[Fearful]

[quote=sdrealtor] a low end property in escrow that looks like it is going to sell for about 75X monthly rental income. A cash buyer would get nearly a 20% return on their cash.[/quote]
Actually, that is 16%, but still in the area in which I would imagine investors would be interested.

My profession is poking holes in financial scenarios, so it comes easy to me: How vulnerable will rental prices be to weakening economic conditions, and to increasing supply of rental housing stock purchased by investors such as this client?

I don’t know the answers to these questions, just raising them.

[Fearful]

[quote=sdrealtor] a low end property in escrow that looks like it is going to sell for about 75X monthly rental income. A cash buyer would get nearly a 20% return on their cash.[/quote]
Actually, that is 16%, but still in the area in which I would imagine investors would be interested.

My profession is poking holes in financial scenarios, so it comes easy to me: How vulnerable will rental prices be to weakening economic conditions, and to increasing supply of rental housing stock purchased by investors such as this client?

I don’t know the answers to these questions, just raising them.

[Fearful]

[quote=sdrealtor] a low end property in escrow that looks like it is going to sell for about 75X monthly rental income. A cash buyer would get nearly a 20% return on their cash.[/quote]
Actually, that is 16%, but still in the area in which I would imagine investors would be interested.

My profession is poking holes in financial scenarios, so it comes easy to me: How vulnerable will rental prices be to weakening economic conditions, and to increasing supply of rental housing stock purchased by investors such as this client?

I don’t know the answers to these questions, just raising them.

[Fearful]

Bravo to sdrealtor for sticking his neck out. We shall see if his predictions are borne out.

At the risk of restating prior posts, the lower end will be substantially employment dependent. Tech jobs, and in particular new venture formation, may be heavily impacted in the coming months. Reference: Semiconductor equipment is the leading edge of semiconductors, and those firms have begun layoffs. The semiconductor layoffs are not too far behind. Regarding Qualcomm: While it is correct that people are not giving up their cell phones any time soon, they may also delay upgrades and so forth, impacting that consumption. Chip suppliers are pressured along with everyone else when margins are squeezed.

That segment of the market is perhaps more interest rate dependent; if in 2009 the competitive interest rates (e.g. t-bills) rise substantially, that would put a damper on the sales.

Regarding the large down payment crowd: The money destruction is proceeding but will go on for quite a while. Cash available for large down payments will recede, but gradually, not cataclysmically. This is a good thing, because if quick, we would all be sorry.

The high end is beyond uncertain. New venture formation, and IPOs, has contracted. Another wealth effect supporting the high end is simply residual bubble effects: people who pocketed hefty cash on the way up and do not want to leave SD. Specifically within Carmel Valley, if the Chinese economy remains sound, and the yuan is allowed to float up, there will be an influx of wealth into that area. If the Chinese economy suffers, and the yuan peg is maintained, that would hurt Carmel Valley in particular. If the Chinese buyers go away, look out below. In general, it seems that the >$800K tranche of houses is heavily supported by the high down payment crowd; bear in mind that that wealth is subject to ongoing destruction.

So many unknowns. Best of luck to you all.

[Fearful]

Bravo to sdrealtor for sticking his neck out. We shall see if his predictions are borne out.

At the risk of restating prior posts, the lower end will be substantially employment dependent. Tech jobs, and in particular new venture formation, may be heavily impacted in the coming months. Reference: Semiconductor equipment is the leading edge of semiconductors, and those firms have begun layoffs. The semiconductor layoffs are not too far behind. Regarding Qualcomm: While it is correct that people are not giving up their cell phones any time soon, they may also delay upgrades and so forth, impacting that consumption. Chip suppliers are pressured along with everyone else when margins are squeezed.

That segment of the market is perhaps more interest rate dependent; if in 2009 the competitive interest rates (e.g. t-bills) rise substantially, that would put a damper on the sales.

