing bubble in history. If folks think that a short correction is all the pain that will be experienced following a bubble of historic proportions, they’ve got another thing coming. First they said housing prices couldn’t go down nationally because it has never happened before. More recently with every housing report, we hear the bottom is near. Well more often than not booms turn into busts, and that’s exactly what we’re in the middle of. At best housing prices will stabilize and go sideways for a long while. At worst there could still be a lot more downside to go which could last many more years.

Re: Sometimes I wonder… - Posted by Maurice

Posted by Maurice on June 12, 2008 at 17:07:12:

I’ve been thru a couple of real estate cycles so maybe I can put some perspective on this question.

Everyone thinks the game is to outguess the market. I gave up that one years ago. You know what? I can’t outguess the market. But I can make money anyway.

This is from the long term, buy and hold viewpoint. Buying opportunities like this only come along every 10 or 20 years. So take advantage and clean up.

Don’t worry about buying at the bottom. Here is why.

Suppose I buy a house now, because they have gone down 40% and I think that’s cheap. But I’m wrong. They go down another 10%. So I buy 2 or 3 more. I’m wrong again, they go down some more so I buy some more.

Then they start to go up. I don’t care, they are still cheap so I buy a few more.

After a while they don’t look so cheap so I stop buying. By this time I have 10 houses.

Mr. Sharpy meanwhile is laughing his ass off because I am such a fool. He watches the market like a hawk, and when it hits rock bottom he swoops down and buys a house.

A month later his deal has closed, he looks around, and prices have started up. So he snaps his wallet shut - he only buys at the bottom, and he knows exactly where that is.

I don’t know that, so I bought too soon, too late, all wrong.

A year passes by and Mr. Sharpy flips his house for a quick $50,000 profit.After paying the real estate agent, lawyer, and other expenses he nets $37,000.

My ten houses have gone up only $50,000 apiece because I bought at the wrong time.So I have made $500,000.

12 more years go by and I sell my houses for a profit of $5,000,000. I was going to get out after 10 years but I’m lazy. That laziness is why I made $5,000,000 instead of only $3,500,000. Procrastination pays when you own real estate!

Now you see why I don’t worry any more about buying at the exact bottom. Get it within a year or 2 and you are close enough. Provided you hang on long enough for time to work its magic.

The main thing is hanging on. If you can own houses with positive cash flow you can hang on indefinitely, and eventually real estate will make you rich.

Depends on your plans investor/owner occupant - Posted by Pat55

Posted by Pat55 on June 12, 2008 at 16:39:48:

I don’t live in the SF Bay area so I can’t comment on your market. My market is at the bottom, both in terms of prices and in terms of sales volume, I have very little doubt about that. So it is a great time for an owner occupant to buy a house. But it is not necessarily a great time for an investor to flip a house because it will probably be 3+ months before the market picks up, and it might be as much as a year. So to get a property sold now, one has to take a big hair cut, unless it is some kind of unique property. Alternatively, if one is planning to rent the property for a couple of years then buying in my market right now is a no brainer. I already have enough of these ‘hold for a few years’ rentals, and would just like to see the market return to normal so that I could sell them.

Re: Sometimes I wonder… - Posted by Ed Garcia

Posted by Ed Garcia on June 12, 2008 at 09:24:51:

Hi Michaela,

I hope things are going well for you; I didnâ??t get an opportunity to talk to you at the convention as I hoped to but it was good to see you there.

Michaela, â??Real-estate investingâ?? gives us an opportunity to invest in a calculated investment, to which we can participate in the outcome.

That being said, the market is irrelevant. As you know the buying principles that Iâ??ve always taught is, make your money on the buy and cash-flow.

In many states in the Midwest you can buy a house cheaper then it will rent for, however in California that doesnâ??t apply. Therefore you have to do what I call work your deal backwards and buy based on market rents.

None of us have a crystal ball to know for sure if we have hit bottom or will experience a further drop. Statewide I think it will still drop another 5 to 10% depending on the area but like I said, this is nothing you can depend on.

If you work your deal backwards it will make no difference what the market does. As you know when I teach my students to go to the bank to obtain a Working Line Of Credit the first thing I teach them is to have multiple exit strategies. If a property doesnâ??t sell for what ever the reason and we have to go into a holding pattern I want the property to have positive cash-flow.


