When is the best time to buy??????????

NEW -> Contingent Buyer Assistance Program
[quote author="columbussquare.com" date=1222868742][quote author="graphrix" date=1222865103]

I'm sorry, but NSR, are you going to even bother with someone who cites Wiki for cap rates? I would break down how to really break down cap rates for our new member here, but I'm tired and I have done it once or twice before. I will say you don't start with the rate first, you need to figure it out before you get the rate, and it is the first mistake in the list of OMG I can't believe someone is so naive about cap rates they would actually post that crap.</blockquote>


When you're more awake feel free to actually discuss the points. The example was given with two point of data solving for a third. It's a good place to start considering it was intended to be a limpness test of a proposed purchase price. Cite your list or don't post. As a "moderator" you should know the way you show someone to be "naive" is to prove them wrong. But apparently this is the type of conversation that is modeled here at the IHB. Well done.</blockquote>


Try the search button. You will see I have shown this data over and over again. You wait until I do decide to post, then you will see all the data you want that proves you wrong. Just because you are too lazy to search for it doesn't mean you should try to put me down. You are the lazy one trapped in 2006 mentality.



And if you think it is us brushing you off because we can't back it up with stats, then you really need to do a search. We have been proving kool-aid drinkers like you wrong for years now. It's a shock to see someone come here with such ignorance, and why should we go and do the search for the posts that we have already done so much research and work on? I dare you to do a search around here to prove our past points wrong, all you will find is we were not pessimistic enough. So why, why would anyone believe that you have some thing credible to say when we have a proven track record?



You have modeled exactly what every new internet landlord has shown. You have shown you have no clue about what it is like to be a landlord and no idea what a cap rate is. So, what gives you the authority to say otherwise?



And stop complaining about no_vas's pictures, it is getting annoying and shows you have no spine. Get over it, this is the internet, stop taking it so gawddamn personally.
 
A working model doesn't come from statistics. We can both get all the statistics that we want to prove our case. Statistics help guide us once we have the rules in place. The current trend proves that real estate does have cycles. But I never disputed that. We were discussing valuation of real estate and it's implications on when to buy.



Prices dropping in the last few years doesn't prove that you know, or have the stones, to make money in real estate. Does you're track record come from surviving weak challenges? How much of this "track record" came from you?



How credible I am has nothing to do with your history no matter how great you think it is. Without knowing my resume all you have to go on is the strength of my arguments. Based on the limited experience that I have here... I have very little respect for you /but/ I do respect <strong>IrvineRenter</strong>. Why don't you just let him/her speak on behalf of IHB?
 
[quote author="graphrix" date=1222871016]

You have modeled exactly what every new internet landlord has shown. You have shown you have no clue about what it is like to be a landlord and no idea what a cap rate is. So, what gives you the authority to say otherwise?</blockquote>


Once again you make assumptions about my experience and knowledge. Please just stick with the things that you actually "know".
 
[quote author="columbussquare.com" date=1222874051][quote author="graphrix" date=1222871016]

You have modeled exactly what every new internet landlord has shown. You have shown you have no clue about what it is like to be a landlord and no idea what a cap rate is. So, what gives you the authority to say otherwise?</blockquote>


Once again you make assumptions about my experience and knowledge. <strong>Please just stick with the things that you actually "know".</strong> </blockquote>


<img src="http://blog.wired.com/wiredscience/images/2008/01/16/marijuana.png" alt="" />



<a href="http://blog.wired.com/wiredscience/2008/01/chem-lab-the-sc.html">http://blog.wired.com/wiredscience/2008/01/chem-lab-the-sc.html</a>



<blockquote><em><strong>Chem Lab: Scientists Are Learning How Weed Causes Paranoia</strong></em>

By Aaron Rowe January 16, 2008 | 10:57:34 PMCategories: Chem Lab, Drugs & Alcohol, Neuroscience





In the January issue of Neuropharmacology, which happens to have a marijuana theme, two teams of researchers tried to explain what causes some people to feel paranoid when they smoke weed.