Regarding the large down payment crowd: The money destruction is proceeding but will go on for quite a while. Cash available for large down payments will recede, but gradually, not cataclysmically. This is a good thing, because if quick, we would all be sorry.

The high end is beyond uncertain. New venture formation, and IPOs, has contracted. Another wealth effect supporting the high end is simply residual bubble effects: people who pocketed hefty cash on the way up and do not want to leave SD. Specifically within Carmel Valley, if the Chinese economy remains sound, and the yuan is allowed to float up, there will be an influx of wealth into that area. If the Chinese economy suffers, and the yuan peg is maintained, that would hurt Carmel Valley in particular. If the Chinese buyers go away, look out below. In general, it seems that the >$800K tranche of houses is heavily supported by the high down payment crowd; bear in mind that that wealth is subject to ongoing destruction.

So many unknowns. Best of luck to you all.

[Fearful]

Bravo to sdrealtor for sticking his neck out. We shall see if his predictions are borne out.

At the risk of restating prior posts, the lower end will be substantially employment dependent. Tech jobs, and in particular new venture formation, may be heavily impacted in the coming months. Reference: Semiconductor equipment is the leading edge of semiconductors, and those firms have begun layoffs. The semiconductor layoffs are not too far behind. Regarding Qualcomm: While it is correct that people are not giving up their cell phones any time soon, they may also delay upgrades and so forth, impacting that consumption. Chip suppliers are pressured along with everyone else when margins are squeezed.

That segment of the market is perhaps more interest rate dependent; if in 2009 the competitive interest rates (e.g. t-bills) rise substantially, that would put a damper on the sales.

Regarding the large down payment crowd: The money destruction is proceeding but will go on for quite a while. Cash available for large down payments will recede, but gradually, not cataclysmically. This is a good thing, because if quick, we would all be sorry.

The high end is beyond uncertain. New venture formation, and IPOs, has contracted. Another wealth effect supporting the high end is simply residual bubble effects: people who pocketed hefty cash on the way up and do not want to leave SD. Specifically within Carmel Valley, if the Chinese economy remains sound, and the yuan is allowed to float up, there will be an influx of wealth into that area. If the Chinese economy suffers, and the yuan peg is maintained, that would hurt Carmel Valley in particular. If the Chinese buyers go away, look out below. In general, it seems that the >$800K tranche of houses is heavily supported by the high down payment crowd; bear in mind that that wealth is subject to ongoing destruction.

So many unknowns. Best of luck to you all.

[Fearful]

Bravo to sdrealtor for sticking his neck out. We shall see if his predictions are borne out.

At the risk of restating prior posts, the lower end will be substantially employment dependent. Tech jobs, and in particular new venture formation, may be heavily impacted in the coming months. Reference: Semiconductor equipment is the leading edge of semiconductors, and those firms have begun layoffs. The semiconductor layoffs are not too far behind. Regarding Qualcomm: While it is correct that people are not giving up their cell phones any time soon, they may also delay upgrades and so forth, impacting that consumption. Chip suppliers are pressured along with everyone else when margins are squeezed.

That segment of the market is perhaps more interest rate dependent; if in 2009 the competitive interest rates (e.g. t-bills) rise substantially, that would put a damper on the sales.

Regarding the large down payment crowd: The money destruction is proceeding but will go on for quite a while. Cash available for large down payments will recede, but gradually, not cataclysmically. This is a good thing, because if quick, we would all be sorry.

The high end is beyond uncertain. New venture formation, and IPOs, has contracted. Another wealth effect supporting the high end is simply residual bubble effects: people who pocketed hefty cash on the way up and do not want to leave SD. Specifically within Carmel Valley, if the Chinese economy remains sound, and the yuan is allowed to float up, there will be an influx of wealth into that area. If the Chinese economy suffers, and the yuan peg is maintained, that would hurt Carmel Valley in particular. If the Chinese buyers go away, look out below. In general, it seems that the >$800K tranche of houses is heavily supported by the high down payment crowd; bear in mind that that wealth is subject to ongoing destruction.