A house that had a previous value of $550,000 can now be purchased for $412,500, 75% of its original value. Is this a deal? No, this price difference is a market adjustment and now the new established value of the house is $412,500. The house needs to be purchased below this figure for us who are investors.

If we bought the house for 70% of the $412,500 which would be $288,750 would that be the right number. Although it looks like we may have a deal, we also may not. As you said the market could still be dropping which will affect my deal or we may not be able to sell the house because many buyers are still waiting to see if the market will continue to fall, so hereâ??s what we do.

Letâ??s say that this house will rent for $2,200 a month. I take my $2,200 X .75 = $1,650. What I just did was take 25% which = $550 right off the top to cover my taxes, insurance, vacancy, expenses etc. not counting fix-up which would have been considered or taken off my purchase price at the beginning. Out of the remaining $1,650 I take off $200 that I want to be my positive cash-flow after all expenses and now I have $1,450.

If my mortgage payment is $1450 I could finance $217,745 at 7% for 30 years. Thatâ??s how much I will pay for the house. If I really like the house because I felt it would move quickly (note: donâ??t we always feel that way about the deals we do?) I could for go my $200 positive cash-flow and buy the house $248,007 which would be 60% LTV where you should be in your deal and no more.

Many are going to say that buying in this manner Iâ??m going to miss or lose a lot of deals.

I agree, but Iâ??d rather be sorry for the deal I did not do, rather then be sorry for the deal I did.

Ed Garcia

Same song, different verse - Posted by Rich-CA

Posted by Rich-CA on June 11, 2008 at 11:08:41:

These are probably the same people who, in 2005, were telling everyone that RE will go up forever and the sky’s the limit. There are two sets of people who do this (three if you want to take a sinister bent): wishful thinkers, optimists and opportunists. The last requires a sinister bent because its akin to telling everyone what a wonderful stock you own then, when everyone is buying and its value climbs as a result, selling at a profit.

I personally think the worst may be over, at least for some neighborhoods. In general, and that does not apply to premium locations, but I believe that the “normal” house prices in places like Sacto, Antioch and so on will settle in around $200k to $300k. This seems to be where people with normal incomes can make their payments long term. It will probably be lower in the farming areas (people make less there) and more if you want a short drive to the beach or major city (such as SF or NYC, not a city like Detroit or St. Louis).

Just an opinion.

Don’t buy it! - Posted by Bill

Posted by Bill on June 19, 2008 at 17:53:10:

A set up question to begin with. Now your quotes -
“the market is irrelevant” - fell off my chair on that one. You don’t control the mkt - It controls. Ignore it at your own peril.

Another qoute - “make your money on the buy and cash-flow”. - Ok that’s safe unless they don’t want to be a landlord and you can predict rents in the future! That’s a whole nuther biz. Out on a limb there.

Another quote - “Statewide (we’re talkin CA here right?) I think it will still drop another 5 to 10% (when- next week?)depending on the area but like I said, this is nothing you can depend on.” - you know that’s right! Nothing you can depend on. Home prices in CA are predicted to drop another 50%! They went up so high that they have a long way to drop.

Another gem - “If you work your deal backwards it will make no difference what the market does.” - You say you don’t have a crystal ball which no one has. Then you imply you can predict what rents will be(to give a positive cash flow in the future)Wow! I don’t know too many sucessful people that do things “backwards”. They know what they are getting into up front and don’t hope or wish.

Let’s all stop drinking the koolaid and come up with some good ideas that will make real money in this difficult market. Let’s not put our heads in the sand and ignore the market! That is suicide!!

I’m open to any “good” ideas. Anyone else?

Ed, wonderful post - Posted by James - Michigan

Posted by James - Michigan on June 12, 2008 at 17:51:14:


Must say your post is very informative and profound. If more people understood what you just said, much of this site would not be needed.

But we both know that doesn’t/won’t happen.

As always, good to see you still around this place for so long.


Re: Sometimes I wonder… - Posted by michaela-ATL

Posted by michaela-ATL on June 12, 2008 at 10:02:15:

thanks you for your post. Let me clarify something: I wasn’t really talking about investors, but ‘Joe Average person’. I agree that we can make money in any market. I’m buying some stuff sight unseen right now - in Atlanta. I’m doing that because I happen to know that particular neighborhood inside out and there are some variables that most investors don’t know that is turning some of these things into deals for me, even though others may not see that. With that said:’ I don’t believe that we’ve hit ‘rock bottom’ as far as the Northern California market is concerned. And to me saying to a potential future home owner ‘now is the single best time to buy a house’ is wishful thinking
as I do believe that there are many more foreclosures to come and the values are still dropping. Sure, a homeowner may be able to get a great deal by doing a short sale and then be safe. But to potentially buy at today’s market price (because you think that’s as low as it’ll go, and from here on on there will be appreciation again) is a crazy move for ‘Joe Average Homebuyer’ right now in my opinion.


