I found this interesting site outlining the 1980's housing cycle based on the headlines it looks like the point we're at now is about similar to 1981.
So you've still got some time...
Outline of the 1980's housing cycle. we are in 1981
By toothfairy Follow Wed, 11 Jan 2012, 5:43pm 2,666 views 77 comments
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Bigsby says
There were no buyers, number one, and the second is that the building had reached it's obsolescence.
That's not to mention the number of bank owned properties that have been selling at these prices. We did nothing to improve the property, so it was all income.
The point is we aren't one of a very few. The building could be torn down to make way for something bigger, and better.
There are many market places where this is the same. When you want to sell, you sell for what the market will bear. There is no magic in the idea the price of property always goes up.
At the time in 1984 this part of Atlanta was considered a technology hub for software development. Today it's kind of mortibund.
So when people say they bought in the 1980s and they have an equity, that depends on if the property gets sold. I don't see Atlanta coming back, do you?
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So, let me get this straight David lush:
1. You bought homes in the 1980s you sold for a loss in 2009.
2. You washed out selling homes as an agent.
Yet, you feel like you have some knowledge or wisdom to add on a real estate investment thread? You attack my purchases, which are throwing out cash, every single one bought at prices that the mortgage would be half or less of the rent....
You have correctly pointed out that not all markets are as good as Phoenix. May I also point out that not everyone out there will be as terrible at timing their purchases and making real estate choices as you? So, generalizing your complete ineptness is not correct as well.
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This is very simple. I don't see an upside to Atlanta Georgia, any more than I see an upside in owning property in Phoenix Arizona.
You followed the exact market timing plan that I had recommended since 2006, sell before the crash, and buy after the crash.
The problem is that the Real Estate market was never allowed to crash.
We got the tax credit, QE 1,2,3, and ended up with historically low interest rates. The banks got bailed out and are allowed to pursue more profits, cash reserves, all with very little risk. The Fed, and government seem very pleased with the housing recovery, but I don't see it as sustainable.
Now Atlanta Georgia in the 1980s was the home of Peach Tree Accounting. Back in the day that was a big deal. Today I don't see any economic viability to Atlanta so why hold on?
In the mean time, say in the past ten years, thousands of housing units were added to Atlanta, many have ended up in the hands of the bank. So I don't see prices rising there. I don't see rental potential there in Atlanta.
You're going to find many more people with the same idea. There are much easier ways to make a buck than being a land lord. I talk with Real Estate investors, who are older, who are looking to sell the properties, and put the money into something that will give greater returns, or safer returns.
Which reminds me, Real Estate is a 24/7 business. My side business was directly related to my Real Estate business, school teaching doesn't match that.
So you are either a full time Real Estate agent of not an agent at all.
You are one of thousands of people who are puffing the brilliance they had in the past seven years, but we are just getting started on this cycle.
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Monterey, CA
David Losh says
I have no knowledge of Atlanta, but if I'd bought a property back in '84 pretty much anywhere in the world, I'd be more than a bit surprised that its value had halved 25 years later. Atlanta doesn't create the images of Detroit, for example.
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David Losh says
That's not exactly a novel recommendation in all fairness.
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David Losh says
What do they have in mind? The stock market looks like a far from safe proposition at the minute.
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Bigsby says
The problem there is the bank foreclosures.
In 1980 Atlanta was booming, it lost financial momentum, then over built into the 2000 mortgage backed securities scheme.
Alright, to be fair we could have changed the carpet, painted, redone the kitchen, and bath for about $10K, but still the market place is a crap shoot.
Bigsby says
Exactly right.
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Bigsby says
The video in this article talks about entrepreneurship. The article is about Blackstone, the biggest holder of residential Real Estate.
http://www.cnbc.com/id/100542594
In 1986 I had a restaurant listed for sale no one wanted, so I bought it. For three years I lived that place, it bacame one of the top ten places to be in Seattle. I sold it for many, many times more than I paid for it, and had good daily income.
