I received the following email from a Las Vegas reader, and as this is a question that is on a lot of people’s minds, I thought it would be a great topic for today.
I’m pretty new to all the bubble- and housing- head stuff. It’s only because I was thinking of downsizing – selling my primary residence, and moving back into one of the rentals- that I starting surfing around to do my research, and fell upon your site.
Anyhow, I am starting to get rather concerned considering most of my (such as they are) holdings are in RE. The thing I keep hearing around Vegas is "If you can sit on it for 5 yrs, you’ll be ok." In the meantime I’ve been checking zillow.com (since 10/1) and seeing my property values eroding. Scare-wee.
So the point of all my rambling is this:
I haven’t read all (or anywhere nearly all) of your blog, is there anywhere there that suggests what a property -owner should do? Bite the bullet and dump ‘em on the market with rest of the investor dumpers before they really tank? Ride it out? Or do you know of a reputable site that does offer some wisdom?
Buy, sell or hold is a tough question, even for stocks, where your one share of Google or Microsoft or whatever, is exactly the same as everyone else’s one share. Property is a lot tougher, just because there are so many variables. Since it’s hard to know exactly what the future holds, you have to look at the potential benefits and risks of your situation. The answer is going to be different for everyone, but hopefully we can cover a few things to help.
The first thing to consider is the market trend. Typically when a local housing market becomes overheated, it takes years for it to recover. Be aware that Las Vegas inventory is at record levels, and as you drive around the outskirts, the builders are still out there building. Predictions about the future of the market range from "recovery in a few months" to "serious correction." I’m leaning to the serious side, but we are early in the cycle for hard, fast predictions. Suffice it to say though, the odds are in favor of a major correction, and of it lasting awhile. You need to consider how long you are interested in holding your properties, to decide if now or later is a better time to sell.
Another thing to consider is the state of the rental market. According to the GLVAR, there were 1,333 residences for rent in October 2005. For September, they list 1,601. Linda Rheinberger, the GLVAR’s president, has been encouraging less motivated sellers to delist and rent out their properties, which could help put a glut of rentals on the market. You need to ask yourself if your cash flow would be ok if you had to lower your rent, or if your property went vacant for awhile.
You are also going to want to take a look at the expenses of living where you are versus moving to one of your other properties. How low are your payments? How much equity do you have? What kind of mortgage? Is your mortgage due to reset? What do you anticipate the payments being over the next few years? What is the difference in the cost of upkeep? All of these are questions that can affect whether to sell or hold. If you owe a lot on properties that give you a negative cash flow, that’s a different situation from having your properties able to pay their way at a competitive price–you can see where one situation might indicate sell, when the other might say hold.
This article on Reversion to the Mean, by Tim Iocono, is one of the better explanations I’ve seen on what we see happening now. There is a good book written by Robert Shiller called "Irrational Exuberance" about speculative bubbles–they tend to run down about as much as they ran up. Iocono’s article describes the potential scenario’s for this rundown in the Phoenix market, but the expectation is that Las Vegas would be similar in it’s behavior. He’s basically saying that it’s difficult to know if the market is going to stagnate for a long time, or plunge in a shorter time, but either way, their needs to be a correction. You need to make your plans accordingly.
Not a very straightforward answer, is it? The problem is that the future is a murky place. As John occasionally reminds me, "The market can stay irrational longer than you can stay solvent." (attributed to John Maynard Keynes). The market ran up beyond reasonable expectations, so it’s fair to say it could surpass our reasonable expectations on the way down. That makes it tough to make predictions.
I am not an investment expert–I keep an eye on market trends. Perhaps Doomers can direct you to reliable sources that can address these issues–our readers have a broad range of experience. Hopefully though, this gives you a few things to think about when coming to a decision. Best of luck with your properties.
Debi AKA Twist
Bubble Meter
Ohio Fraudclosure
Mish's Global Economic Analysis
Northern Virginia Housing Bubble Fallout
UK House Bubble
Breaking News Relevant Articles© Copyright 2012 Housing Doom | Copyright© 2011, AuthentiCraft, Inc.
Comments are now closed.