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REAL ESTATE Help Understanding Investing in a Buyers Market

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quynn

PARKED
Nov 2, 2007
19
0
10
52
Hello,

I am new so I dont know all the ropes. I just have something I would like to discuss. I purchased my investment properties about 2-3 years ago. I am in Richmond Va. My properties that I purchased make a cash flow and have some equity. I find it hard to do in todays market. I can not find houses that I can pay for and make cash flow. Houses are staying on the market for up to a year and people are not getting what the houses appraised for a year ago. So...I understand that it is a buyers market, however, I dont understand how to make the cashflow and how to tell what the house is worth. Even if you pay 75% of the house price today, who is to know if the market will continue to drop? How do you make a cash flow in this market? Everyone seems to have their mortgage leveraged and no equity. Am I missing something?
 

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Bilgefisher

Bronze Contributor
Read Millionaire Fastlane
Aug 29, 2007
1,849
294
73
Aurora, Co
Hello,

I am new so I dont know all the ropes. I just have something I would like to discuss. I purchased my investment properties about 2-3 years ago. I am in Richmond Va. My properties that I purchased make a cash flow and have some equity. I find it hard to do in todays market. I can not find houses that I can pay for and make cash flow. Houses are staying on the market for up to a year and people are not getting what the houses appraised for a year ago. So...I understand that it is a buyers market, however, I dont understand how to make the cashflow and how to tell what the house is worth. Even if you pay 75% of the house price today, who is to know if the market will continue to drop? How do you make a cash flow in this market? Everyone seems to have their mortgage leveraged and no equity. Am I missing something?

(NNWKIA warning. I in the process of my first deal so take with a grain of salt.) 75% of what todays price is still a heck of a deal in many cases. Example: 200k you pick up for 150k. Even if it has lost 10% value, there is still 30k equity in the deal. Obviously there are more factors to consider. Some ways to get an idea of the house value are to check out zillow.com and the country assessor's website. Check out what other houses are selling for in the neighborhood. For my county, the assessor is a bit low while zillow can be a bit high. Zillow does have the most recent info on houses in the area. Be wary though, their numbers can be affected by outliers such as a foreclosure in the area.

I just disagree with the notion of no profit in this market. There will always be buyers and sellers. As a seller find out houses that sat on the market for less then the average, then find out why.
 

JScott

Legendary Contributor
EPIC CONTRIBUTOR
Speedway Pass
Aug 24, 2007
4,570
10,024
2,451
Cash flow is a function of revenue and expenses. If you can accurately define your revenue or your expenses, you can safely adjust the other one to meet your cash flow requirements. So, if you can determine your revenue on a particular property (i.e., how much you can charge in rent), you can adjust your expenses (i.e., your purchase price) to ensure that you make the cash flow you want/need.

In short, don't pay more for the property than will allow you to make the cash flow you want given the income you expect.

Does that make sense?
 

Yankees338

Bronze Contributor
Jul 24, 2007
1,829
136
81
29
NJ/MD
Cash flow is a function of revenue and expenses. If you can accurately define your revenue or your expenses, you can safely adjust the other one to meet your cash flow requirements. So, if you can determine your revenue on a particular property (i.e., how much you can charge in rent), you can adjust your expenses (i.e., your purchase price) to ensure that you make the cash flow you want/need.

In short, don't pay more for the property than will allow you to make the cash flow you want given the income you expect.

Does that make sense?
That's basically what I was going to say.

As an investor, the property, to you, is worth what you can pay for it. Work your #s first and see where you have to be at to make it a good deal. Even if it seems irrational at that price, make an offer. The worst that'll happen is that it will get rejected and the owner will get angry at the lowball offer.
 

J P D

New Contributor
Nov 6, 2007
59
6
17
Chicago, Il
Also remember that alot of sellers either haven't figured out that the market has shifted or they just don't want to accept that this is not the time to sell if you don't have to. It also makes a big difference if your investment property is a sfr or a mfr as to the effect that the market change will have on you. Like Yankees338 said, work the numbers on a property and see where you end up. Either it works or it doesn't no matter what the market for sfr is doing.
 

tbsells

Contributor
Jul 27, 2007
304
59
31
Ohio
Even if you pay 75% of the house price today, who is to know if the market will continue to drop?



No one has a crystal ball. That is why it is important to buy well under "market" because the "market" could change. Buying now is a little like trying to catch a falling knife-be careful. As the others have said, focus on cash flow. If you can predict your income and expenses properly and the property has positive cash flow you can hold it forever if you want to. After all, its making money. I have been in residential real estate for 17 years and this is the toughest market I have seen. There are slow sales and slightly declining prices in most markets. If you are buying at 25% below current market and it positive cash flows I believe you are going to be pleased with the investment. The market will recover at some point and you will have built in equity. Until that time you will have positive cash flow, potential tax benefits, and a renter paying your mortgage.

I don't know of anyone reputable predicting large price drops in most parts of the country. Areas of California and Florida that doubled in the last couple years are vulnerable to substantial price corrections because the economic fundamentals are out of whack and the easy money has dried up. If you are in the more normal parts of the country, a buyers market is the time to make alot of money. In my opinion, real estate investors who are not looking to buy now do not understand the business. Its like the day after thanksgiving at the mall where everything is on sale. Actually its not that good yet, but I think it will be in 3 to 4 months.
 

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