Posted by Warren Priske on January 04, 2005 at 23:57:32:
Dave,
I’m not trying to discourage out-of-state investing for the purposes of appreciation. But I do believe the cashflow is a bit over-rated, and transaction costs of selling and buying back in CA again later cannot be ignored. My entire point is that if out-of-state investing (or any other investment for that matter) is worthwhile, it doesn’t have to come at the expense of other good investments. There is more than one way to come up with the cash.
Tell me why I should sell! - Posted by Warren Priske
Posted by Warren Priske on January 02, 2005 at 20:33:48:
Hey Gang,
I’m surrounded by investors who are selling all their properties here in CA because the market is up. They say they’re going elsewhere to invest to avoid a modest drop in values over the next 5 years. I’m sure some of you have heard the same comments about your area if prices are really high.
I can’t stomach selling a property that I bought dirt cheap and that cashflows nicely. Can someone out there make a good case for selling exisiting properties to acquire the capital for out-of-state investing. It just doesn’t make any sense to me to spend thousands of dollars on evictions, rehabs, sales commissions and closing costs just to avoid a temporary market correction. Especially when I can refinance these properties and pull out almost as much cash as if I’d sold. Your thoughts are appreciated
Since you don’t want to, and it sounds like you are sitting on some appreciation, since you bought right. What you should be doing while interest rates are low, is to lock into some mid to longer term financing, where you can pull that cash out of the property now, but still allow for a small positive cash flow. Then sit on the cash until the deals begin to appear… and buy on the way down… when the deals justify the purchase…
If you wait until the market tightens up, then rates may be prohibitive to the refi at that point. That’s what I would do, based upon your stated position and interests in maintaining you current positions… Good luck on whatever you decide to do…
Posted by Kawika_CA on January 03, 2005 at 04:13:54:
You’re probably trying to apply short-term strategy to a long-term one. That will never pencil out no matter how many times you try.
I’m in San Diego and I’m staying put for one simple reason, I know and want to buy in a declining market where foreclosures are rocketing skywards. Should be fun, well for some of us.
If you plan on holding the properties until they either burn down or you die then sit tight. If you want strong appreciation and can handle 1031 exchanging out-of-state and using a long-distance management company then consider the suggestions by Bruce Norris and others.
Although I do agree with their reasoning I’m perfectly fine with all the investors “leaving town”, more for me/us. Happy investing.
Posted by randyOH on January 02, 2005 at 21:32:46:
You may be sitting on dead money for a long, long time. My guess is at least ten years. It will take at least that long for incomes and rents to catch up to prices.
If you sold out now, you could invest somewhere else and get a much better cash flow. If you just sit tight and refinance, you will be looking at negative cash flow.
For example, a low-end 2BR condo in SoCal will sell for 300k and rent for about $1,200. In another market that 300k would be bringing almost three times the rent.
Someone on this board said you can buy 2BR condos in Houston for 20 - 25k and rent them for $500 per month. And I can almost guarantee you there will be better appreciation in Houston over the next ten years than in CA.
if you have a long term stratgy, and bought cheap, and have good cash flow, don’t worry about it. this business goes in cycles if you can ride the wave and don’t have to sell in the low point I see no reason to dump a good cash flowing property.
Worst case I see is a 10-15% down swing which is probably short lived. No one can predict the market and those that claim to have a motive.
Just the way I look at it
Posted by Warren Priske on January 02, 2005 at 22:04:00:
Randy,
My inventory consists mainly of $150K to $200K properties that rent for around $1,000 to $1,400. So I could borrow most of the equity and still not lose money by way of negative cashflow. I have not heard of any truly impressive out-of-state rental markets that generate substantial cashflow. Texas is intriguing at first glance, but the cashflow dwindles quickly with higher vacancies, lower rents, ridiculous property taxes, higher insurance, and management costs. I will eventually invest out of state for the short-term appreciation. But even if I can find a good cashflow market, why sell versus refi if my CA rents can support the post-refi payment?
Re: Tell me why I should sell! - Posted by Warren Priske
Posted by Warren Priske on January 02, 2005 at 21:18:46:
John,
Your preaching to the choir. I just wanted to know if someone out there could come up at least one good reason why you and I aren’t right about this.
Posted by Kawika_CA on January 04, 2005 at 11:44:38:
When I buy foreclosures I don’t hold them more than 6-9 months while the rehabs are going on. Basic buy/sell strategy.
I don’t have the stomach at this time to hold through a down market. Lease-options are just plain depressing.
So you are right. Keeping properties in down markets is only good if you can stomach your equity positions dropping then slowly rising over a 10 year period.
This was some great conversation! I have a rental in Menifee that I’m thinking of selling. What can you tell me about that area? I’ve been living in IL for the last 5 years so I’m trying to decide whether to sell or hold. Thanks!
Posted by randyOH on January 03, 2005 at 12:49:44:
Warren,
When you say 150k to 200k, are you talking current market value? If you are, then your area has not shown up on my radar screen unless you are talking ghetto properties. I am not aware of anywhere in CA that you can get that kind of cash flow, with the possible exception of ghetto property.
The only logic worth considering is that of diversification. Real estate markets are inherently local; hence, by purchasing in a market where real estate valuations remain undervalued, you hedge against an (inevitable?) California downturn. I own properties in highly-appreciated Northern California and Florida markets and, following this logic, purchased what I believe are severely undervalued properties in western NY this year (Rochester) to form a hedge. We’ll see what happens.
I think the increase in foreclosures will provide the best opportunity for So Cal in 2005 thru 2008.
I was doing well with foclosures in 2001 and 2002 but lately all foclosures in my area have been selling for more than market value. The herd mentality has really made it hard to get deals together over the last couple months.
Actually, working the foreclosure market is one of the only ways I can think of that will make money in a depreciating market. As long as you can move them fast.
I’m considering selling because it has been vacant since October and the tennants defaulted on rent payments since July…I have a property management company tending to the property, but living out of state makes it difficult. I thought I’d reinvest the proceeds into something more local. Finding renters seems to be slow going also, even working thru a property management company. My thought is to put the proceeds into new construction. Do you have any thoughts or experience in that area?
Posted by Warren Priske on January 09, 2005 at 17:03:00:
It’s about 20 minutes from me. A few months ago would hae been the best time to sell. The market has softened considerably and sellers are having to bring down prices to get properties sold. Why are you considering selling?
Posted by Warren Priske on January 03, 2005 at 13:55:36:
Randy,
If I were in OC, there is no doubt it would be time to sell, regardless of what I was going to do with the proceeds. I do have a couple lower end homes ($900 rents). But most of my homes are in decent areas of the High Desert area and worth closer to $200K as is. But the entire High Desert might qualify as ghetto to an Orange County person. I know that’s true for some of my fellow Riverside County investors. My average home is about $5K from being in excellent selling condition. I do have a few worth $300K, but they have two homes on a lot and bring higher rents.
every few years, mostly with little to moderate damage. Once in a blue moon we have one that does some serious damage.
On the other hand, other states have tornadoes and huricanes EVERY D@mn year. Sometimes several times a year that cause hundreds of millions of dollars worth of damage.
No thanks, Ill stay in California and put up with our earthquakes.
I live in IL and it’s just too difficult to manage. My challenge right now is getting the right tennant. Thought I’d take the proceeds and invest in something more local