From A Real Estate Investor’s View — What’s Happening?

Tonight I’d like to throw a some queries out to find out what readers are thinkin’ as they take in the non-stop data thrown at us from every conceivable angle. I’ve made clear what I think, but as I so often say here, my opinions, when bolstered by a Starbucks card will get us some coffee ‘n cookies.

Please bring your best thoughts, don’t worry about being right or wrong, ‘cuz that’s not what your opinion is about, at least with these questions. All of our crystal balls have been in the shop for decades now. Let your thoughts fly — people wanna read what you’re thinkin’ — no really, they do. :)

  • Lending — what’s the short term future — what’s the long term likelihood?
  • What regions (if any) do you like for income property? Are they better than your hometown — or is your hometown THE place to invest?
  • Given strong numbers on any given property, is now a good time to invest in real estate?
  • In your judgment, are you currently holding property you should’ve exchanged awhile back? Or maybe you exchanged already, but now have second thoughts? (Using 20/20 hindsight, of course.)
  • What are your thoughts about investing in the stock market?
  • Are you still investing in a 401(k)? If so, what is your long term thinking as to why?
  • Thanks in advance for you thoughts — we’re all lookin’ forward to them.

    If anything you read brings up a question, either call or email me, and we’ll see if we can find an answer for you. 619 889-7100 will find me. Have a good one.

    This entry was posted in 1031 Exchanges, 401(k)'s & IRA's, Financing on by .

    About BawldGuy

    I'm second generation real estate, first licensed in fall of 1969. Having been mentored by several iconic brokers, I'm also CCIM trained, having completed all 200 hours back in 1980. Have successfully executed well over 200 tax deferred exchanges, many of which have been multi-state in nature. Strong points are analysis and the creation and real world application of Purposeful Plans employing several strategies synergistically. The idea is to arrive at retirement with the most after tax income possible, backed by the largest net worth.

    Contact BawldGuy | BawldGuy's Google Profile

    10 thoughts on “From A Real Estate Investor’s View — What’s Happening?

    1. Another Investor

      Lending: Short term, if you qualify and it makes sense, refi everything you intend to hold onto for awhile into lower, fixed rate products. I refinanced my primary residence at 4.5 percent a couple of months ago. In the early 1960′s, you deposited your money in a regulated S&L at 3.25 percent and borrowed it back as a mortgage at 4.25 percent. Rates have not been that low since then. Do you really think money is going to get any cheaper?

      Use your ability to leverage to buy well-located properties where the numbers are really, really good. I agree with Bawld Guy and his friend Tom Vanderwall that rates will be going up. Cash buyers may get another shot at somewhat lower prices after the inflection point for rates and the FTHB tax subsidy disappears. High unemployment will magnify the drop.

      Where to buy: Only where very conservative numbers pencil out and you can buy on those numbers or better. Expect a period of higher vacancy and lower rents and put that in your calculations. For example, rents and occupancy are dropping dramatically in Phoenix. The decline is even more pronounced than when anyone breathing could get a mortgage. Employment/unemployment is key. Unemployed people don’t go out and rent new places to live.

      Now is a good time to invest in houses if you have a strong stomach and a long time horizon. It’s a fabulous time to buy a first home you can turn into a rental three years from now when you move up. The tax credit and the favorable financing are just too good a deal to pass up. Current investors need to be more cautious. Prices may go down more in many areas if we enter a period of stagflation or if interest rates rise and unemployment stays high – Bernanke’s “jobless recovery.” I don’t think we are going to see anything like a “V” shaped recovery in the economy or in house prices.

      I’m cautious about exchanges right now. I’m holding property I should not have bought in 2006. I will probably hold it until the market recovers and not lock in the losses today. Bawld Guy thinks selling losers is a good idea – move the remaining capital into better performing markets. If I were sure there was a better performing market over the next 5 to 8 years, I might do that. Until I am convinced there is a better opportunity, I will not incur the transaction costs. Instead, I will commit new capital to the best opportunities as it becomes available.

      The stock market has a place in most people’s investment portfolios. You will have to have intestinal fortitude over the next couple of years. Pick good businesses and think like Warren Buffet. If the stock market were closed for a couple of years, would you want to own a piece of the business behind the stock?

      If I were eligible for tax deferred accounts, I would invest in them. Most folks starting out or in lower tax brackets are eligible for Roth IRA’s. Tax free forever, you pick the investments, and no required minimum distributions. Don’t pass that up. Max those out while you can. I would contribute to the 401k at least to the extent of the employer match. Why turn down free money? Invest it in the least offensive funds offered.

      Since I wish I had started investing in real estate much earlier, I would buy that first investment property as soon as I could save the down payment and make the numbers work. I would not divert one dime to 529 plans for the kids. If you start early, you can pay for college out of the cash flow from your investment property portfolio. The tax sheltered income will then follow you into retirement.

      Reply
    2. Pat

      What tax system will be in place in the future?

      Watch out for a value added tax that will limit the tax savings of Roth accounts

      Reply
    3. Another Investor

      Pat:

      If we get a VAT, it looks like it will be on top of the existing tax structure. Real estate would still provide income tax benefits. Your best hope as a real estate investor under any new tax structure is that YOUR portfolio gets grandfathered under the old rules.

