As regular readers are aware, the pictures published here are for my entertainment. It’s my hope you’ll find ‘em fun too. In the spirit of full disclosure, they have nothin’ nada zilch to do with the content. Just so ya know. If ever you make a connection between pictures and content? Please, keep it to yourself. 
Tonight’s post is meant to be a reminder. It’s nothing earth shaking, and I’ll probably wonder a bit. It needs to be said during buyers’ markets. Understand the underlying truth to the message though. There’s nothing worse than buying a stud horse, then learning too late you really have a pig in a poke.
In markets like we’re currently enmeshed (love that word), the siren call of what the investor might perceive as monster discounts are often more like a strong riptide. The warm inviting water, the rollin’ waves, and pretty soon yer 300 yards from shore with no earthly idea how you got there or why — or how to get back to shore. When you head into an area offering those kinda discounts it’s crucial to take a step back to access what you’re really lookin’ at and where it is — and what the fundamentals are screamin’ in a loud and clear voice.
In most regions we’ve seen, there are pockets, often several more or less contiguous neighborhoods seemingly immune to this market correction. That’s true in San Diego. One example is where my aunt ‘n uncle live, in La Costa. The correction has made only a courtesy dent in their home’s value. Not so in most other areas in the county.
San Diego’s no different than most other cities/counties around the country. However, I’ve learned most folks are unaware all areas haven’t been treated equally. It’s my contention when folks find out which areas have been hardest hit, they head that way with a gleam in their eye.
They don’t stop to ponder the why’s and wherefores though, which so many times can lead them into the aforementioned riptide — real estate version.
Paradoxically, time after time it makes sense to sidestep the property with the ‘Is that a misprint?’ discount, and satiate your lust for bargains with the simpler, less titillating wicked cool discount. This is more frequently true than most people realize. It may be especially super turbo-charged true when today’s data is factored in. Think about it. Though new urban legends are being established almost daily in places like Michigan, what with homes being bought for a buck and the like, places like San Diego, Austin, Boise, Kansas City, Phoenix, and probably where you live, have their share of ‘deals of the century’. But are they?
If they were, why are there so many of ‘em? This is much like the draw to relatively high capitalization rates in any particular area. Like moths to a flame, investors can’t resist double digit cap rates. That includes me. However, since I realize why in most cases the rate is so attractive, I steer clear. Valuable income property sells at a ‘can’t be beat’ cap rate ‘cuz either the area, or the property sucks like Dyson. That’s cool for a Dyson, but not for the new owner of the newly acquired piece of garbage.
Unless you have a buyer ready to go at a much higher price than you’re payin’, or the area is a slam dunk when it comes to location, or you have solid data showing it’s in the ‘can’t miss’ path of growth — take a pass. There are other exceptions of course, but you get the drift. Grandma wasn’t lyin’.
Horrible tenants, increased expenses, unplanned negative cash flow, all because of the deal you couldn’t resist. Over the years when buyers’ markets make their cyclical appearances, I’ve seen way more investors lose money, if not property, as a direct consequence of a deal they once described as smokin’. Your retirement is far too important to risk finite capital on properties blinding you with their incredibly low prices.
And no, I’m not saying you can’t find deals our there of mythic proportions. I’ve seen ‘em. But contrary to what many investors believe, they don’t grow on trees. You’ll find that those who’re talkin’ about ‘incredible’ deals fall into two broad categories. Those who haven’t yet figured out how badly they’ve screwed the pooch, and those who in fact know what they’re doing. The latter is in short supply. I predict there will be a rebound a few years from now. It will be folks who bought real estate at what they thought was half off — but turned out to have discounted their retirement income instead.
Not all low prices are stellar values. Most are just cheap crap on a cracker. Figuring the difference between the two on your own, ain’t recommended. Just sayin’.
Hey, I have an idea. Let’s talk. I know where there’s some pretty nice deals. Have a good one.
Related posts:
- The Folly Of Missin’ The Same Bus Twice — Pay Attention Real Estate Investors
- San Diego Real Estate Investors — Pay Attention To Jon & Jill
- Wishin’ & Hopin’ Ain’t Gonna Get It San Diego (California) Real Estate Investors
- If Price Was The Be All End All Then East Mama’s Basement, Ohio Would Be King
- How Can San Diego Real Estate Investors Improve Their Current Strategy?
About BawldGuy
Jeff,
I’m reminded of an old TV commercial about motor oil. The tagline went something like this:
“You can pay me now (for the more expensive oil), or you can pay me later (to repair your engine), but you’ll be paying me.”
As usual, you’ve done an outstanding job here of relating that concept with regard to prudent real estate investments. Thank you!
Thanks Vance — much appreciated. Which I’d of remembered that commercial.