How Not To Invest Out Of State
Long-term owner sells property to local investor for $105k. Local investor does some minor cosmetic repairs and puts it on the market for $135k. Another local investor seems to reach a verbal agreement to purchase the property for $120k. But before the papers can be signed, an investor from California swoops in and purchases the property for $126k. At $126k the property won't cash flow for the local investor. No way will it cash flow for the California based investor. But he doesn't care, because the next day after he closes on it, he puts it on the market for $160k+. And there it's been sitting ever since. Over four months now.
Now, I'm the "another local investor" in this story. And I know that this might sound like sour grapes. But believe me, it's not. I own 3 other properties on this street. All are bigger and in better shape than this one. I consider them to be fairly valued at $150k. Guess what happens to the value of my other properties if this property gets sold at $160k+? And the crazy thing is that it might. Some other out of town investor who doesn't understand the local market might come along and decide that upstate NY is just a cheaper version of California. How wrong he'll be. So I figure that if the property sells at this price, I win because my other properties go up in value. If it doesn't, I'll keep an eye on it and take it off his hands at a fair local price. He'll just have to eat the loss. The more I think about it, the more I like the idea of other people, uninformed about the local market, investing into areas they know nothing about. It'll make the local investors a lot more successful in the long run. What do you think?
I'm no expert but it sounds like what has happened in my neck of the woods.
Home values in my area skyrocketed 35% in 18 months and I attribute it to the influx of out of staters that do little to no market research before purchasing a house. But it turned into a win-win situation, with the interest rates still fairly low buyers are consuming properties at a record rate in my area, and sellers are throwing their homes on the market to cash in on their equity.
that is a great thing...im young and working on my first investment...i would NEVER, before doing extensive research venture into unknown territory...
i cant come to terms on how comeone could call themself an investor yet obviously, not know too much on the area they are investing in...
this boggles my mind, i cant wait to get started and take advantage of anyone like that who crosses my path...
good for you and your properties...i hope he gets that house off at that price and you reap the benefits...
~Andrew
Sounds like an article I just read about the market in Las Vegas. Turns out that the new homes being built in some developments were 20 -40% investors. The investors figured they could resell for a profit by the time the construction was complete.
Now there are a ton of 'for rent' signs everywhere, because the 'investors' can't sell for what they paid.
To make matters worse, in one development, investors are trying to resell properties they paid $750k for, while the developer has since lowered the price of their new homes across the street to $550k. The developers are still making a ton of profit at the new reduced price.
I've been around for awhile and I've never seen real estate investing so popular. People have been able to literally buy a house and then resell it for a profit, just because of skyrocketing values. No real knowledge or skill was needed. Kind of like the internet stocks in the late 90's.
I'm guessing that we will be seeing a mass exodus of investors in the very near future, as people again lose their savings chasing 'easy money.'
alexlev,
Pigs DO get slaughtered, even those from California.
My only concern (though it wouldn't apply in your situation) would be what would happen to the value of a neighborhood that had been overrun with out-of-town, clueless investors. If they all overprice, sit on the market and then start dumping, they may wind up selling for actually less than the properties are really worth, and the values in the neighborhood will take a dive. That may be good news for investors who want to buy into the neighborhood but not so good for those who want to hold.
That wouldn't happen in your scenario because it's just one property that's involved, but it does make one think that clueless, out-of-towners are better to have on a spot, random basis and not where they flood a particular neighborhood.
Nancy