Soft Landings, Bursting Bubbles, Or Noth...

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...

The question that I’m struggling with is this: At what point does perception become reality?

Or actually, a better question might be: At what point does perception cause reality?

I write this as a sort of follow up to a couple of pieces that I’ve written on the economy over the past couple of months…

Since then, I’ve talked to more than a dozen investors both in my local market and in other markets scattered through the country. And each of them told me something so similar that it was eerie.

Each of them said that they while they couldn’t quite put there finger on it, their Spidey sense was telling them that their markets were slowing down:

They were getting offers, but not as many.
They’re getting offers over full price, but not as high over asking.
And buyers are starting to get a bit picky again.

All of it is anecdotal of course. But it did get me thinking about it…

So I did a quick headline search on Google and this is what I found:

CNBC: San Diego Real Estate Cools Off: Will Rest of California
Follow?

San Jose Mercury News: Bay Area Home Prices Plateau on Slowing Sales

WSJ: Home Price Growth Slowdown a Mixed Trend for Economy

WSJ: New-Home Slowdown Pressures Recovery

Woodworking Networking: Cooling Housing Market to Impact Lumber Sales

spidey And…

"I finally got the 2nd offer on my latest rehab - it took 9 days. That makes me think the market might be slowing down.” – An investor friend’s Facebook post

All of these headlines seem to confirm what the Spidey Sense was telling my colleagues... it appears the market is cooling off.

Even more telling though was that I didn’t find a single headline with the opposite view – that THE housing market was getting hotter. Not one.

So – What does it Mean for REI?

The bottom line is that this is nothing even approaching a statistically relevant sample. So we need to take this with a grain of salt.

But I think we should be prepared to adjust in case that is the trend. Wouldn’t you agree?

So let me ask you – if you do rehabs and flips – What’s the play if the market is indeed cooling?

How about if you’re a wholesaler?

And how about if you own rentals?

I can speak to this because that’s what I do. As a buy and hold investor, the way I’m preparing is to get a pile of money lined up. So if activity slows down, the market cools off and price growth slows or goes negative, I’ll be positioned to buy more properties for my portfolio.

Houses in my market are still well below their historical highs, but in the best areas they’re now hovering just out of reach price-wise to make them attractive (and profitable) as rentals.

So in your business in your corner of the universe, What’s the play if that’s the trend?

The Fine Print

Let me offer a disclaimer because I always get a ton of emails when I write about potential bad news…

I don’t have a crystal ball. I don’t know what’s going to happen. And I’m certainly not calling the top of the market.

But I’m an active real estate investor just like you. And because I want to stay in business, I make it a habit to purposefully follow news and headlines that are relevant to my business.

Not so I can know what’s going to happen, but so I can prepare for what the likely scenarios might be.