</blockquote>
 
[quote author="columbussquare.com" date=1222861663]

With a 6% cap rate it will pay for itself within 17 years. In some markets that you can start looking. In others we need a further decline or an increase in rental income.</blockquote>


The problem with cap rates is the same as the problem with comparable sales: it is merely a reflection of what people in the market are paying. There is nothing magical about cap rates. They fluctuate wildly with prices. People bid up prices, and thereby bid down cap rates, due to their false assumptions about future appreciation. A 6% cap rate on real estate is crazy, and all of those people who bought with those cap rates will get burned. If you want to see this in a historical perspective, look at what happened to cap rates during the S&L disaster. During the S&L boom, investors used S&Ls;to insure their deposits (investment capital) and then used the leverage of the banking system to bid up prices of commercial real estate into the stratosphere. Cap rates fell down to the 4% - 6% range we are seeing today. When that Ponzi Scheme fell apart, investors in commercial properties went from getting cash-out at closing to needing 30% down. Cap rates rose back to their historic norms of 12%. This cut the value of commercial real estate in half. The same is happening now with houses. Why would a rational investor accept a 6% return on an investment as volatile and as illiquid as real estate when there are other more stable and more liquid investments returning more? The only justification for low cap rates on real estate is a belief in appreciation. Take away that fantasy, and the investment has to be justified on its cashflow alone. When you do that, cap rates go back to 10%-12% which cuts prices in half.
 
[quote author="columbussquare.com" date=1222873480]A working model doesn't come from statistics. We can both get all the statistics that we want to prove our case. Statistics help guide us once we have the rules in place. The current trend proves that real estate does have cycles. But I never disputed that. We were discussing valuation of real estate and it's implications on when to buy.



Prices dropping in the last few years doesn't prove that you know, or have the stones, to make money in real estate. Does you're track record come from surviving weak challenges? How much of this "track record" came from you?



How credible I am has nothing to do with your history no matter how great you think it is. Without knowing my resume all you have to go on is the strength of my arguments. Based on the limited experience that I have here... I have very little respect for you /but/ I do respect <strong>IrvineRenter</strong>. Why don't you just let him/her speak on behalf of IHB?</blockquote>


Okay, nevermind, you aren't worth my time. I hope IR, who I respect greatly, can show you in all the ways you are wrong about cap rates. If you knew how to calculate them properly in the first place it might help. Too bad you had to be a total !@$%#%, now you can just go buy a house a find how smart you are, you have proven you are not worth my time.
 
[quote author="IrvineRenter" date=1222897318][quote author="columbussquare.com" date=1222861663]

With a 6% cap rate it will pay for itself within 17 years. In some markets that you can start looking. In others we need a further decline or an increase in rental income.</blockquote>


The problem with cap rates is the same as the problem with comparable sales: it is merely a reflection of what people in the market are paying. There is nothing magical about cap rates. They fluctuate wildly with prices. People bid up prices, and thereby bid down cap rates, due to their false assumptions about future appreciation. A 6% cap rate on real estate is crazy, and all of those people who bought with those cap rates will get burned. If you want to see this in a historical perspective, look at what happened to cap rates during the S&L disaster. During the S&L boom, investors used S&Ls;to insure their deposits (investment capital) and then used the leverage of the banking system to bid up prices of commercial real estate into the stratosphere. Cap rates fell down to the 4% - 6% range we are seeing today. When that Ponzi Scheme fell apart, investors in commercial properties went from getting cash-out at closing to needing 30% down. Cap rates rose back to their historic norms of 12%. This cut the value of commercial real estate in half. The same is happening now with houses. Why would a rational investor accept a 6% return on an investment as volatile and as illiquid as real estate when there are other more stable and more liquid investments returning more? The only justification for low cap rates on real estate is a belief in appreciation. Take away that fantasy, and the investment has to be justified on its cashflow alone. When you do that, cap rates go back to 10%-12% which cuts prices in half.</blockquote>


Excellent points IR

I would echo that the cost of funds is now significantly higher than 6%.