So many unknowns. Best of luck to you all.

[Fearful]

Bravo to sdrealtor for sticking his neck out. We shall see if his predictions are borne out.

At the risk of restating prior posts, the lower end will be substantially employment dependent. Tech jobs, and in particular new venture formation, may be heavily impacted in the coming months. Reference: Semiconductor equipment is the leading edge of semiconductors, and those firms have begun layoffs. The semiconductor layoffs are not too far behind. Regarding Qualcomm: While it is correct that people are not giving up their cell phones any time soon, they may also delay upgrades and so forth, impacting that consumption. Chip suppliers are pressured along with everyone else when margins are squeezed.

That segment of the market is perhaps more interest rate dependent; if in 2009 the competitive interest rates (e.g. t-bills) rise substantially, that would put a damper on the sales.

Regarding the large down payment crowd: The money destruction is proceeding but will go on for quite a while. Cash available for large down payments will recede, but gradually, not cataclysmically. This is a good thing, because if quick, we would all be sorry.

The high end is beyond uncertain. New venture formation, and IPOs, has contracted. Another wealth effect supporting the high end is simply residual bubble effects: people who pocketed hefty cash on the way up and do not want to leave SD. Specifically within Carmel Valley, if the Chinese economy remains sound, and the yuan is allowed to float up, there will be an influx of wealth into that area. If the Chinese economy suffers, and the yuan peg is maintained, that would hurt Carmel Valley in particular. If the Chinese buyers go away, look out below. In general, it seems that the >$800K tranche of houses is heavily supported by the high down payment crowd; bear in mind that that wealth is subject to ongoing destruction.

So many unknowns. Best of luck to you all.

[Fearful]

[quote=sd_matt]From what I’ve read it’s the cosmetic fixers, and not mechanical/electrical fixers that are get the most return for the buck.

Although lately I have seen a fair amount of houses with lots of cosmetic upgrades for good prices (at least compared to a year ago). Maybe this should be what I look for…

Again I’m not looking to flip but rather the best cash flow. [/quote]
I believe that if you want to be a landlord, your best ratio of income to purchase price is generally in cosmetically weak properties. No deeper defects, as they will take away your income stream while the defects are rectified. Best income is from being a slumlord.

The best resale values come from heavily improved properties, provided that the improvements are sufficiently mainstream. Pink marble floors are out; granite countertops are timeless. Buy someone else’s passionate investment.

Tenants will likely not pay for the value of excessive improvements.

Of course, if you can find something that has defects that sound bad but are not really, you can do very well. To do that, you need to attain expertise in repair.

[Fearful]

[quote=sd_matt]From what I’ve read it’s the cosmetic fixers, and not mechanical/electrical fixers that are get the most return for the buck.

Although lately I have seen a fair amount of houses with lots of cosmetic upgrades for good prices (at least compared to a year ago). Maybe this should be what I look for…

Again I’m not looking to flip but rather the best cash flow. [/quote]
I believe that if you want to be a landlord, your best ratio of income to purchase price is generally in cosmetically weak properties. No deeper defects, as they will take away your income stream while the defects are rectified. Best income is from being a slumlord.

The best resale values come from heavily improved properties, provided that the improvements are sufficiently mainstream. Pink marble floors are out; granite countertops are timeless. Buy someone else’s passionate investment.

Tenants will likely not pay for the value of excessive improvements.

Of course, if you can find something that has defects that sound bad but are not really, you can do very well. To do that, you need to attain expertise in repair.

[Fearful]

[quote=sd_matt]From what I’ve read it’s the cosmetic fixers, and not mechanical/electrical fixers that are get the most return for the buck.

Although lately I have seen a fair amount of houses with lots of cosmetic upgrades for good prices (at least compared to a year ago). Maybe this should be what I look for…

Again I’m not looking to flip but rather the best cash flow. [/quote]
I believe that if you want to be a landlord, your best ratio of income to purchase price is generally in cosmetically weak properties. No deeper defects, as they will take away your income stream while the defects are rectified. Best income is from being a slumlord.

