[quote=pri_dk]Just under a year ago, I started seriously looking into purchasing a few small investment properties. I was working with a couple of friends and we were pooling our cash so that we could make some all cash offers. We setup an LLC and all the contracts that are prudent in this kind of arrangement.
But we haven’t purchased anything. There were a couple of opportunities that seemed like OK deals, but we are reluctant to move in this environment. Something doesn’t add up. We understand that, even in the strongest of buyers markets, deals aren’t just going to fall on our lap — but these bidding wars make no sense. I think it is possible to find opportunities, but we keep running the numbers and the risk/reward analysis just isn’t where we want it to be.
It’s frustrating when you have time/energy/capital to work with and ultimately decide to do nothing. But sometimes this is the optimal course of action. So we are waiting. I think a year from now things will be different.
This is my perspective as an investor. If you are looking to buy a residence, however, there are different factors to consider.
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pri_dk, when I was looking for houses last year, I had same puzzle: something doesn’t add up. There are tons of investors flocking into the valley (I have a friend who is looking for house in Temecula, and she said that her realtor told her that she is now the only client buying for primary residence). I bought not because I think it was the price bottom but more for family reasons. It just doesn’t make sense to sign a rental contract when the monthly payment for buying is cheaper. But I’m always puzzled why the investors were my competitor. They have management fees to worry about, they have vacancy rate to worry about…after all, for primary residence you get the best tenant in the world, but investors do not have such luxury.
So far however, the investors seem to be correct as the price is stabilizing. Yet I do believe the bank shadow inventory theory, but at the same time, things do not add up there. If banks are really limited by the staffs or government regulation issues, so they couldn’t release the inventory. If things are really that bad…shouldn’t there be more inventory coming that are in pre-foreclosure stage? And what are the owners doing, not trying to sell their houses in the best seller environment in the last few years? I think Adam (SDR) shed us some light on this (in that many short sellers are still trying to get their loan re-modified back and forth)…but I think it is fair to say that the sellers are not that desperate yet, so maybe they do have a fair good chance getting a loan mod with their lenders. And there wouldn’t be tsunami of foreclosure activities coming our way.
I still believe that inflation-adjusted, this won’t be the price bottom…but at the same time, I also start to believe that the worst is really behind us. We will never see the same rate of price decline (30-40% yoy) that we saw in 2008.
