What Real Estate Bubble?

[tryan]

Anyone care to opine how this bubble in home prices relates to commercial
real estate ?

Very little ... commercial real estate is more driven by the economy than residential prices. Bussinesses will only expand - increasing demand - based on growth projections which will be based on economic growth/expansion.

An exception would be converting commercial to residential (due to a large prices differential); buuut, the zoning boards control the toll booths here.... creating hurdles for those who wish to exploit the gap.

Sooo if you believe the economy will keep moving in a positive direction for your investment horizon ... go ahead. I think most would say the latest cycle is winding down - not up.

[Martha]

Originally Posted by dex

I just bought a house and got a 5% discount on the listed price (I didn't use an agent). Also, the listed price of the house I bought is 5% less than other similar homes in the subdivision.

Congratulations Dex. Tell us about the house. I take it that it is new construction? Are you going to settle down for the winter or stay on the road?

[justin]

Originally Posted by JohnEyles

Anyone care to opine how this bubble in home prices relates to commercial
real estate ?

I don't know much about the entire US commercial market, but the commercial market for retail outlets still sounds pretty hot. A couple of guys from my company just got back from the International Council of Shopping Centers conference in Atlanta. They said things are as busy as ever and they are going full speed ahead building new shopping centers. This is primarily in the southeast US though. Florida is the huge growth market right now.

To me, this says that the folks with $100,000,000's at risk (many of whom are REITS) are not seeing a slowdown (in the SE at least) in the next few years (the length of the typical commercial retail development process).

[dex]

Originally Posted by Martha

Congratulations Dex. Tell us about the house. I take it that it is new construction? Are you going to settle down for the winter or stay on the road?

Martha,
The house is a townhouse of about 2700 sq ft. about 35K more than I ideally would like to have paid but, it was the first phase of the development, I like the deal and I like the feel of the house. I have a 10 - 15 or more year time herizon for staying here.

I do plan to stay put for a couple of months Nov, Dec, Jan? To furnish the house, plan my next adventure, get to know the area and exercise.

The list an ideas for where I want to go and do is getting longer as I become more comfortable with the idea of RE.

I'm proud of myself that I did spend the extra money on the house. Although I have a detailed estimated budget for my yearly expenses it is only a budget and I don't know if it is correct. However, I become more comfortable with it as I live and live within it without really lacking for anything I realisitically want.

[Martha]

Thanks Dex. I really like reading about your journey to retirement and now your adjustment to being retired.

[InTheFlow]

Originally Posted by Jay_Gatsby

Actually, banks will foreclose on a house and sell it for whatever they can get, even if that amount is fifty cents on the dollar.

If only that were true! We just got done attempting to negotiate with a bank on a forclosed property. They were asking $135 for it but wouldn't take less than $129. My relator told me that it is because the banks have share holders to make happy now and that if they just give away the homes really cheap it ticks them off.

Thus the reason for the negotiations back and forth and then hitting a price wall at some point.

I still think buying a forclosed on property from a bank is the way to go. At least for us. We just don't want to overpay for a home since there is such a good chance that the housing prices will pop. Not to mention the whole affordabilty aspect of purchasing below your means.

[brewer12345]

Originally Posted by InTheFlow

My relator told me that it is because the banks have share holders to make happy now and that if they just give away the homes really cheap it ticks them off.

Bzzzt! Wrong! The bank isn't letting the property go too cheap because they don't have very many of them, so they can afford to wait, especially if they think the market is 129 or better. But if loans start going bad in drives, you will start seeing banks dump houses cheap. Hasn't happened yet, though. Maybe next year.

[tryan]

Yeah. brewer nail it .... in the early 90's I was shopping bank owned listings; Every bank had several pages of REOs/OREOs. 50 cents on the dollar would have been a gift to the bank. Most sold for a dime on the dollar (relative to what was owed). Picked up 13 units .... those were the days!

We've got a long way to go before that happens again ... think RECESSION. Then the lein holders of these notes will be back logged with defaulted property.