In addition to that lending requirements have tightened dramatically, in some cases 40% down has now become standard.
 
As an impartial observer, I've found this exchange between csquare/IR/graph quite interesting and educational.



This post will probably not find me favor with the veterans, but I will have to agree with csquare's assertion that veteran members of this board tend to use stronger tactics while discussing issues with newer members... especially when the opinions are contrary to the general consensus here. I don't feel it's productive to squash such posts with inflammatory insults because it just stifles the purpose of this board... a discussion of opinions.



If everyone on this forum agreed with each other, what would you discuss? How much you are all right and everyone else is wrong? That would get boring after a while.



I understand this is the Internet but it pains me when I see moderators being less than impartial when it comes to new members when neither party knows enough about each other. I always felt the role of a moderator is to promote intelligent discourse among its members... whether they agree with their opinions or not. To be fair... if no_vas was posting those druggie pictures in response to one of the veteran member's (or even a moderator's) post... it would get handled. Instead, it's brushed aside and used to further insult the person who was offended by it.



Up until the last few posts, csquare was being very levelheaded in his posts despite continued poking by others. The exchange between him and IR was very insightful and I appreciate the information they were presenting. I have no idea who csquare is... but even if he's completely wrong... seeing it played out in this thread in a mature manner makes new people like myself more appreciative of this forum and its members. But when I see others just brushing opinions off, then it tends to weaken their stance because even if they have gone over this infinite times in the past... it's new to me.



Sure... I could use the search button and read all the past blog articles (which I have been doing since I joined), but to see it discussed back and forth in realtime is way more interesting and easier to follow.



Anyways... I realize this is probably going to be classified as "dumb newbie post" but I'm interested to see what kind of picture no_vas is gonna hit me up with.
 
IHO -



I appreciate the dialogue that has been going on, as well. My guess is that the cs.com's initial post was what inflamed the situation beyond what would normally be just dismissive retorts. You'll have to admit that it did sound like someone new peddling product. Conveniently (or decidedly inconveniently, depending upon your perspective) the homes that cs.com promoted are both in an unpopular area and by an unpopular builder with said blog "regulars" so he was an easy mark.



<span style="font-size: 12px;">[quote author="columbussquare.com" date=1222561178]The housing market, like any other asset class, goes up and down on a short-term basis. Historically, average appreciation in the OC has been 7% a year. Even if you went more conservative at 5% property values would double in 15 years. Instead of trying to time the market you need to look at several factors:



(1) Are you realistically in a financial position to purchase a home. (i.e. down payment, payments for principle, interest, insurance, HOA, taxes, maintenance, etc) if you can afford at least 10% down, afford the monthly payment (and qualify on a full-doc loan), and have some funds left in reserves then you could check it out. Also, for a short-time you could get up to a $7500 tax credit if you're a first-time homebuyer.



(2) Is the home one that you would enjoy living in for many years? Is it one that could be rented easily if you didn't want to live there, or were forced to move due to a job change or other event?



If you can afford to purchase and you don't need to sell during downturns then it doesn't matter as much if this is the "bottom". It's not good to try and "time" the market. And housing has utilitarian value (i.e. everybody has to live somewhere). Long-term you will be better off being a home-owner than a renter.



All that said, it's a buyers market right now. Most owners are waiting on the sidelines until the short-sales, foreclosures, and excess builder inventory are gone. Honestly, the most motivated sellers right now are the new home builders. For them, they need the cash-flow and they're basically dumping their inventory at 30% off. Just like banks, builders are not in the business of holding real estate. They're paid to build just like banks are paid to lend.



