Buy or wait on multi?

[JimK]

Hi everyone,

Our town, Las Cruces, has had much less housing market dip than some places. It seems housing prices still may have more downward movement from news today. I'm looking at a multi-family (fourplex). It's a good deal and an unusually good property for around here. Does a smart real estate investor now wait to buy a multi until housing prices have bottomed, even if the property cash flows?


Thanks!

Jim

 

[Rambler]

Calmloki will probably be your best info source around here, but there are others. You do have to consider the possibility that the property may no longer be available when you think you are ready to buy (or when in your judgement the market has finally bottomed)...which means that the bottom may be right now, for that specific property.

Best advice I've got is to run the numbers to see if you are satisfied with this piece of property as an investment for you, at the price it is now, and with reasonably expectable future returns. If you like the result, go for it. If not, wait and see if the price goes down/the anticipated result gets better.

FWIW,

R

 

[ziggy29]

Our town, Las Cruces, has had much less housing market dip than some places. It seems housing prices still may have more downward movement from news today. I'm looking at a multi-family (fourplex). It's a good deal and an unusually good property for around here. Does a smart real estate investor now wait to buy a multi until housing prices have bottomed, even if the property cash flows?

Not surprised about having less of a dip, especially in the rental market, seeing as you're in a college town -- as they are more insulated from economic cycles than cities dependent on most other industries.

As far as future downward movement, if you'd plan on keeping the property for rental and it's an unusually good property, I wouldn't wait too long if the place will cash flow and the numbers work. As I mentioned, it is a college town, which (a) creates a steady stream of new tenants, and (b) provides a relatively recession-proof local economy.

 

[Westernskies]

If you have a crystal ball that allows you to call the bottom, you have a civic responsibility to share it with the rest of us here on FIRE!

+1 on Rambler's and Ziggy's replies.

 

[thefed]

dont worry about what might happen in a month or 2 or 12, will the price go down? will the the market bottom? will the foreclosures continue? etc etc.

WHO CARES?

Is the property what you are looking for? Does it cashflow? Does it meet your other investing criteria? Is it worth the asking price RIGHT NOW to YOU? If so, buy it!

Around here, the good ones get snatched quickly still....

 

[JimK]

Thanks everyone.

I'm just going by the news headlines....announcements about home sales figures (numbers of sales, prices).

However, I do have a small number of accurate crystal balls. I need to sell a few of them...

 

[JimK]

Hm, how'd the "confused about dryer sheets" tag get attached to me?
Oh well, could be worse I suppose....

 

[REWahoo]

http://www.early-retirement.org/forums/f32/whats-the-deal-with-the-dryer-sheets-28341.html

 

[JimK]

Heh, thanks.

 

[Letj]

Hi everyone,

Our town, Las Cruces, has had much less housing market dip than some places. It seems housing prices still may have more downward movement from news today. I'm looking at a multi-family (fourplex). It's a good deal and an unusually good property for around here. Does a smart real estate investor now wait to buy a multi until housing prices have bottomed, even if the property cash flows?


Thanks!

Jim

When buying rental property, the market condition should not dictate the decision to buy although, depending on the market at the time, it may be more appealing because you may exceed the numbers at which the deal is doable. Run your standard calculation with your expected cash on cash return (I look for 30%), cap rate of at least 10%, rent multiplier, etc. Good luck.

 

[JimK]

Thanks, Letj. Is the 30% you look for a function of how things are where you live?

 

[tryan]

If it cashflows positive, who cares what the market will do in the short term. Just plan to hold for the long haul. If your thinking shorterm flip ... good luck with that.

 

[calmloki]

If it cashflows positive, who cares what the market will do in the short term. Just plan to hold for the long haul. If your thinking shorterm flip ... good luck with that.

+1. Real estate is a long term investment for us. Used to buy anticipating rent increases and profitability after we did some work. Marginal profitability meant better purchase price & higher seller motivation. Don't really have any additions to your first thread, http://www.early-retirement.org/for...ing-not-so-early-retirement-advice-43738.html , other than this - there is a fine & individual balance to be struck between the amount of loan you carry and the security of owning outright. We were frantic to pay places off and felt real good about not paying 9+% - now that the loans are paid our cash on cash is great, but our cash on current value is rotten. On the other hand, it feels really really good not to have debt in the current downturn.

 

[samclem]

As I mentioned, it is a college town, which (a) creates a steady stream of new tenants, and (b) provides a relatively recession-proof local economy.

and
c) makes it advisable to remove all carpeting from the premises and replace it with cheap sheet vinyl.
d) makes it advisable to install floor drains in every room
e) makes it a requirement that you learn to repair drywall and change locks yourself.

 

[calmloki]

Data point: we've had great success and joy in renting to young college students - idealistic, motivated to invest in themselves to better themselves. It's a matter of picking the right students - for instance i have a certain wariness about groups of football players....

 

[ziggy29]

and
c) makes it advisable to remove all carpeting from the premises and replace it with cheap sheet vinyl.
d) makes it advisable to install floor drains in every room
e) makes it a requirement that you learn to repair drywall and change locks yourself.

