Wednesday, January 11, 2012

The Credibility of "I told you so"...

HEADLINE:  Road to Recovery: List of Improving Housing Markets Nearly Doubles in January | RISMedia  

     Being a 20+ year real estate veteran, I have seen my share of market swings.  This most recent downturn which started some time in 2007, seems to have finally bottomed out in 2010 and we are now in to a recovery period.  Having been very active in the last 6 months, my feeling about how the market is moving is more than just a hunch, it is an educated guess fortified with street level activity and hard cash being paid at closing tables.
     During the last 6 months we have seen properties at rock bottom prices.  Not just the newsworthy residential home sales, but also the turnaround of income producing properties.  A "market correction" may be a better term to describe what has just happened in the real estate industry.  Finally we are able to make sensible economic real estate investments.  In retrospect, we have seen inflated property prices, fueled by easy lending underwriting which further skewed the public's perception of what was a good real estate deal and what wasn't.  In the world of income producing properties, I threw in the towel many years ago when I would see people purchasing properties with, dare I say it, negative cash flow.  URGGHH, just the mere thought of it makes my blood curdle.  Vacancy, property taxes, unforeseen tragedy, and the like can never truly be avoided.  But purchasing a building from the onset with negative cash flow never did seem like a prudent investment to me.  Making a profit on all four phases of real estate has always been my goal:  acquisition, cash flow, appreciation/depreciation, and disposition.  The best real estate investments stand solid on all four of these proverbial legs.
    So are what shall we do now?  Good news and bad news.  Good news is that the are still many good acquisition deals to be had.  Properties have been adjusted in price to make economic sense again and give the investor opportunity to make a profit on all 4 phases of a real estate investment.  Bad news:  the "Happy Harry" investors who had dropped out of the market will now be looking for an opportunity to get "back in" the market and create competition for great acquisition deals.  The longer term negative effect is that the increased acquisition competition will again over inflate the expectations of sellers and prices will again climb back to levels of low cap rates and longer term investment holding periods.  
     How will we survive?  Well, when the stock is down BUY MORE!   Real Estate is still one of the best investments around.  This recent wave of foreclosures and loan defaults have humbled many banks and lending institutions to consider work out scenarios before foreclosing and taking title to a real estate asset.  BUY, BUY, BUY and make your decisions wisely (preferably with the help of a professional like myself), so that you can ride the wave of prosperity through this current up swing of the real property marketplace.  Financing is at a reasonable level and cash is king.  Lending institutions are opening their doors again if the numbers make sense.
     BUT MY HEAD STILL HURTS!  Many real estate investors are still feeling the pain of the market downturn and have been "beating their heads against the wall" to try and make the best of declining property values, higher than anticipated vacancies, ever rising property taxes and non-renewal of bank notes.  The obsession of the mind from dealing with this multitude of problems thrust upon them has triggered a proverbial tailspin which they are having trouble pulling out of. Mike Ditka had "mental toughness"  but he never had debt like this!  
     Alas, a light shines upon the horizon!  There are many solutions to the problems some investors are still dealing with.  Mostly it is about letting go.  While we cannot hold on to a dwindling stock, likewise we cannot "fall in love" with a property and hold onto it beyond its investment life cycle.  Like a merchant who must painstakingly throw out perfectly new and good merchandise because it is outdated, so too must the savvy real estate investor dispose of non-performing assets.  In doing so, he clears the runway to set off on a new wave of investment acquisitions by applying age old investment analysis.  The mere action of new blood is invigorating.
     Buy low, sell high is the American way, however in light of some investors holdings, it may be prudent to sell low, in order to ride a better wave of economic growth.

No comments:

Post a Comment