mike neff said:
Moh,
If you equate the cash on cash return of your quote (129%) with the runup that Randolph's chart shows, and apparently is the Bubble Bible, I agree with Brad E. give it a rest.
Is it the math, the fear or the lack of real estate knowledge that holds you back? You sat in the hottest market, per your previous posts and the chart, where an 80% leveraged position would have returned 900% cash on cash in a couple of years.
Your view point from the rear view mirror never changes does it? I don't know if you were here before the bubble talk. If you were, I'm sure you were not predicting the runup.
I don't dispute the charts, because frankly I have no time or desire to study them.
Simple test of credibility for bubblers. Did you have the same convictions when the runup started and did you act on those convictions. If not it's like a priest doling out sex therapy.
Mike,
I am talking about here and now, the reality in the market. I am not predicting. I am not a fortuneteller and I don’t have a crystal ball. I didn’t have the conviction that the market was going to reach the level of 2005-2006 neither the FOMC. There are some out there who say they knew in advance about the run up, but not me. I am just a realist that doesn’t believe that an accident makes a norm, that falling snow in the middle of summer makes the norm that we get snow in every summer. I believe in natural, equilibrium, balanced market economy and if its participants tried to manipulate it, the market takes care of it sooner or later.
I know the different between cash on cash return and the power of leverage in real estate investment but the problem starts with the leverage.
If you know, they granted the leverage to day traders in stock market a decade ago and let them to buy on margin without money in the account and you saw what happened to stock. It is a big problem for some people that when there is cash available to them; they take it without thinking that they have to pay it back. It happened to stock market and it happened to real estate market.
Another problem with the leverage in real estate investment is that you cannot cut the loss as quickly as the stock market and that is the current situation in real estate market, which is very dangerous.
If you were a real estate investor prior to the bubble and hanged on, you felt the market jolt and were pleased to see higher profit but if you claim that you knew what was coming and you had the crystal ball, I would like to know what your crystal ball told you then and what is telling you now.
Remember, when the fed started cutting rates in 2001, it started with tiny little 25 basis points. Every time that they cut the rate, it was some indication that it might be the last cut but they kept cutting it down to the lowest of the low. They event didn’t know how far down they will go. Now, they are doing the same thing on the way up. They don’t know when they are going to stop increasing the rate but there are some who think they have the crystal ball and predict that the fed is going to stop raising the rate or start cutting it down.
A friend of mine who is an appraiser and a broker bought 5 condos 2 years ago. He had no clue what would to happen to the future of real estate market but he bought them because everyone was buying them. They all are vacant and sitting there now. He has to pay association fees, maintenance fees, property taxes and loan payments. The only positive side of that is that he can deduct the interest and property taxes. He marketed one of those condos at 50% above the price that he paid but could not sell it after 6 month on the market. He has listed another one for 40% more than he paid but cannot sell it after 4 months on the market. He still thinks that the market will come back and he will sell them with 50% or more profit. I think he is dreaming. This kind of investment is not based on knowledge of math or real estate; it is an appetite for greed and quick profit.
If real estate investment was your customary business prior to this run up and you kept doing your business as usual, my hat is off for you but if you jumped in the market because everyone was jumping in, I have to believe that you are not a professional investor.