Editor’s Note: Dennis Fassett is a former corporate finance executive turned real estate investing “Cash Flow Mercenary.” Dennis specializes in single-family and multi-family cash flow properties and thoroughly enjoys assisting his fellow investors with their own strategies, including how to buy your first apartment building.
As an ongoing contributor to Mogul’s “Market News Updates,” Mr. Fassett provides us with his own unique, lively, and thought-provoking commentary on the timely industry news and events of today that are impacting our industry. And be sure to check out his other super-helpful Market News Updates. For now, enjoy...
From Dennis Fassett, Cash Flow Mercenary...
Well – Yippie Ki Yay. I think.
It seems that existing home sales got out of the gate pretty fast this year – the fastest pace in almost 10 years.
So says our “friends” over at NAR.
They say that completed transactions increased 3.3% in January, which was the highest rate of increase since February 2007...
And that home prices continue to rise for all housing types, hitting a median price of $228,900 in January.
That’s up 7.1% from last year and the fastest price increase since last January. It also marks the 59th consecutive month of year-over-year gains.
The NAR economist wrote that much of the country saw robust sales activity last month as strong hiring and improved consumer confidence at the end of last year appear to have sparked considerable interest in buying a home.
Hooray for the real estate market, right?
Not from where I sit. I think it sucks.
Why?
Because in my view as an investor, there’s no such thing as a real estate market that’s too strong.
And we’re staring it in the face right now. Tell me that you haven’t noticed.
As I look around, talk to other wholesalers, and look at the properties that are being wholesaled back and forth, there’s one thread that runs through most of it.
The properties are mostly junk.
I mean, you should see some of these houses. This time last year, if you got a call about one of them you wouldn’t have wasted your time going to see it. Now, it’s pretty much all that’s available.
And it’s not just my local market. I see it in many of the markets I’m presently targeting.
I see it in my direct mail responses as well. It’s getting to the point where just about anything even marginally decent is getting listed. And not just listed – they’re actually selling.
So sellers have gotten the memo.
Which is bad for us overall…
There may be a silver lining down the road.
Having survived and prospered in REI during the “Great Recession” because I was focused on buying dirt-cheap rentals in great areas, I saw dozens of investors get killed financially and disappear, never to be seen or heard from again.
And with this latest boom, I’ve seen a new crop of investors step up to the plate and start swinging for deals.
So what we have is probably the strongest real estate market that I’ve seen since I started 13 years ago, coupled with the most real estate investor competition that I’ve ever seen.
Something has to give.
Why?
Because how many people do you think will stick with REI and spend money on marketing month after month after month with little or no results?
Not many, I’d say. Especially since a lot of new folks have jumped into REI full time without much, if any, cash reserves.
I’m going to make a prediction.
While we had a real estate investor shakeout during the last recession, I predict that we’re going to have another one, but for a different reason, if this strong market continues.
I think that a lot of people who are investors right now are going to exit the business due to a lack of success, because this market is making it harder and harder to locate a true motivated seller.
I wish I had some advice to give you on being one of the survivors. But I just don’t have much other than this – don’t quit your day job.
As contrary as it sounds, being an investor who has a day job (like I do) can give you an advantage over those who don’t. And that’s a steady income that can help you weather this strong real estate market storm.
You can’t win if you’re not in the game. So being persistent and staying in the game is the key for getting through this.
Because all you need to do is look back over the last dozen years to see that the market can’t go on in any one direction forever.
And those who stick around, however long it takes, until this market comes back down to earth are going to win. Big.
What do you say?
I’m interested in hearing your thoughts. Drop a note in the comments section below.
Dennis Fassett
earned a BS in Economics and followed that up with an MBA in finance. After working and corporate finance and banking for several years, he started buying single family houses, and quickly built a very nice portfolio of cash flowing rentals. When the credit markets started to dry up and he couldn’t get any additional single family mortgages he shifted his focus to apartment buildings. He now has over $3 million in rental real estate. He manages most of it his self and still has a day job. Dennis has even created his own Private Equity fund to buy apartment buildings.