I think a get real moment is coming. I was just analyzing an 8 unit where they were asking $ 1.5 million. NOI is like 66K or a 4.5% cap. This is in a C class area. If you were to finance this with the normal 20% down at prevailing interest rates, you'd be cash flow negative around $ 30,000 annually. If you self managed, you'd be about $ 20,000 negative. You might be able to push rents up a bit, but not to that extent. The only way to make this work is to put more cash down, but that makes no sense when you can just get a high yield checking account that pays 5% without the hassle of managing. No one's going to buy that unless its newbie desperate for "a deal".

I'm figuring at current financing rates, this place should be going for about half of what they're asking. There's going to be a huge reckoning coming. It may take a minute though. In the interim, it will be best to keep one's powder dry.

I know in my area there are still some sellers shooting for the moon.

I also wonder where all the money is coming from.

I considered doing cash-out refis when rates were 3% so we could grow, but property values were so high that it negated any savings from low interest rates. I'm still bidding, but the prices are outrageous. I just saw a property sell for $100K that would pull in $1200/mo tops, in a class C neighborhood. That's about an 8% rate of return IF you do the managing yourself.

Refigure that deal carrying it at 8% the first year, 5% the second year, and 3% for the remaining years. Then add 3% appreciation year over year and you will see what they are betting on.

"Must" .... such a fun word!

Prices WILL comes down when SUPPLY and DEMAND force prices down. Right now, supply is still super low and demand is still relatively high.

We may look back on the prices of 2023-2024 some day and wish we'd bought more back when things were "cheap."

Do they make investment sense for mom and pop investors using current metrics? No. But mom and pop aren't the only buyers in the game.

Buy when it makes sense for YOU. No one else dictates your investment strategy.

There are at least a dozen gurus who sell courses on how to buy houses that are underwater (i.e. more owned on them than they are worth). Those deals should--theoretically--be impossible, but if you dig into the details on how they work.... they do manage to channel money to the middle man. Who is to say there isn't a way to do something similar with the prices we're seeing today?

Well I said on other threads the last sale in the hood a young buck accepted a $400-500 monthly NEGATIVE cashflow and that's only mortgage , insurance and taxes. Maintenance, water, vacancy only make this worse.

On the west coast, we buy for very small return, or even negative return and wait and end up making a lot of money. Different areas, real estate investing works differently.

Maybe that building will go to a California buyer. Someone who is new to investing in PA. Or someone who doesn't like the inflation and knows that real estate has always been a hedge against inflation.

Ed, great point! We Mid-Westerners don't get the same run up in values, and so we forget about resetting our depreciation schedules from scratch once our properties are fully depreciated. It can be done, just takes longer.

Buy a house for $50,000.... let it appreciate to $250,000 over 27.5 years. Now you're fully depreciation. So you 1031 exchange into another $250,000 property. Now magically you start the tax savings process all over again.

This is why I say depreciation is a TAX concept that has no basis in the real world.

In my 45 years of being a real estate investor, etc., I've lived thru three complete up/down cycles. But the last few years have been a big "joke"! The stupid buying at crazy prices and paying high interest rates--only to loose money in the short run.

I've been on the side lines waiting to pick up deals, that failed to materialize.

When us investors buy something, we already have plans and backup plans. Here in Los Angeles it can take up to 1 year to successfully obtain a building/demo permit, and I'm a contractor knowing the in's and out's.

So I got permission before buying an old shack to tear it down and build units. I purchased the property for cash. Then pulled a demo permit. Only to be stopped midway thru the demolition phase. If I continued I'd be fined big time. So for the last 3 years the project just sat there. I put a chain link fence around the property with signs. Vandals cut holes in the fence and the homeless took up residency.

The City has send me violation after violation. Each time I to to get the Donuts brigade, know as the LAPD to do something but they won't. Housing says I have to find homes for these homeless. So I waited until the homeless burnt the place to the ground trying to make some heat.

I dumped some money into an 8 month certificate at 5.5%. Has to sit for 60 days or I lose principle.

Put it in and then two weeks later bought the newest place.

Oops.

Exactly...the prices I'm seeing don't make sense even if I can borrow at 5%.

I was talking with my genius handyman about this yesterday. His opinion was that the smart people are seeing property as a hedge against currency collapse. If the dollar collapses, at least you'll still own something tangible.

a bit late to this string.

On the commercial side of the house, Cap Rates are slowly creeping up. In December alone, the average Cap Rate that sold was up eight basis points. Sales volume is down and inventory COMERCIALLY is slowly growing.

1031 volume is down significantly and people are getting more creative. I saw a Dollar General for sale with assumable 4.5% financing. I like seeing that approach - when the prices get to high, make money with the financing. Now I saw where the asking price was six figures too high, but the seller is looking to make a buck.

I am hoping folks in this group are looking for a creative way to make that extra dollar.