[brewer12345]

Originally Posted by tryan

Yeah. brewer nail it .... in the early 90's I was shopping bank owned listings; Every bank had several pages of REOs/OREOs. 50 cents on the dollar would have been a gift to the bank. Most sold for a dime on the dollar (relative to what was owed). Picked up 13 units .... those were the days!

tryan, once you bought the properrties, what did you do with them? Rentals? Something else? What eventually happened?

I have never fancied being a landlord, but if we get a real crash I will become one in size.

[tryan]

5 of the 6 I still carry are/were REOs. They always seem to be in tough-shape ... neglected for years since the banks are not in the property management bussiness. Some needed evictions ... one bank in particular bank felt better having someone in the unit - with the heat on - rather than having it vacant ... but stopped collecting the rent. Others are vacant with popped pipes after not being winterized properly. Vacancies always attract problems; whether it's kids partying in the house or homeless squating in the place for weeks/months(!).

In the early days I did most of the fix-up myself. The last one I did (2 years ago) I contracted out all the repairs. So it's a different set of problems (than buying from the MLS) ... and a different set of risks than, say, flipping McMansions. But it's been very rewarding financially and emotionally. And the towns/cities are eager to help with the permiting process since they've watched the "problem " evolve over the years.

If you pursue this during the next down cycle, the first one will be hard. Don't let this deter you. The next one is always easier.

[brewer12345]

Originally Posted by tryan

If you pursue this during the next down cycle, the first one will be hard. Don't let this deter you. The next one is always easier.

Thanks. If I decide to do this (likely, if stuff is beng thrown out the window), I will do so with a partner.

[FinanceDude]

Originally Posted by brewer12345

Thanks. If I decide to do this (likely, if stuff is beng thrown out the window), I will do so with a partner.

I'm in the process of doing this with two other partners, a commecial guy, a real estate agent, and myself. We formed an LLC, and are waiting for the right deals.

[brewer12345]

Originally Posted by FinanceDude

I'm in the process of doing this with two other partners, a commecial guy, a real estate agent, and myself. We formed an LLC, and are waiting for the right deals.

Yeah, too early.

[FinanceDude]

Originally Posted by brewer12345

Yeah, too early.

I'm thinking in about 12 months or so...........

[tryan]

don't know when the botom will happen ... but I'll know it when I see it. The tell-tale sign last time was Resolution Trust Corp. auctions (picked up several units here too). Next time who knows what it'll be: Fannie, Freddie, Sallie sell off ?

When "it" happens I'll be ready to pounce.

[kcowan]

Also be ready to carry the properties for quite a while. And budget for repairs/improvements and marketing. As tryan can tell you, this is not for the feint of heart. You need to be ruthless and committed. Also hands-on.

But the rewards can make the aggravation all worthwhile...

I am thinking I might do it again this time but only because I am getting bored.

[ShokWaveRider]

All:

Some Real Estate comments.

I think there is still about 20% to go on the downside (IM uneducated HO). We were looking at homes in Flagler County Florida (Between Jacksonville and Daytona Beach NW Florida) last W/E and realtors were all but begging us to make offers. A Particular home of interest was for Sale for $575k The realtor said the owner would take $500k, to which I replied; why is it not for sale for $500k then? No Answer. The home is a buy at $400k or the late 300's. Comparable homes are selling trying to be sold at between $400k - $450k. Taxes are about 1.8% The existing tax base on the home mentioned is $3600 (Currently being paid by the owners) which makes the buyer's taxable assement about $200k ($375k less than the asking). The sellers use it as a second home and are not in a hurry to sell. The home needs $100k in interior updates (again IMHO). I am sure someone will buy it, as externally it is great, the inside just needs updating. All of it. The kitchen needs new everything as do the bathrooms. The appliances all need replacing, but the rest simply needs modernizing. The home has been well kept. Tile is 80's drab, paint is faded etc etc. There is a similar home down the road 200 sqft less offered for $440k both are on water with direct access to the intracoastal.

Soo...... We just keep looking.

SWR