People need more income, and less expenses today. I think more people are looking for good paying jobs than a high priced rental.
I see under utilized businesses every day, but that is just me.
As for my investor clients they would sell to go into safer havens, like bonds, or dividend income. I would encourage them to invest in small business, but they just want a simplier life.
No more renters calling, no more repairs, no more evictions from people who lost a job, got divorced, or went crazy.
The concensus is that when rents go down, they will sell.
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The last post is so idiotic, it doesn't even warrant a response.
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robertoaribas says
Then why bother yourself?
It's because what I do is contrary to the very simplistic view you have about Real Estate.
Phoenix is the third cheapest palce to buy Real Estate in a metropolitan areas in the United States. It is just ahead of Detroit, then Atlanta, then there is Phoenix Arizona.
Detroit done, Atlanta done, how far is Phoenix away from being done?
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David Losh says
Yeah... The twit who lost money on 20 years of investing, and cleans toilets and carpets day to day, calls the math professor who made over a million dollars and climbing in real estate simplistic... My investments pull in 6k in net rental income, plus pay off 1k in mortgage debt each month. How many toilets do you scrub, to match that?
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Monterey, CA
robertoaribas says
Do you have a winning smile?
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robertoaribas says
I made money, why do you think I didn't? Cutting losses on a property paid for many times over is a pretty simple concept.
robertoaribas says
I thought you were a big time Real Estate agent. You sure talk that way.
robertoaribas says
Like I said, I make more money than you do.
Look it, I just came back here to post this chart, and found you whining, again:
http://www.bankrate.com/finance/real-estate/total-monthly-homeownership-costs-by-city.aspx?ec_id=cmctre_02_comm_RE_image_headline
You just seem so bitter about your lot in life. You made a million dollars, live it, breath it, but don't try to lord over the people here. Save that for your renters.
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Bigsby says
I do have a winning smile, and firm handshake, that is all it takes.
Well that, a closet full of suits, and my collection of Cole Haans.
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David lush, your own posts prove you a liar... You claim you net 1300 a month on each house cleaner, and that until just recently, it was you, your wife and your kids....
So, you have your whole family crawling around cleaning toilets, and try to post like a big shot...
You sold the Atlanta home for 30k in 2009.... Perfect! You caught the exact mathematical bottom to sell for least dollar! Good thinking!,!
I make 100k a year as a college professor, plus the rental income. You go with that toilet and carpet cleaning thing...
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robertoaribas says
Now you're resorting to lies about me to make yourself feel better.
So you are a college professor, and part time Real Estate Investor.
I take it this is your first cycle so you really only have this experience to share.
Being a college professor with limited Real Estate experience gives you what insight?
You bring your simplistic view of price versus rent like it works for all market places, when I've shown you repeatedly it doesn't.
If you have a million dollars in equity I would cash that out so you can keep it, but where will you put your money next?
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David Losh says
More stupidity from the dumb David lush. I read your own blog posts... You are easy to find online...
I have 17 years at this, and sold my properties in 2005. Unlike you, I saw the bubble coming, took my profits, waited out the crash, and bought more...
Looking at your own blog posts, you say at the highest, the Atlanta condo was worth 90k... You sold it for 30k. So if you were me, you would have sold at 90, bought 3 more for 30... But you aren't me, you didn't understand the market, and you both failed to sell when it was high, then panic sold at the lowest moment
So, comparing our two track records, if you weren't so stupid,my you would be trying to learn how I did it. Instead, with your dismal record, limited education and intelligence, and complete history of being wrong, you choose to fight with me. Fair enough. Why should anyone care what you think? Your thinking has led to one poor real estate decision after another, where as my mathematical analysis of the market has led to excellent timing for 17 years now.
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David Losh says
I don't get this. One is a landlord from Pheonix and the other is a small cleaning company owner in Seattle and they are arguing who has a better business? It's like comparing apples to oranges. Power of the internet.
