A guy asked me about a Bank Owned Property today that has been on the market for a year at $350K. He wants to make an offer of $175K cash. I said sure, why not.
His reasoning is that as long as interest rates continue to stay low he will be better off having his cash tied up in something he can rent out, and get a return on that is safe, and secure. I can’t argue with his logic. Even though Real Estate prices will decline he can average his return, from rent, after expenses, into a net return on the property when he sells, if he sells.
Banks are doing the same thing today. Banks are getting a return from other investments they can make using asset portfolios as leverage. Banks own tons of property free and clear. Banks have access to tons of borrowing power by having these huge portfolios of free and clear property.
Any individual can do the same because today cash is king. If you have cash you are willing to invest, and there are many people who have cash in investments that may have more risk, there are millions of properties to chose from. The difference today is that banks, and individuals are more inclined to sell rather than hold onto a property that is losing value.
You may be thinking you should care about the declining price, but your money would be tied up into an asset, you own free and clear. You are averaging the rental income into the declining price. It makes little difference because the rent will out pace the decline in pricing. Your money is still safe, if you buy well. As time goes on, if you chose to leverage, you still have an equity position, or you can sell.
About David Losh
In 1984 I got my Real Estate license and worked in a small company called Advance Properties. The owner was extremely interested in Real Estate, building, and land development. Most of his work was concentrated North of Seattle. Since the 1970s I had worked for Real Estate agents in Seattle as a contractor, mostly preparing properties for rent, and sale.
After a few years my skill level increased considerably concerning land use, building code, and development practices. Escrow, and lending offices were housed at the Advance Properties building so it was easy to get involved in all aspects of Real Estate. It was very much a family owned, and operated business.
Over the years my Real Estate license has been at a variety of Real Estate companies, and offices. Nothing compares to those early years, or that sense of family. Real Estate has gotten to be corporate owned.
My hope with this blog is to share with you some of the things I've learned. If you have Real Estate needs, or want contractor help, I refer freely to what best suits you. If you should choose to work with me you'll find a great resource.
My Real Estate license is at Skyline Properties in Northgate. Skyline is a locally owned company that is a desk fee office. There is a wide variety of diverse agents. It helps me with some of the other projects that I have, and mentoring that I do, to be able to work with people from other cultures.
Here in Seattle we are close to Vancouver BC and are the gateway to China. Boeing has a great trade relationship with China, as does Microsoft have with all of Asia. We are a culturally diverse community, and it helps me to be invlolved.
