Tuesday, December 15, 2009

The Same Old Story with Real Estate

Realtors are again putting out the same old story, are these guys ever bearish?

Prices are on sale and if you do not get in now, you'll miss out.... the same old story of greed and fear.

Having been a landlord for many years myself, let me tell you that a vacant apartment can be death to your finances.  If you're an investor buying on financing, it is a risky business. We're still clearly in a deflationary path on rents.

One very simple way to determine demand and supply is looking at the craigslist listings for rentals.  Search craigslist las vegas or craigslist palm beach or any other location and if you've been tracking this data over the past years you'll see that where listings used to average about 100 a day during the peak we are now up to over 500 listings each day! Care to compete with that kind of competition?

Here is what is happening in the Palm Beach market based on my personal conversations with agents and investors

Lenders like Option One that own defaulted inventory are not foreclosing on that inventory.  I know of property that owners have walked away from over 18 months ago and is still not foreclosed.  Why? Because lenders know if they foreclose they'll be responsible for taxes and maintenance and liens.  So lenders are opting to let the foreclosed owner keep the property until they find a willing buyer.

Option One recently offered a tenant at a local community $3000 to move out so that they could start showing the property without actually owning it.  This kind of illegal activity is underway in Florida and I am guessing other parts of the country.

All it does is confirm the huge amount of shadown inventory that continues to sit on lenders books.

Rising Rates Coming
Now if you're an investor that has the cohones to buy in this market, granted there are a few good deals if you know how to land a renter.  Hats off to you.

But if you're an investor, you need to consider what will happen to prices when rates go up.  It does not take a rocket scientist to figure out that prices will continue to stay under pressure for a long time to come as rates are most definitely headed higher over the longer term.  And if you don't get that, then you really have no business being an investor.

Regardless of how you spin it, investing in real estate is an unattractive opportunity unless you have a 20 or 30 year horizon and are willing to deal with the headaches of being a landlord during that time.

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