      I do agree with you that changes in the tax structure are the biggest threat to any long term plan, especially one that involves tax shelter.

      Reply
    4. Cher

      Lending: Rates will go higher but not for a while, can’t afford higher rates until we start coming out of the recession. When rates go up, we know we’re out and that’s the time to buy, just as the rates start to inch up (not during the bounce time)
      First time buyers with the credit, a no brainer, even if prices fall a bit in the next year.
      The highly leverage section of our R.E. portfolio is all upside down…yuck! We’re holding both and trying to modify the loans on the worst of the upside downs. We may have to short sale a few to prune the dead wood. My regret is not selling three years ago even at a loss to prune down before the crash. Holding too much inventory in a recession with decending values is a drag.But, who knew it was going to go on so long and be so nasty? So next time around, I hope to place myself in a better cash position for a downturn….learning “tempered steel” lessons this time around.
      In the stock market, my advice to relatives is just bonds (and watch them like a hawk), CD’s and MM’s, staying very liquid. Not a stock market person…I see it as gambling.It always seems to lose what it gains over time unless you are in the business and can follow your portfolio closely. I have a cousin who makes allot day trading and know others who do well in the stock market but they have spent years losing money to learn the hard lessons. Now if they had put all that lost money in R.E., I still think they may be ahead.
      We are paying P&I on our Option ARM’s right now on our SFH’s because the rates are in the 4′s and getting a little principle paydown to offset the falling values. This is only with property that is new, that we plan to hold for 10 years, otherwise paying down in a decending market is not a wise choice.

      Reply
    5. Cher

      In my experience over the years, if you can find a property in a good working class area that has a little bit of cash flow with a 30 Year P&I loan in an area where there are jobs and good tenants, buy in any market. Who cares if your value goes down $20K if you are netting $150 per month, with the tenants paying the bill? Just hold long term until the value recovers.
      The properties that I have found that do well in recessions are: inexpensive rentals in good areas such as granny flats or duplexes and small houses on large lots in decent working class areas. Also three bedroom multiunits in working class areas. If you want simple management, screen well and stick to SFH’s and duplexes.
      So bottom line, in any market, if you can structure a P&I loan so you make a little, buy a property every year or two. It helps to have a career besides R.E to supplement the “surprises” that always come with R.E. ownership.
      Athough not a BG favorite, having 10 well maintained free and clear homes in a good tenant area at retirement can make your life very simple and recession proof. I know Landlords all over the country who are living very well right now with this formula. Leverage is great when you are growing and when you are young, but there is nothing like the emotional freedom and control of total ownership of property at retirement. I say this because I manage property for my Mom that is free and clear and there is nothing like having no pressure to rent until the perfect tenant comes along and lots of maintenance reserves. Grandpa economics has it’s upside. Sorry, BG.

      Reply
    6. BawldGuy

      These comments are what I was hopin’ for. To those sittin’ on the comment fence, go ahead, let us know your thinking.

      Reply
    7. Cher

      Thanks for an open forum to discuss with other intelligent R.E. owners. It is a great service to the community!

      Reply
    8. Troy

      Noob to REI, just converted our primary residence to rental 4 mos ago… so take my opinions as such.

      Lending – It seems investors still have an appetite for treasuries, empowering the fed to keep rates artificially low. This, of course, won’t last forever. Although, I wouldn’t be suprised if Congress attempts to bring the public back to the RE trough with tax credits for all home buyers similar to what’s available for first time buyers today. Therefore marketability of multifamily properties may suffer with respect to SFH’s as rates rise.

      Regions – I’m in KC. If I had more capital to put to work today… it would likely remain here in KC.

      Timeline – I think we will be bouncing along a “bottom” in home values (and the economy) for quite some time (2-5yrs). Recovery will come after the masses return to work. I don’t buy into a “jobless recovery”. As for me… time is on my side, too bad capital isn’t.

      Stock Market – I have learned much over the past year. Still maxing the Roth and contributing the minimimum for full employer match on the 401k. Both of which are only ~50% in equities until the time comes to load my dry powder.

      Taxes – My biggest fear… Spend my working years growing a tax shelter only to have it burned down by future leaders to pay for today’s agregious spending.

      By the way, BG… I always gain insight and/or perspective through your daily musings. Thank you for sharing your wisdom.

      Reply
    9. BawldGuy Post author

      Hey Troy — I like KC very much. It’s not performing at the level of Texas, but I like it now and for the long term.

      Thanks so much for the kind words — always nice to hear.

      Don’t be a stranger, OK?

      Reply
    10. Pat

      BG

      I have been investing in real estate in KC. Bought a duplex for cash in January. There was no way to get an investment loan at the time. If I could have found a lender (roof leak), the fees would have not made cents. Why spend $4,500 for a 75% loan on $57,500 at the time. After $12K in repairs, my free and clear property flows $920 (on 69.5K) a month after taxes, utilities and insurance.

      I agree with you that if the numbers make “cents”, buy it. Don’t wait for interst rates and property values to rise.

      Reply

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