One place to look is Camden Place or Cambridge Lane at <a href="http://columbussquare.com/forums">Columbus Square</a> in Tustin. I don't know about William Lyon but Lennar has their own finance company and they use that to effect the net sale price. Ask them to explain the offer and what it means to your bottom line (all sale prices are not equal).</blockquote></span>



There have been several in the forums asking for someone to come in with a bullish approach, and here we have it. I agree that it is good to have other perspectives, otherwise the risk is that groupthink will take over. Moreso lately, I'd say that this forum has become a little too Nietzsche-esque - <strong><em>When you stare into the abyss too long, the abyss will begin to stare back at you. </em></strong>



Please get back to the debate between cap rate vs. rental parity valuations...
 
Sometimes it is challenging to put aside the fact that many of these issues have been discussed at length over and over again. However, it is necessary. Each newbie has their own questions and their own paradigm for seeing the world and the market. I don't mind rehashing these issues because each time is causes me to question my own beliefs and viewpoint to see if some new information or some new viewpoint may lead me to change my mind. I was dismissive of ColumbusGrove.com at first because he/she did sound like a used car salesman peddling their product. When it turned out that he/she is someone seeking discussion, debate and understanding, it was easier to engage in a conversation. I don't care if he/she agrees with me. If we can both state our cases, others can decide.
 
I agree and don?t see it as a negative.

In particular, I enjoyed the debate/discussion between Woodbury and VOC that took place in another thread.
 
[quote author="IrvineRenter" date=1222907994]When it turned out that he/she is someone seeking discussion, debate and understanding, it was easier to engage in a conversation. I don't care if he/she agrees with me. If we can both state our cases, others can decide.</blockquote>
Exactly... which is why I hope Graph comes back and does some rehashing (sorry... it's new to me) and hopefully no_vas can put some words behind those pictures (makes me wonder if those are actually his personal pictures and not GoogleImages).
 
[quote author="IrvineRealtor" date=1222907137]IHO -

I appreciate the dialogue that has been going on, as well. My guess is that the cs.com's initial post was what inflamed the situation beyond what would normally be just dismissive retorts. You'll have to admit that it did sound like someone new peddling product. Conveniently (or decidedly inconveniently, depending upon your perspective) the homes that cs.com promoted are both in an unpopular area and by an unpopular builder with said blog "regulars" so he was an easy mark.</blockquote>


You're correct that it originally looked like a sales pitch (even though that was not the intent). IrvineRenter and I were able to move past that point and get into real discussion that didn't center around the VoC. To help clarify the point take a look at what is listed at the bottom of <a href="http://columbussquare.com/forums">columbussquare.com/forums</a>:



"<em>This website is a resource for the owners, renters, prospective buyers, and interested parties of the Orange County community as it relates to Tustin Field Development(s). ColumbusSaure.com is not affiliated with Lennar, William Lyon Homes, the Villages of Columbus partnership, or any of the related home owner associations. Any trademarks are property of their respective owners. The opionions expressed herein are those of the respective users and not necessarly that of ColumbusSquare.com management. If you have any questions please contact ...</em>"



Key point is that I'm not affiliated with the builders or HOA. Although first blush, and re-reading the post you referenced it would appear that I am.



[quote author="IrvineRealtor" date=1222907137]

There have been several in the forums asking for someone to come in with a bullish approach, and here we have it. I agree that it is good to have other perspectives, otherwise the risk is that groupthink will take over. Moreso lately, I'd say that this forum has become a little too Nietzsche-esque - <strong><em>When you stare into the abyss too long, the abyss will begin to stare back at you. </em></strong>



Please get back to the debate between cap rate vs. rental parity valuations...</blockquote>


Thank you for support of intelligent discussion. In this discussion I have had some of my assumptions challenged and my viewpoint, while still long-term bullish, is being improved by dialog with bears.
 
