We suggest these strategies for buyers:
if you plan a property purchase this year for investment, you might want to wait, if you are seeking to "flip" the property. We expect events to take place this year that will make "flipping" less profitable than in the last two years.
We would definitely not recommend purchasing commercial real estate unless you get what is technically called a "smokin' deal," or unless it's a unique property you really want, since it's fairly certain that commercial real estate has not bottomed out. You will be able to do better for yourself after things are floating along the bottom for a while, and all the current owners have decided to sell for the "real price."
On the other hand, if you want to buy to rent, it's never a bad time, if you are actually going to make income. You get cash, the tenant pays off your house. You can expect a 7-10% return "cash on cash"on your investment dollars doing this, based on rents only, if you invest enough cash to gain a return (I have personally seen MUCH higher returns, but don't count on them).
We do not recommend that you carry any negative cash flow for the foreseeable future. There are many opportunities available that will provide you a good return without undue risk.
Of course, if you're buying a home to live in, get the house when you find it. That's the operative event. Finding it. Once you've found it, and you have the money, buy it. Don't buy more than you can afford, and enjoy your home.
We suggest the following strategies for sellers:
This year, it is probably better to sell sooner rather than later. If you wait, you could be caught up in what some expect to be another 10% (or more) decline in value. If you want to keep your real estate, just be sure that it makes financial sense to keep it for 5 years. That is the approximate time horizon that we're speculating we will have ahead of us. If the real estate is providing you with cash every month, then keep it. Rents are probably not going down, since many former owners will become renters in the next couple of years. If you are "feeding it," plan on doing so for some time. If you don't have a large negative every month, the rise in rents may well overcome it, and you will have a good investment. However, if you are being "eaten by an alligator" (a costly piece of real estate that you can't afford to keep), it may be best to sell it, depending on your financial situation.
We can help with both the consulting and the sale, and we WILL NOT tell you to sell if we believe the property is going to serve you well in the future. We can be wrong, but we usually are not. we read "sell, sell, sell from lots of investment advisors, but what they really mean is, "sell your real estate and buy my_______ (whatever they are selling)."
Those of us who are privileged enough to live in San Diego know that it's a unique area of the world, and it will recover. The question is, what is good for you? And the answer is always found in the numbers.
If you've decided to keep your property, and you can qualify for a refinance, we recommend that you do it sooner rather than later, since most predictors indicate a rise in rates later in the year.
Here are the five trends that have influenced our thinking on the outlook for real estate in 2010:
1. The Fed has said that it will curtail its buying of mortgage-backed securities this Spring. That will impact both rates and the availability of money, driving rates up, and potentially driving prices down.
2. There is a giant amount of inventory coming on the market, and soon. The banks must begin releasing foreclosed assets in greater numbers very quickly. They now have a huge backlog, and it will have to be sold. Greater inventory normally means lower prices, which could impact your financial situation if you decide to sell later in the year.
3. About 3-4X the normal number of loans is in some stage of delinquency (13.2%, at last count); this will impact the foreclosure inventory as well, as banks are forced to make the tough decisions to foreclose or modify existing loans (loan modifications are not doing well, with many borrowers falling back into default).
4. On the other hand, inventory levels are very low right now, (in the sub-$500K range), and a well-priced property should sell quite easily, at the moment.
5. We still live in San Diego, which is a unique market, and there is no real building going on. Existing homes will be the best opportunity for buyers in the next few years, and that could make our real estate market completely different from the national market. People want to live here. The question is, "is it worth waiting?" There is even something of an argument for "trading down"--selling a home in the $500K price range (even at a slight loss), and buying real estate in the $300K range. Why? the ratio of rents to pricing is much better at the lower price ranges, and will continue to be so for some time.