Maybe, but I'll bet there are ways you can screen college students based on an interview and other criteria without running afoul of discriminating against someone because of membership in a "protected class."

 

[calmloki]

It's the economy stupid! Just got a letter today regarding one of the few section 8 tenants we have:

MAY 28,2009
TO:
REGARDING:
SECTlON 8 VOUCHER LANDLORD
"TEMPORARY" TERMINATION OF SECTlON 8 VOUCHER ASSISTANCE
As you may already be aware, current economic conditions have really taken a toll on public agencies.
Unfortunately, West Valley Housing Authority is not immune to these conditions. A review has been conducted,
and a determination has been made, that West Valley Housing Authority has insufficient funds to continue
supporting all of our Voucher Program families currently on the program. As a result, West Valley Housing
Authority needs to terminate the Voucher assistance for a number of families in order to bring our assisted
households down to the number for which we are authorized and funded by HUD.
In making the difficult decision on which families to terminate, it was decided that we would offer protections
for the following households:
~ Households that contain a disabled person will not be terminated;
~ Households that contain an elderly person will not be terminated;
~ Households that contain an active Family Self Sufficiency (FSS) Program participant will not
be terminated.
In accordance with our Administrative Plan, we will first be terminating the single, non-disabled, non-elderly
I persons. Unfortunately, that will not be enough to bring us down within our HUD funded number of
households. Therefore, we will also be terminating some families, including your tenant.

And so on.
Makes me glad we discourage section 8 tenants and have few of them. Guaranteed government check my eye!

 

[JimK]

Wow. One of the properties I looked at had a Section 8 tenant.

 

[kumquat]

Just curious.

How difficult is it to evict a Section 8 tenant who doesn't bother to pay rent? I would assume that if they pay their rent they are welcome to stay.

If evicted, how difficult is it to find a good replacement tenant?

 

[calmloki]

Usually section 8 pays a portion of the rent and the tenant the remainder - if they don't pay they don't stay, but it's more likely (IMO) that an eviction would be required - which is expensive and time consuming, though your state's laws may differ from mine. Some landlords like section 8, we don't care for the increased bureaucracy. I can normally fill a unit quicker with a tenant who pays their own way and signs my contract than waiting for a section 8 inspection, filling out the 1/2" of paperwork, etc.

Jim, section 8 may be ok for you - i betcha that our local agency has 600 "clients" and they cut 20. May be a harbinger of the future of government aid programs though.

 

[bsmup]

In a non-college market I would be wary as rents in general will continue to go down as more and more foreclosures happen. The banks are resisting to foreclose on many, many individuals who have already stopped paying because as soon as the bank does in fact foreclose, they have to write down the mortgage on that property to the current value. The banks are sitting on these homes and thus are sitting on huge losses.

In a college town I worry about the supply of renters in the next few years as student loans and financial aid are becoming increasingly hard to get as not only are interest rates going up, but many states are looking to solve their budget worries with cuts in tuition assistance programs.

 

[Rambler]

Usually section 8 pays a portion of the rent and the tenant the remainder - if they don't pay they don't stay, but it's more likely (IMO) that an eviction would be required - which is expensive and time consuming, though your state's laws may differ from mine. Some landlords like section 8, we don't care for the increased bureaucracy. I can normally fill a unit quicker with a tenant who pays their own way and signs my contract than waiting for a section 8 inspection, filling out the 1/2" of paperwork, etc.

Jim, section 8 may be ok for you - i betcha that our local agency has 600 "clients" and they cut 20. May be a harbinger of the future of government aid programs though.

I would definitely not take Section 8 tenants now, esp in California. The state is broke, and is a bleeding heart state, which means when the state and the tenant can no longer pay, you'll have a unit occupied by a deadbeat for a long time.

We had two section 8 tenants over 10 years ago. Had to sell the homes at the end of the Sec 8 contract in order to be able to get them out. We also found Sec 8 tenants to treat the property especially poorly (one had rebuilt his motorcycle on the living room floor - oil everywhere, another was too lazy to go to the bathroom itn the middle of the night and preferred whizzing in the corner of the room). We are not likely to ever become landlords again, and if we do, we will never ever work with Sec 8 tenants again.

R

 

[samclem]

It's the economy stupid! Just got a letter today regarding one of the few section 8 tenants we have:

MAY 28,2009
TO:
REGARDING:
SECTlON 8 VOUCHER LANDLORD
"TEMPORARY" TERMINATION OF SECTlON 8 VOUCHER ASSISTANCE

-I wonder why "Temporary" is in quotes? Maybe even the city doesn't believe their BS.
- The style is funny/typical. Don't put the bad news (the purpose of the letter) right up front, bury it 16 lines down. ("Therefore, we will also be terminating some families, including your tenant."). Only an idiot thinks this is "better"--it is worse.

 

[tryan]

Calmloki,

Got a similar "scare" during the last recession ... then HUD "found the $$". Don't panic yet. Obama's coming.

Heck I am putting thru a Section 8 [-]stimulus[/-] rent increase this year.