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Real Estate boom bust then ?

Discussion in 'Real Estate Investing' started by venom, Jan 14, 2008.

  1. venom
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    venom New Contributor

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    Many of the guys that post/posted on the richdad forum kept saying that they were going to wait on the sidelines for real-estate to go up and then crash and buy for pennies on the dollar.
    John Burley just said he expects this to happen in the next few years. I always put little stock in this theory. Yet with all the houses sitting on the market. Banks sitting on lots of houses and the subprime market drying up. Hmm .
     
  2. andviv
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    andviv Gold Contributor Read Millionaire Fastlane FASTLANE INSIDER Speedway Pass Summit Attendee

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    Great point. This is something I've been wandering myself. First, what is the 'dollar' we are talking about? I mean, in most markets anybody could get a property at 80 or 90% of last year prices. If you work a little bit harder you can get them at 70% of that price. But that is not today's 'dollar'. The discount is compared to what? If you tell me it is 50% of 2002 prices then yes, sure, this is a great time to buy (or is it?). But then, how long will it take for the market to recover?

    Are you really gonna be rich by making $100 a month in cash flow per house? How many houses will you need for that?

    I wonder what is like wen the S&L thing that happened years ago... I mean, did people really got houses at 50% of going market prices? and if they did, how long did it take for the market to recover so the investors were able to cash out and get big profits?
     
  3. randallg99
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    randallg99 Bronze Contributor

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    from my understanding, the S&L crash provided a lot of distressed owners in the commercial office arena and investors were able to buy for "pennies on the dollar" especially in Texas...

    even though it took several years before a recovery, investors' rate of return was astronomical.

    there were compounding factors that created the perfect storm, though. The local economy in conjunction with a reckless lending environment created a default rate of 14.9% (kudos for GreatBear almost hitting this number on the head in another thread)... one of the links posted below shows there is a potential 19% default rate among subprime only. Unfortunately, this does not show the entire picture since today's WSJ highlighted dramatic increase default rate among Autos and other credit instruments....

    is it to say that we are headed the same direction in this market as it did in the 80/90s? I hate to be the gloomy one here, but there are a couple of factors today hurting chances for a faster recovery that did not exist in mid-1980s.... and the "disaster" in the 80's-90's is a fractional amount vs. today's credit crisis.

    to answer original question in the thread - it took several years to hit a low (but amazingly, today's climate has seen a lot of changes taking place so quickly thus far) and it took longer for a recovery.

    If buying real estate, one must realistically analyze cash flow with much more discretion and consideration of local economy and finally include more severe "worst case" scenarios.


    http://www.fdic.gov/bank/analytical/banking/2000dec/brv13n2_2.pdf

    http://ezinearticles.com/?Home-Mortgage-Lenders-Face-Three-Hundred-Billion-in-Losses&id=808689
     
  4. andviv
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    andviv Gold Contributor Read Millionaire Fastlane FASTLANE INSIDER Speedway Pass Summit Attendee

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    so I take nobody here was investing during the S&L crash.....
     
  5. tbsells
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    tbsells Contributor

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    I wasn't investing during the S&L crash, but did start selling RE in 1990. I think the "crash" was mostly in the southwest. In Ohio we knew there was a S&L problem, but it did not have a widespread effect. Like Randall said, I think the big problems and (therefore) big opportunities were in Texas. This current situation is different because it is national. Some areas are harder hit than others but there are problems everywhere.
     
  6. tbsells
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  7. venom
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    venom New Contributor

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    ? The discount meaning in "present" valuations. The property is worth 100k you buy it for 50k .
    Dont get confused with rehabs. If you buy a house for 50k but it needs 50k to be worth 100k then you paid ful price. Got one of those we call it the " money pit" Thought we got it at 30 cents on the dollar but its a hugh house that needs 70 cents worth of repairs to get top dollar.

    The point of "cashflow" is to keep you afloat.

    The point of buying at a discount is you make your money when you buy. Not counting on "tax savings" or possible "appreciation"
     

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