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Silver Regular Contributor
Fishmarty
Posts: 681
Registered: ‎08-25-2012
0

Will investors be priced out soon?

Just saw the activities on this Fremont house sold end of last year. If they are flipping (may be I am wrong) I wonder how much they can make. Sold price is $470k (at the high end of average) for this plaint-looking house. Is the flipper going to sell $570k in this not-so flashy community? 

 

http://www.redfin.com/CA/Fremont/40118-Laiolo-Rd-94538/home/1107146

 

Price of BA homes go up double digit in 2013 as the latest news projected, will we see more and more investors be priced out? I guess at the end there would still be a few flippers left. 

 

 

Gold Super Contributor
Jil
Posts: 3,136
Registered: ‎10-24-2011
0

Re: Will investors be priced out soon?

[ Edited ]

Fishmarty wrote:

 

Price of BA homes go up double digit in 2013 as the latest news projected, will we see more and more investors be priced out? I guess at the end there would still be a few flippers left. 

 

 


So far so good with double digit!  What we can fairly guesswork is 2009-2012 prices are gone for sure with 2013 double digit freak out! 

 

Ah, I realized ! why am I hanging out here :smileylol:

Getting bored with my other stuff? :smileymad:

 

 

Regular Contributor
aurareturn
Posts: 59
Registered: ‎02-09-2013
0

Re: Will investors be priced out soon?

Of course they will price themselves out soon.  Once they reach the point when it makes no sense to buy to rent, they will stop buying.  

Platinum Regular Contributor
tjh
Posts: 4,946
Registered: ‎01-09-2010
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Re: Will investors be priced out soon?

My crystal ball said that flipping was pretty much dead as a money maker sometime last summer as prices began to strengthen. 

 

Well, there are always some exceptions as, all real estate is local.

 

Just don't ask me where those exceptions are.  :smileyvery-happy:

Gold Super Contributor
Jil
Posts: 3,136
Registered: ‎10-24-2011
0

Re: Will investors be priced out soon?


aurareturn wrote:

Of course they will price themselves out soon.  Once they reach the point when it makes no sense to buy to rent, they will stop buying.  


Now, you are coming to the point! Buy to rent was attractive between 2009 to mid 2012 (max period), and not any more when 10+ offers are on table. Because of 10+offers,every shack is competitively going above 25k or 50k range. Rental investment is not at all attractive in 2013 (exceptions always there). Hence, rental investors are out in this market. Rental investors, whoever bought during the 2009-2012, would have got 3.5% to 4% rate fixed 30 years. They won't offload immediately as their short term cash flow is positive and long term appreciation would be better than selling soon/immediately.

 

However, current home owners, who has at least 30% equity and their rent vs expenses are cash flow positive, may jump to get a new primary home competing with 10+ offers to get a break at low interest rate. They will be putting their primary home into rental, if they do not sufficient appreciation to get a tax break, and move it to new homes!

 

All equations will change when FED pulls out QEs slowly and start raising interest rate, which will be the root cause of next downfall. They won't tell exactly when, but surprises will come any time. Until then, the current trend will continue...

 

Gold Regular Contributor
manch
Posts: 2,391
Registered: ‎05-18-2011
0

Re: Will investors be priced out soon?

Not all investors are yield hungry. Some, like me, are after appreciation at this stage. The rental income help pay for PITI and allows us to hold the property for as long as we want. 

 

Market in 2013 is of course not as attractive as 2011, but we only go forward, not back. You will say the same thing in 2015: "I wish I bought in 2013."

 

Silver Contributor
DealHunter0
Posts: 399
Registered: ‎04-05-2011
0

Re: Will investors be priced out soon?


manch wrote:

Not all investors are yield hungry. Some, like me, are after appreciation at this stage. The rental income help pay for PITI and allows us to hold the property for as long as we want. 

 


I would be careful of this.  Banking on short term appreciation in RE is gambling not investing (the exception of course is if you're a flipper and make substantial improvements to the property).

Platinum Trusted Contributor
elt1
Posts: 5,030
Registered: ‎01-04-2010

Re: Will investors be priced out soon?

Depends on the acceptable cap rate... In SF caps are below 3. In RWC below 4. Sac below 7.... In London they are near zero.... The lower the cap the higher the an antipaction of appreciation....The higher the cash flow the less attractive the area...In this market of rising rents and appreciation, cap rates will go down and prices will go up....Until the Fed raises rates a lot, in maybe 2017, income property will keep going up. In SF people have always bet on appreciation and won...in an area where density is always increasing the supply demand dynamics get turned on their head....higher and higher density means supply never catches up with demand and appreciation is the only way to make money.

Gold Regular Contributor
manch
Posts: 2,391
Registered: ‎05-18-2011
0

Re: Will investors be priced out soon?


DealHunter0 wrote:

manch wrote:

Not all investors are yield hungry. Some, like me, are after appreciation at this stage. The rental income help pay for PITI and allows us to hold the property for as long as we want. 

 


I would be careful of this.  Banking on short term appreciation in RE is gambling not investing (the exception of course is if you're a flipper and make substantial improvements to the property).


Short term  appreciation? Look at any price chart of RE. Which one has shorter time span: Prices going up, or prices going down?

 

It is exactly the other way around. The bears here are extrapolating the 5-year depreciation of RE from 2007 to 2011 to infinity. That is far more dangerous in my opinion.

Silver Regular Contributor
Fishmarty
Posts: 681
Registered: ‎08-25-2012
0

Re: Will investors be priced out soon?

[ Edited ]

Jil wrote:


aurareturn wrote:

Of course they will price themselves out soon.  Once they reach the point when it makes no sense to buy to rent, they will stop buying.  


Now, you are coming to the point! Buy to rent was attractive between 2009 to mid 2012 (max period), and not any more when 10+ offers are on table. Because of 10+offers,every shack is competitively going above 25k or 50k range. Rental investment is not at all attractive in 2013 (exceptions always there). Hence, rental investors are out in this market. Rental investors, whoever bought during the 2009-2012, would have got 3.5% to 4% rate fixed 30 years. They won't offload immediately as their short term cash flow is positive and long term appreciation would be better than selling soon/immediately.

 

However, current home owners, who has at least 30% equity and their rent vs expenses are cash flow positive, may jump to get a new primary home competing with 10+ offers to get a break at low interest rate. They will be putting their primary home into rental, if they do not sufficient appreciation to get a tax break, and move it to new homes!

 

All equations will change when FED pulls out QEs slowly and start raising interest rate, which will be the root cause of next downfall. They won't tell exactly when, but surprises will come any time. Until then, the current trend will continue...

 

 


Jil,

You made some very good points. 
Sure I will keep my rentals I brought in the last four year. Rent is good and home value is rising. It will be another 4-5 years before I consider selling. 
Looks like I should consider buying a bigger better primary and rent my current starter one. 
On the interest rate, I am not sure I follow you. In a rising market with home value appreciating, people may be a bit loose on a few % point increase. I brought my first house in 2002 and interest was 6% and friends and relatives told us it was good; they compared that to the 8-9% they got in the late '90.