Re: Same song, different verse - Posted by DJ-nyc

Posted by DJ-nyc on June 12, 2008 at 13:47:31:

I was told that Real Estate never goes up… I am only 6 years in this RE game. You are right. This is unchartered territory for me and others. Thank God I buy and hold. (I sold a few before the end of '06)

I bought a 3 unit last year on a short sale. I paid $475k which was worth 650k when I bought it. It is now worth 500k. I am cash flowing $300 per month but I am not happy about losing equity. I guess I should have paid $350k.


…And what exactly is it… - Posted by michaela-CA

Posted by michaela-CA on June 20, 2008 at 05:55:40:

that you do?

Re: Don’t buy it! - Posted by Ed Garcia

Posted by Ed Garcia on June 19, 2008 at 23:12:12:


After reading your response to my post I was going to try to rewrite it to simplify it so that you could understand it. However Iâ??ve come to the conclusion that unfortunately you donâ??t have the aptitude for real-estate investing, have you ever considered taking up finger painting?

Ed Garcia

Re: Don’t buy it! - Posted by michaela-CA

Posted by michaela-CA on June 19, 2008 at 20:55:54:


why are you so disrespectful to Ed. You can disagree with someone without being condescending.

First of all, whether the market is up or down is irrelevant to someone that has a lot of different tools in their tool box and they’re able to make profit no matter which direction the market is moving. I know that Terry and Ed made tons of money in markets where everybody else had given up. If you’re creative and have an open mind then you will see opportunities.

Of course you want to work a deal backwards - you need to know what your exit strategy is and where those numbers are and then work backwards by figuring your expenses and projected profit. Only then will you know what you can offer to make it a worthwhile deal.

As to ‘statewide’ - there are many different markets in California. You have areas that haven’t lost anything, subsequently if you figure an average, then you will have numbers on either side of the spectrum.

And then you insult all of us with your quip about Kool-aid, infering that we’re all mindless zombies following a Jim Jones kind leader.

What’s got your panties in a wad?


Re: Sometimes I wonder… - Posted by Sailor

Posted by Sailor on June 12, 2008 at 17:54:13:

I call those folks “water-cooler investors.” They hear how their co-workers have made a “killing” buying an extra house or two & they think that “if someone that dumb can do it, so can I.”

In truth, unknown facts of that killer deal may make it an alligator, but lack of logic on top of faulty information is not necessarily a deterrant. If the mkt is right, these would-be investors do make $$$ the 1st time around (I recall a co-worker who heard about my 1st investment property purchase in 1980. It got her excited so she went out & bought a waterfront condo in Marina del Rey for 100k. I think she probably ended up doing very well on that one. However, I fear that in many cases those who make $$$ by accident are wont to go out immediately & unwisely invest their initial profit.


Re: Same song, different verse - Posted by Rich-CA

Posted by Rich-CA on June 12, 2008 at 14:25:17:

That’s the kind of thing only being around long enough to see a full cycle can bring you. There are still a bunch of people saying we’ve near the bottom and things will go up again after that. Truth is, sometimes you bounce around the bottom for a few years first. Whenever anyone used to tell me CA RE only went up, I told them how we got into our first rental. Had a townhouse 1.5 blocks from the train station, never had to drive to work as most jobs were in downtown SF then. Price stayed flat from 1985 (when we bought) until 1996. Then it only edged up until 2001. Then slightly faster price growth due to all the land close to jobs being built out plus interest rates dropping. Then faster growth as the next tier of land got built out and the old 20% down was becoming a thing of the past. When we bought interest rates were 12 - 14% and only an ARM could be had. When we finally sold in 2004, interest rates were 5.5%.

So I guess it makes sense to figure what people can afford and then allocate it to taxes, interest payments and principle (meaning the sales price of the house) payments. If either rates or taxes or both go up, prices have to move down to make room for the shift of dollars to those other expenses.