[quote author="irvine_home_owner" date=1222909554][quote author="IrvineRenter" date=1222907994]When it turned out that he/she is someone seeking discussion, debate and understanding, it was easier to engage in a conversation. I don't care if he/she agrees with me. If we can both state our cases, others can decide.</blockquote>
Exactly... which is why I hope Graph comes back and does some rehashing (sorry... it's new to me) and hopefully no_vas can put some words behind those pictures (makes me wonder if those are actually his personal pictures and not GoogleImages).</blockquote>


The quality of the posts from cs.com was just getting dumber and dumber. A lot of the stuff he/she posted was flat out wrong. I don't suffer fools lightly. If you post dumb stuff around me expect to get it right back.



I know a couple of folks who have more money than they can usefully use, and have purchased homes here recently. They know damn well they are taking the worst of it, but they (for a laundry list of good reasons) decided it was time to do so, they can afford the payments, and the pulled the trigger. Good for them. CS.com made none of those arguments, he/she writes too well to be that stupid, so I deduced that they either have an agenda (which they denied), are in denial (and are begging to be shaken out of it by participating on this uber bearish blog), or they were high. There aren't a lot of other plausible explanations.



Skek posted a valid point. The groupthink is bad - but right now any voices of hope in this market are just living in total denial of the situation. On November 7, 2007 I started a thread here that covered this exact topic:



<a href="http://www.irvinehousingblog.com/forums/viewthread/1164/">http://www.irvinehousingblog.com/forums/viewthread/1164/</a>



Skek posted another valid point about the politics forum. I apologize to all here for adding to the mess over there. Winex douches it up big time, and I refuse to continue to suffer fools like him and the tactics they use lying down. I realize I could just ignore it, but that allows folks like cs.com and winex to dominate the discussion. I?m not okay with that.



If you aren't willing to stand up for your point of view, and tolerate close scrutiny of said point, you?re spineless and a waste of a human life. And you?re a much bigger part of the problem than I ever will be because you don?t care enough to do anything about it.



And for the record, I've never smoked before, and I've never taken recreational drugs outside of alcohol. No bluts, no cigars, no cigarettes, no meth, no nothing. I have led a remarkably squeaky clean life.
 
[quote author="no_vaseline" date=1222912789]And for the record, I've never smoked before, and I've never taken recreational drugs outside of alcohol. No bluts, no cigars, no cigarettes, no meth, no nothing. I have led a remarkably squeaky clean life.</blockquote>


Wow, really No_Vas. Growin' up in the IE, all we had to occupy our time was recreational drugs and getting into mischief... Meth got me through the SAT after a long night of partying before.
 
I guess I'm more of a ready-aim-fire than fire-ready-aim person... csquares prior posts didn't seem too salesy... although this last one seems to be pushing his website (harhar!).



But getting back on subject... where do I find graphs or articles that detail the last time sales prices were close to rental parity?



From everything I'm reading... it seems like it won't hit bottom until 2010/11 and even then... it will stay there until 2014 or later. I can see how homes built and sold prior to the last bottom can drop... but will we really see the 1.2-1.4 homes in Woodbury hit $700k?
 
[quote author="IrvineRenter" date=1222897318]

The problem with cap rates is the same as the problem with comparable sales: it is merely a reflection of what people in the market are paying. There is nothing magical about cap rates. They fluctuate wildly with prices. People bid up prices, and thereby bid down cap rates, due to their false assumptions about future appreciation. A 6% cap rate on real estate is crazy, and all of those people who bought with those cap rates will get burned. If you want to see this in a historical perspective, look at what happened to cap rates during the S&L disaster. During the S&L boom, investors used S&Ls;to insure their deposits (investment capital) and then used the leverage of the banking system to bid up prices of commercial real estate into the stratosphere. Cap rates fell down to the 4% - 6% range we are seeing today. When that Ponzi Scheme fell apart, investors in commercial properties went from getting cash-out at closing to needing 30% down. Cap rates rose back to their historic norms of 12%. This cut the value of commercial real estate in half. The same is happening now with houses. Why would a rational investor accept a 6% return on an investment as volatile and as illiquid as real estate when there are other more stable and more liquid investments returning more? The only justification for low cap rates on real estate is a belief in appreciation. Take away that fantasy, and the investment has to be justified on its cashflow alone. When you do that, cap rates go back to 10%-12% which cuts prices in half.</blockquote>


