Anyone investing in rental properties in Pierce County?
I bought a new SFH 2004 in puyallup. I also got a new SF townhouse in Fife in 2005. Both bought with 20% down and with a 30 year 6% fixed rate. Both are rented out, but each currently have a negative cash flows of $100 a month. I'd really like to get a property in the Dupont area too, but an acquisition there with today's prices would be too much of a negative cash flow for me. Any opinions on whether there might be a market slump in the Pierce County? The RE agent I have in Pierce says no.
Comments
For evidence, just look at the statistics for how many Puget Sound sales in recent years were based on exotic financing (e.g. 100% finance, no-doc loans, negative amortization, etc). Now that these kinds of loans are difficult (or impossible) to get a lot of the demand is going to disappear. Further, because of the popularity of these exotic mortgage types in recent years (up to 40% of all sales) we now have the most fragile market this region has ever seen: populated with numerous people who have little or no equity with which to whether any kind of downturn.
In fact, the vast majority of the people getting these exotic loans were gambling that price appreciation would bail them out and they were unable to really afford the homes they were buying in the first place (hence the need for the exotic financing).
I would suggest just holding off on buying another rental for 2 years or so and you should be able to easily pick up properties for 40% less than today.
Simple. Just look at the percentage of exotic mortgages taken out in the Puget Sound over the last 5 to 8 years. We have went from less than 2% of mortgages being of an "exotic" variety to well over 40%. This is historically uncharted territory.
I strongly suspect that the VAST majority of people getting these new-fangled loans couldn't really afford the property they were buying. They certainly aren't building any equity, or paying down the principal of their loans (i.e. the ability to avoid paying down principal is the prime feature of these various new loan varieties).
As I said before:
1. All the people who could only purchase homes with these extremely loose loan varieties are now out of the market (i.e. the recent credit tightening has made it impossible to get most of these loans).
2. We now have an extremely fragile local real-estate market because there are unprecedented numbers of people who have no equity cushion.
In fact, easily 20% (and this is conservative) of the people who bought homes in the Puget Sound over the last few years will wind up in foreclosure if there isn't appreciation to bail them out. I stress the point that most of the people getting these exotic mortgages could only avoid foreclosure so long as appreciation continued. But if appreciation even slows to 1% for a year or two it will drive a HUGE number of these stretched home-owners into foreclosure when their loans reset.
Also, the data showing the number of loan resets starting this fall (i.e. when people with dodgy loans have their payments ratcheted by by huge amounts) is just astounding. These massive resets will be hitting a lot of Puget Sound area home-owners starting this fall and going on through 2008. A HIGH percentage of people who have these resets will just wind up in foreclosure since re-financing isn't an option for them (what with the credit tightening that has been happening).
We are in completely unprecedented terrority here and any comparison to past Puget Sound real-estate cycles don't apply since there has NEVER been the amount of loose lending going on, and the proliferation of completely idiotic mortgage products, that we have seen in the past 5 years.
I would go so far as to say that 40% price drops (when we hit bottom) is being conservative. It will likely be MUCH more.
Another thing to keep in mind is that if we can have 100% price appreciation in just 4 or 5 years then there is NO reason we can't have equally massive declines.
Hey, if you want to lose some more money, forget about buying in Dupont and just mail me the money (I'll settle for $100/mo.) instead.
If you can't get your existing properties to cash-flow-positive now, why in the world are you looking for another one??? :?
If you're counting on appreciation to bail you out, you're a little bit late to the party . . .
To answer your question more directly, I belief the latest numbers in Tacoma/Pierce county are showing essentially 0% appreciation, with a nod towards declining prices. You bought both of your other houses while prices were still massively appreciating and you are still losing money each month, so buying now is probably a worst deal.
You cannot expect any appreciation over the next year. None. It's highly likely you will actually see depreciating prices over the next two years. Public opinion seems to be that housing will not turn around until at least 2010. Expect Seattle to be one year behind that and Pierce county to be one year behind Seattle. I think you can make a very reasoned case that given Pierce county already has no appreciation, that it may not see any appreciation until 2012.
Ask yourself if you are ready to see another five years of negative cash flow. If that sounds fair to you, then pull the trigger. If not, walk away.
Cause my horizon for investment harvesting is 2-3 decades.
I am counting on appreciation over the course of decades. I'm not going to pretend to be super smart and try to time the market exactly right. Now obviously isn't the right time, but the prices in the Pierce county seem more realistic in lines of rental income potential than where I live here in SoCal.
I believe this too. But the pain of selling and buying is too much of a pain for me. I can afford this negative cashflow and I'll hold the rights to it till there's a turnaround. away.[/quote]
I'm hoping for an inching up in the rent. This might be a false hope, but over time(think decades) I don't think so. As for pulling the trigger, no, I don't want to take on any additional negative cash flows. I almost bought a property in Lacey and another here in Socal, but stopped because of the apparent turnaround of the markets.
if you're measuring in "decades", then you have no reason to be here, since nothing that is being offered here right now would apply 20 years down the road.
you can buy anything right now...you might hit a jackpot 20 years down the road.
However, if I could get an accurate picture of when the bottom might be, that would translate to a better return over the course of 20 years, no?
I'm not an expert RE investor. I'm still learning. Part of that learning is by doing and part of it is being informed. You can get informed by making mistakes. You can get informed by reading. Information is an investor's friend. So inform me please.
that should answer your question, nobody knows.