It's clear to me Robert could care less about cleaning business since he has a daytime job and David does not want to be a landlord since he does not want to deal with tenants. So, what's the problem here? Robert may generalize it a bit more but a sensible person should understand real estate is highly location dependent. He did not claim his business model is the best among all.
Patrick, would you stop a dog fight like this? We all like to argue on internet but this is a bit over IMO.
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robertoaribas says
Well, if you found me online you know I did sell, but didn't buy, for all the reasons I outlined here, and everywhere.
There are reasons why you can't sell everything when you want. It depends on the market you sell into.
So your million dollars today will be worth what it sells for in a future market. What does your crystal ball say about that?
The fact still remains the Market place in Atlanta did go steadily down. I see you over giving your same tired advice about Detroit. How about that Detroit?
The Real Estate market is screwed up, manipulated, propped up.
So I don't see a comparison to the 1980s. In the 1980s there was a lot of upside potential in the economy. PCs, software, and the technology revolution were all on the horizon.
That was the point about the Atlanta property. In the 1980s it was in the hub of software development, before any teen ager on the planet could write code. What is it today? Nothing.
Real Estate markets are different all over the country, and your one size fits all approach is childish.
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Mobi says
I'm sorry, but that is the point. This is all internet related.
I blog for business, and maintain a dozen, or so sites.
My business depends on internet presence which, you're right, should be my work today.
Mobi says
Once again, my fault no one elses. I made the mistake of visiting Robertos forums before I realized they were his. I mean I just read the comments, and the avatar didn't register.
My fault, sorry.
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David Losh says
I don't care who visits "my" forums, they are actually Patrick's anyways. . My problem is that you insult my business, and real estate investing in general, without much understanding of it.
I did find your sites. i didn't post on them with things like "that isn't the way to clean carpets", or "your idea of cleaning tile is stupid." Actually, I read what you had to say, and I believe you actually do know what you are doing in your business. I'll steal your cleaning ideas for my own homes here.
You basically have done that on all of my posts, with ridiculousness...
A home with a mortgage of 1/2 the rent is a once in a lifetime deal; PERIOD. I don't care where it is, Phoenix, Atlanta, Detroit, Miamia, on the freaking moon. For someone living in SFBA, well, they don't have this opportunity. IWOG did prove it existed in the bay area in some places though, 1 to 2 years ago, literally half the country had such opportunities.
Today, it isn't as easy. For quite some time, every home I purchased set the absolute comparable low price for its area... by 10 to 20%. The last home I purchased, for $86.7K is no where near the low; similar homes, albeit in worse condition sold several months ago for $70K, 2 years ago for $60K... It rented for $1100, and today it is an unmathable deal. I can sell it for $150K today. ( I did build a carport into a garage, and remodel the bathrooms, all for just under $9K...)
I never bought planning to sell, I planned to rent forever, and even today, that is still my plan. If the return on realizable equity drops to 4% or so, though I'm going to cash out... 4% versus my money somewhere else, and I'll leave the rental business...
But even 6% or 8% in rental income with EVERY expense factored in, and I'll keep them forever.
1. rents rise over time (with inflation)
2. values rise over time (with inflation)
3. you get to depreciate a rental, no other investment allows this.
4. Many investments, I have loans in the 4% range on, so that entices me to stay. If we ever have high inflation, that is the best hedge imaginable.
Robert Shiller is DEAD WRONG when he quotes his famous "homes aren't a good investment, they only rise with inflation" quote. Really? if my home values and rents all rise with inflation over the next 10 years, I make an utter fortune. Here is the simple math: Gross rent: $14,000 a month. FIXED mortgage expenses $3500 a month. Unfixed expenses $4000 a month (managment, HOA, taxes, insurance, maintenance, vacancy. Net value of all properties minus all liabilities today: 1.3 million. Let inflation be even 2.5% and what happens? My rent grows at twice the inflation rated, since half the expenses are fixed mortgage. the home value goes up at 2.5% a year, while the mortgage debt drops at $12,000 a year.
So, the dire Dr. Shiller statement isn't dire at all; it is one hell of a lot of profit.