The best resale values come from heavily improved properties, provided that the improvements are sufficiently mainstream. Pink marble floors are out; granite countertops are timeless. Buy someone else’s passionate investment.

Tenants will likely not pay for the value of excessive improvements.

Of course, if you can find something that has defects that sound bad but are not really, you can do very well. To do that, you need to attain expertise in repair.

[Fearful]

[quote=sd_matt]From what I’ve read it’s the cosmetic fixers, and not mechanical/electrical fixers that are get the most return for the buck.

Although lately I have seen a fair amount of houses with lots of cosmetic upgrades for good prices (at least compared to a year ago). Maybe this should be what I look for…

Again I’m not looking to flip but rather the best cash flow. [/quote]
I believe that if you want to be a landlord, your best ratio of income to purchase price is generally in cosmetically weak properties. No deeper defects, as they will take away your income stream while the defects are rectified. Best income is from being a slumlord.

The best resale values come from heavily improved properties, provided that the improvements are sufficiently mainstream. Pink marble floors are out; granite countertops are timeless. Buy someone else’s passionate investment.

Tenants will likely not pay for the value of excessive improvements.

Of course, if you can find something that has defects that sound bad but are not really, you can do very well. To do that, you need to attain expertise in repair.

[Fearful]

[quote=sd_matt]From what I’ve read it’s the cosmetic fixers, and not mechanical/electrical fixers that are get the most return for the buck.

Although lately I have seen a fair amount of houses with lots of cosmetic upgrades for good prices (at least compared to a year ago). Maybe this should be what I look for…

Again I’m not looking to flip but rather the best cash flow. [/quote]
I believe that if you want to be a landlord, your best ratio of income to purchase price is generally in cosmetically weak properties. No deeper defects, as they will take away your income stream while the defects are rectified. Best income is from being a slumlord.

The best resale values come from heavily improved properties, provided that the improvements are sufficiently mainstream. Pink marble floors are out; granite countertops are timeless. Buy someone else’s passionate investment.

Tenants will likely not pay for the value of excessive improvements.

Of course, if you can find something that has defects that sound bad but are not really, you can do very well. To do that, you need to attain expertise in repair.

[Fearful]

[quote=EconProf]Back when prices were rising 1 – 2% per month, many people made good money buying fixer-uppers, making all the improvements, and then selling them 6 months or a year later. They congratulated themselves on their skills, but forgot that it was a rising market combined with their leveraged position that gave them most of the profit.
In a falling market, both of those factors work against you, so the idea fails big time.
Add to this the tendency to underestimate fixup costs, ignor their own time committment, downplay transaction costs getting in and getting out, ignor the opportunity cost of their down payment, and you’ve got a losing proposition except in rare times and with the perfect property.[/quote]

Beautifully put. You hit on all the key points. Your post should be required reading for anyone contemplating investing in real estate. People still seem to overlook the fact that real estate is a risky, illiquid, high carrying cost investment that must provide substantial returns to compensate.

[Fearful]

[quote=EconProf]Back when prices were rising 1 – 2% per month, many people made good money buying fixer-uppers, making all the improvements, and then selling them 6 months or a year later. They congratulated themselves on their skills, but forgot that it was a rising market combined with their leveraged position that gave them most of the profit.
In a falling market, both of those factors work against you, so the idea fails big time.
Add to this the tendency to underestimate fixup costs, ignor their own time committment, downplay transaction costs getting in and getting out, ignor the opportunity cost of their down payment, and you’ve got a losing proposition except in rare times and with the perfect property.[/quote]

Beautifully put. You hit on all the key points. Your post should be required reading for anyone contemplating investing in real estate. People still seem to overlook the fact that real estate is a risky, illiquid, high carrying cost investment that must provide substantial returns to compensate.

[Author]

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