An argument could be made that the minimum cap rate for an individual property is the financing cost. That would make the cap rate no less than 5.875% based on current financing options for a 30-year fixed rate loan. Remember, if the rent rates don't change then a lower cap rate would imply a greater value for the property. Historic norms as described above were reflective of the financing cost. See if this passes the logic test as you're looking at property prices and financing costs. If financing costs go up 0.25% you would now value the property less because your minimum cap rate just increased. Rental rates didn't change but you're offer will. As a crude (i.e. not completely accurate) exercise take the annual rent that you're currently paying and divide it by 5.875%. Is that price higher or lower than the current market for purchasing a comparable property? What if you did that same calculation for a place that you like more (i.e. you're willing to pay higher "rent")?



The primary cause for appreciation is inflation. An asset, like housing or oil, doesn't change it's basic usefulness unless there is a rezoning or a new, more valuable use for oil is discovered. As the purchasing power of the dollar decreases (the definition of inflation) the cost of items such as real estate and oil will be re-priced accordingly. With the act of purchasing a property you're "locking in" the current cost for housing. It's assumed that rental rates are true representations of income but that isn't always true. Sometimes rental rates grow faster than income other times they grow slower. If you own, you have less uncertainty and increases to your income can be used for other purposes.
 
[quote author="irvine_home_owner" date=1222913400]I guess I'm more of a ready-aim-fire than fire-ready-aim person... csquares prior posts didn't seem too salesy... although this last one seems to be pushing his website (harhar!).



But getting back on subject... where do I find graphs or articles that detail the last time sales prices were close to rental parity?



From everything I'm reading... it seems like it won't hit bottom until 2010/11 and even then... it will stay there until 2014 or later. I can see how homes built and sold prior to the last bottom can drop... but will we really see the 1.2-1.4 homes in Woodbury hit $700k?</blockquote>


<a href="http://calculatedrisk.blogspot.com/2008/09/jpmorgan-house-price-projections.html">http://calculatedrisk.blogspot.com/2008/09/jpmorgan-house-price-projections.html</a>



JP Morgan is laying out base case loss assesments for California and Florida at 44%, assuming 7% unemployment. They are laying out 58% retrenchments assuming 8% unemployment. Currently California's unemployment is 7.7%.



This is not some wacked out uberbear blog on the internet making these claims, this is JP Morgan making this presentation to the investing public.



I expect those 1.2-1.4 homes to sell for $500k-588K ASSuming the owners can get financing under whatever Freddie and Fannie caps are at that time. Jumbos will shortly be extinct. And it puts it right back into the 160x rent multiplier assuming $3200 a month for rents on an equivlent property.
 
[quote author="no_vaseline" date=1222918248]



<a href="http://calculatedrisk.blogspot.com/2008/09/jpmorgan-house-price-projections.html">http://calculatedrisk.blogspot.com/2008/09/jpmorgan-house-price-projections.html</a>



JP Morgan is laying out base case loss assesments for California and Florida at 44%, assuming 7% unemployment. They are laying out 58% retrenchments assuming 8% unemployment. Currently California's unemployment is 7.7%.



This is not some wacked out uberbear blog on the internet making these claims, this is JP Morgan making this presentation to the investing public.



I expect those 1.2-1.4 homes to sell for $500k-588K ASSuming the owners can get financing under whatever Freddie and Fannie caps are at that time. Jumbos will shortly be extinct. And it puts it right back into the 160x rent multiplier assuming $3200 a month for rents on an equivlent property.</blockquote>


I agree with your take on the jumbo market.

There?s been a pull back in all forms of capital particularly the jumbo market, which is on very shaky ground.

Rates and underwriting requirements have increased causing transaction volume to slow.

We?ll see how this all plays out and it's effects on high-end valuations.
 
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