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rob,
renters ability to pay higher rent is not fixed, is it?
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robertoaribas says
from a classical investment POV .. RS is right since for many if RE is illiquid and extended time to sell. I can buy/sell a stock or bond on a moments notice.
Home as investment is too concentrated within its own economies... stock portfolios can be diversified across industries and locations. Your home is stuck in your location no matter how desirable or not.
Tax benefits favor securities.. can you take a loss provision on sale of residence. No!
God forbid you get a storm or earthquake wipes out your home.
You get the general picture...
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robertoaribas says
see you on midnight RE infomercial....
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thomaswong.1986 says
dipstick, I am making my money by doing it, NOT by convincing others to do it. I wouldn't even work with you as a buyer if you asked, because you are irritating.
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Oakland, CA
David Losh says
These investor clients of yours. I hope you are just cleaning their toilet and not giving investment advice. The housing market is just now bottoming. Selling now to go into bonds would be horrible timing.
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toothfairy says
That statement is contrary to the 20% price increases.
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David Losh says
which utterly contradicts and kills your prior post, about advising your clients to "get out of homes, and get into bonds"
good grief... you out debated yourself!
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David Losh says
You should read the comment.
Real Estate became volitile. For older investors there isn't a real reason to hold on if the price of property will fluctuate.
robertoaribas says
These guys are telling me what they will do. I've already made my choices.
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David Losh says
It becomes relatively more volatile but it is not like it will crash next month. You do NOT have to hold on to properties. Just sell them before the next crash if you bought low enough.
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@roberto,
Bap33 says
valid or no?
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Bap33 says
Not really. In many parts of the world with lower wages, more people share a home, to the point of dorm style rooms. You'd be pretty shocked if you looked at property rents versus renter incomes in Thailand, Phillipines, etc.
But, in the US we already have the homes; If jobs and wages drop, rents would indeed be in trouble. If jobs and wages come back, rents will climb.
Right now, the job market has been improving for over 2 years, though it by no means has hit what it was before the crash. I don't have very high hopes for this year, but if last week's numbers foreshadow, maybe it will surprise a bit on the upside.
I'm rather much more bullish for 2014, 2015 and beyond.
Betting against recovery in the US has never been a good idea long term, and only rarely a good idea for anything more than very short term.
That is where the Peter shiff, buy gold for the collapse, it is all doom forever crowd are taking a huge gamble in their financial planning. From civil war, to financial collapses, the US has always come back, and not only merely started growing, it has actually made up for all of the lost growth during the down years.
At present, we are missing about 15% of GDP due to this crisis...
IF we grow at 2 to 3% year after year, PLUS make up for that missing growth, do you really want to be betting against the US economy? Historically, despite all the times everyone expected otherwise, from oil embargoes, to civil wars, to 1980's inflation and war in the gulf, this has happened...
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Los Angeles, CA
The premise is entirely ridiculous. Most of LA(and SF for that matter) are unaffordable for most families.
Even if you accept the premise that the old 2.5-3.5x income calculation no longer applies due to low interest rates, you are still at something like 5-6x income. At an middle class/upper middle class income of $120-150K, you are still looking at homes in the max range of $600-900K. And looking at Redfin or similar in Los Angeles, you see a VERY small offering of complete renovated homes that contain schools with state test scores 780+.
And thats a pretty high household income. Along with that, at that price range, there MUST be fairly rapid real estate appreciation in order for it to work. Oh then theres that 20% downpayment of $120-300K which I doubt very much any people in that household income range possess.
Now I can't speak to the rest of the country other than to point out that even the most bearish here on Pat.net have conceeded that low real estate price areas such as Las Vegas, Florida, and Texas, have all bottomed out.
So you have a situation where:
1.) Housing prices must continue to rise
2.) Incomes must rise disproportionally faster(or additional government carrots must be added)
3.) Jobs must continue to be added.
4.) Inflation can't occur.
Eeesh.
