Well… It’s good news for REAL real estate investors that is..The ones who understand cap rates and cash flow. Below is a post fresh off the presses from Jeff Brown AKA Bawld Guy.
Written By: Jeff Brawn at Bawldguy.com
So many from Realtor organizations at all levels, economists, and various elected (and unelected) officials seem to think we’re ‘just around the corner’ from the beginnings of a real recovery. These are the same Einsteins who, less than a year ago said we were in recovery. Go figure. My thoughts have remained consistent the last four years — we’re not close to a real estate recovery.
My crystal ball remains as cracked as yours, but here’re my thoughts.
In my opinion the vast majority of the country’s markets aren’t prudent places for your hard earned capital. Take San Diego — please. The same folks who were certain we’d hit bottom here in 2007 are explaining to those who believed ‘em, why their newly purchased properties lost 5-10% almost immediately. Sure enough, prices rebounded a bit as a result of temporary artificial stimulation. They’ve been steadily dropping ever since. It hasn’t been precipitous, but it’s been steady, according to Case-Shiller. I think it’s now been about eight consecutive months San Diego prices have been headed slightly down. Also, ya may wanna consider avoiding Vegas and Florida. Again, my considered opinion.
Why we’re not near a recovery now.
Sophisticated economic mumbo jumbo isn’t necessary here. It’s all about two factors: 1) Foreclosures/Short Sales and 2) Unemployment. This ain’t rocket science, people. Here’s how it looks from where I sit.
Unemployment and its ramifications speaks for itself. At nearly double digits, the drag on the economy, much less it’s affects on real estate markets are predictably negative. Duh. Till unemployment plunges significantly, real estate won’t have a healthy recovery.
Foreclosures and its pipeline are an even more predictable story. The numbers already bank owned are still gruesomely large. Add to that the equally prodigious volume of homeowners who’ve already defaulted but not yet made it to the sad, bitter end, and the picture worsens. But wait! There’s more! The final reason I think this factor has legs, is the daunting hundreds of thousands of those who’re 30-60-90-120 days — and longer, much longer — late.
Even if lenders figure a way to speed the process up a bit, not to mention develop the motivation to do so, the foreclosure problem can’t possibly be sufficiently removed as a drag on real estate markets before the end of 2013. Frankly, I suggest that timeline is a fantasy. If we’re back to relatively normal markets — Remember what that looks like? — by give or take 2015, we’ll be in decent shape, with one exception.
If unemployment is still significantly higher than 5%, considered ‘normal’ by most, say 7%+, owner occupied sales will still remain far from normal.
What this means for real estate investors.
None of this is bad news for investors, especially those thinkin’ big picture — long term. In some markets, demand for rental housing is rising quickly enough to be measured almost in real time. The percentage of renters vs homeowners will be altered for at least a generation, in my opinion. This is an extremely rare opportunity for those with access to sufficient investment capital. They’ll be able, and have been for the last few years, to acquire superbly located property in markets which are welcoming their capital with smiles and open arms. The location quality is also higher by far than is typically available, even in down markets.
Add to these perks historically low interest rates, treading in the 5-5.375% range, and you have the perfect storm. In all my nearly 42 years in the business, almost 35 of which have been on the investment side, it’s never been possible to put down payments as low as 20%, while acquiring a 30 year fixed rate loan allowing cash on cash returns of 5-10%. Remember, this for properties with very good to excellent locations. It’s simply unheard of in my experience.
Stellar location quality + new or newer properties + low down payments + extraordinarily low FIXED interest rates = THE perfect storm of a lifetime.
The normal cycles have never included the opportunities currently available in the economic reality in which we’re currently living. I entered real estate in the fall of 1969, a recession, and it didn’t happen then. Nor did it happen in 74-75, the ’81 recession, the S&L Crisis of the early 90′s, or the almost stealthy recession of ’01. What I’m tryin’ to tell ya, is that the debacle in which we’re all living, is offering real estate investors opportunities of a lifetime. That’s not hyperbole by any stretch. It’s as real as oatmeal ‘n raisins for breakfast.
Investors who’ve been buying in markets with all the right factors in place are settin’ themselves up for stellar retirements. This perfect storm will last as long as all of its ingredients remain in place. Common sense and simple logic tell us that those factors that have brought us this wondermous perfect storm won’t be here forever — and yeah, that’s hyperbole. Once it’s gone, that’ll pretty much be it.
If you’ve been wondering about the viability of your retirement plan, and wanna know the options on your menu, now’s the time to find out. Your retirement can become the reality for which you’ve been planning, but which hasn’t been materializing. If this describes your current mindset, I strongly suggest you seriously consider givin’ a guy like Joshua Gayman a call. In fact, try to make it happen sometime around 4:30 yesterday afternoon if ya can.