I’m interested in studying RE cycles. It’s not exactly the same as timing the market. RE cycle is very long, people can’t postpone the purchase by 10 years to buy a primary home. So homebuyers better focus on long term need and focus on their life, not too much on investment value change of the house.
For investment, it’s useful to pay attention to market cycles. When price is going up quickly, we need to buy fast. When price is going down, need to wait or be really selective. I think we are approaching the top, but the topping process can span several years, or even go up further before an economic crisis.
Elt1 had some great advice he posted on the old forums about investing that had to do with cashflow. I can’t recall most of it, but it was on point.
The thought process you described is what most people subscribe to and it’s more inline with making a margin. We aren’t in a blood in the streets opportunity that accompanies a crisis.
The best advice I can give is to keep things simple and not get too cute about it.
Market cycles are coming in decades, hard to master it. There are books on amazon for market cycles, just read them or use it from library.
As long as you have 1) some cash reserve and 2) some lender is ready to assure you loan, watch out a 3) good deal and get it. Again, your P&L has to work within your comfortable limit.
Each step is tough to make it and it takes years (for me) to buy one home as I do not buy&sell or flip it.
Maybe I am biased towards my own holding. AAPL, FB and AMZN all are 5-10% off from their year highs? All I know is my account used to be a lot higher a month or two ago…
I don’t think I am smart enough to time the market. Just buy whenever you are ready. And keep buying. I don’t believe in “missing the boat”. I have been buying pretty much every year since 2011. Someone could have argued 2011 was already too late. 2009 and 2010 had even lower prices.
Nothing is certain in life. I looked at the price swings in the last 3 cycles. Except for the most recent downtown, the 2 older downturn lasted only a year or two and price dropped around 10%. I don’t have data on rent but even if rent goes down 20% my portfolio can withstand that kind of pulldown.
We have to liquidate at heavy loss, it is hard to absorb, during downturn or correction. Real estate, being heavy amount, one big loss makes many years of life savings. It is not worth liquidating during correction period unless we carefully plan and execute. We must have holding capability during the downturn or sell before (no one knows ahead).
I have not seen rent coming down 50%, but have seen 27% reduction in year 2001. My rent was reduced from $1850 to $1350 at Sunnyvale 94087 zip.
In 2008-9, I was forced to reduce my SFH rent from $2350 to $2150, but not much.
The unemployment rate in the San Francisco-Redwood City-South San Francisco MD was 3.0
percent in November 2016, down from a revised 3.2 percent in October 2016, and below the
year-ago estimate of 3.3 percent. This compares with an unadjusted unemployment rate of 5.0
percent for California and 4.4 percent for the nation during the same period. The unemployment
rate was 3.1 percent in San Francisco County, and 2.8 percent in San Mateo County.
What are you guys doing to protect from this sort of thing? So many things can go wrong and different strategy can fail on different downrun. E.g. Tech bubble burst which might impact more to BayArea and other tech center like Seattle. Or US go to war with China, where most of the countries might get impacted and so on.
If you are worried about BA real estate diversify…Be careful where, though…As far as black swan events, hard to predict or protect…But most effects are short lived…do a stress test…try a proforma at 20% off or even 50% and determine reserves needed…In a war though rents often go up…as in WW2 and the Vietnam war…construction stops and demand gose up, especially in strategic areas…
I don’t think it’s realistic to have reserves for a 50% rent drop. Things tend to correlate, and in that 50% scenario it’s highly likely our economy would have tanked and my business would have collapsed. So how can you ever have enough reserves to sail through that?
Trump is scary as hell. A couple percentage points of tax cuts is never enough to compensate for the highly unpredictable geopolitical risks he’s building up.
While my landlord experience in SV is only 5 years but I have more than 20 years in Singapore. The lowest rent is 35% of highest rent. Rental property becomes underwater but luckily government instructs bank not to foreclose and allows interest payment only for a few years.
I like manch’s conviction! He has a thesis and he is following it. 4 years of a 50% reduction in cashflow is a very healthy balance sheet, but it comes at a cost of the growth of your asset base.
Right. And we are talking about cash reserves. If you put that cash in stock market or even gold bullion’s you may still need to sell these at a deep loss in that financial crisis scenario. But hey, at least I have some assets to sell that’s worth something.
When there is a huge drop of both rent and housing price, government will absolutely intervene. Singapore is different since mortgage is not non-recourse, and Singaporeans have better credit scores, and most importantly, Singapore government has much more influence over its banks.
For US, government may not be able to do that much, but we did have HARP programs. A 50% drop in rent requires a severe recession and a financial policy failure. Even in 2008-2011, rent decrease is no more than 15%.
In a paper money world, it’s unlikely to have a 50% drop on rent nationally. But it’s very likely to have a 50% drop on housing price or a 50% rise in mortgage payment, which is less damaging than a 50% drop on rent.
If there is indeed a 50% drop on rent, housing price may drop 80%. A 50% drop on rent can happen in a particular area. For example, if all the tech companies decide to move to Austin or Seattle, a 50% rent drop is likely.
The consensus is a 50% drop is very unlikely. .but if you think it will happen or if you can’t sleep at night, sell…Of course then you are guareenteed a 35% loss due to taxes on your gain…The key is to slowly reduce debt…No debt no risk…low debt low risk…I had huge losses in 2008-2009 but I had low debt so I could handle the loss…
Still a good time to sell…in fact inventories are historically low…Meaning prices will rise in the spring…not a bad time to sell…Question is …where do you put your money?..A Trump caused black swan event could cause prices to fall…But the effects of those events are usally short term.My parents got the deal of the century because of the Cuban missile crisis… .Many got fantastic deals in 2009-12… Optimists make money, pessimists are better off getting a government job and hoarding cash…
Manch might think he has a superior strategy but that is what many Singaporeans thought they have during the accelerating RE prices where one can sell a queue for a new launch for tens of thousand dollars, and flipped a booked unit for hundred of thousand dollars. The mantra is prices won’t budge even during a recession because there is not much land in a small island nation and population is projected to grow vigorously. Every Singaporeans think investing in RE is a sure bet. And then the unexpected happens, my rental property has appreciated by 74%, should have plenty of equity to absorb the decline, right? Wrong! Every rental renewal has to drop rent and neighbors regularly check on my tenants offering their units for cheaper rent. If not for the government’s intervention of forbidding foreclosure and interest only payment, many landlords would have to sell their houses and house prices would have crashed to a much lower level.
In a booming market, be it RE or stock, those who happen to start investing near the bottom think they are geniuses and have a failsafe money making approach. Is only when the tide subsided that we know who is swimming naked, and have taken too much risk.