Personally, and I think many people my age will be of the same mindset(GenX), what makes most sense at this point is to rent in an area I'm happy in, with a close commute to work. At this point, its far more likely that I'll inherit my 70's ish parents home with ocean view in coastal OC than mortgage a home before I retire. And as macabre as that might sound, things are what they are. The cool thing about that scenario would be the massive bank account my 457 will have produced by then. It won't even matter if prop 13 is repealed(In which case I'd likely sell, split the multi million dollar proceeds with my sibling, and retire as a King in Las Vegas)
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dodgerfanjohn says
Agreed. While I usually always pay cash, given the extreme low interest rates (and piss poor savings rates) I took a 5 year loan (paid off within 3) to invest more in my portfolio. I'd never buy anything tat takes longer than 5 years to pay off. The home affordability index is utter bullshit, nobody knows if they will be alive and able to pay for 30 years. Most homes (esp. in CA/bay area) are not affordable for the average buyer. Now I don't have an issue if they default (and a lot will again) and the bank gets stuck with it, but we all know that they will get bailed out again and so in the end everyone but the bank and the agent is picking up the tab for the defaulters 30 year wet dream.
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David Losh says
If Real Estate is 24/7, you either owned too many rentals or did it wrong. Yes, your tenant may call you midnight when the house gets flooded but that should not happen very often unless you bought the wrong house. For me, real estate is the perfect side business b/c averagely, I had to visit each property less than once per month (except when looking for tenants.) For a small business like your cleaning company, it can be nice side business when it is all established. But I think you pretty much need to put in full time when getting it started. That is not realy viable for a school teacher unless he quits his job.
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@roberto - thanks!
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robertoaribas says
that is why we have good old govt regulations which impose occupancy limits.. your state however may vary... It has been found numerous times, landlords charging above market rates and cramming multiple families into one SFHs. In San Jose, there have been cases found where tool sheds rented to illegal aliens ( at very high rents).
http://www.ehow.com/facts_7465091_california-maximum-occupancy-law.html
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thomaswong.1986 says
This is whats happening in DTLA, even with rents falling since late October. An average income....I believe its $82K per household here....supports rents in the $1400-2K range. But all rents had been pushing the higher end of that or higher(very few last September under $1600 and those were all tiny), and surprise surprise, buildings got super crowded as people doubled up with bf/gf and others illegally sublet.
Now rents came crumbling down rather quickly and finding a decent size place between $1400-1600 is fairly easy and under $1400 exists in decent enough numbers.
I still don't get what corporate owners achieve by raising rents too high. All that happens is more people break leases and theres more wear and tear on their units due to increased number of people per unit. Plus you tend to drive out your people with stable finances who never wanted to pay the higher amounts.
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Mobi says
For some people, like myself, the Real Estate market has already crashed, and will continue along to equilibrium.
Watch the stock markets, because any week where you have both the Secratary of the Treasury, and Allen Greenspan saying there is no stock market bubble you know something is coming.
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Mobi says
For many people owning rental property is the perfect part time business. That isn't what we are talking about.
Real Estate, the business of Real Estate, is where that is your sole source on income.
I've had rentals, and provided services to other Real Estate Professionals who also had rentals. My biggest business was preparing properties for sale. As a Real Estate agent I had an advantage, and marketing tool. My original web site was for my company A Spring Cleaning; catchy name, huh? The other great thing was that a local cleaning company with the domain name of house cleaning.com would refer clients to us. They stopped that when I bought the domain names of seattle house cleaning, and the combinations there of.
There was a point in 2005, 2006, when I, along with many others, realized the Real Estate market place was highly manipulated. Some big players sold big properties in 2005 in anticipation of a Real Estate market crash. I began selling in 2006, and sold the last property, that I owned with a partner, in August of 2007.
The property in Atlanta was a Trust that was in a mix of other investments.
I'll continue to sell, now, that the market is in it's highs, for Seattle, and will invest in our cleaning business. What I wouldn't do is invest in more properties. Those are my choices.