Market Timing - Stocks vs RE

[kenmoremmm]

I have read enough threads on this site and others to get the takeaway message about trying to time the stock market and the foolishness that is involved with that in the long term. So, even though I believe the US economy/markets will be jolted in the not too far future (2020) due to geopolitical instability, end of the bull run, and other things stemming from a world that seems increasingly unsettled, I plan to stay the course and invest away.

However, it seems that this rule of "time in the market" vs "timing the market" isn't viewed in the same light when it comes to investing in RE. It seems that the 2% rule was once commonplace. Now, it's 1% unless you're in more depressed or unexposed markets. And, it seems that people start poo-pooing the idea of anything less than 1% for obvious reasons and that you should just move on/not invest.

What if all markets go to <1%? Should you never invest in RE? Does the whole thing die? I know how the numbers shake out and how you won't cash flow when you're <1%. My question is related to timing the purchase of a rental property. If you're waiting for the metrics to shift back to >1%, is that not market timing? Would you just simply be losing out on returns while you're waiting for the time to enter the market?

It seems like some are waiting for the next RE crash. Historically, this is a rare event, yes? 2008-2010 is likely not happening again, and even if it does, you will again be timing the market to try and get in low.

I'm mainly asking this because I'm sitting on $200k from a recent RE sale and want to get back in the RE rental market. I cashed out on a highly appreciating market and want to move it to somewhere that'll provide cash flow. As I'm looking at various markets and seeing the metrics, I'm sensing that most markets are in a big boom period unlike many seen in the past few decades. So, I'm concerned about investing at the top of another bubble. Again, market timing. Part of me says wait it out, but part of me says jump in and start collecting that 5-7% cap rate.

[genesismachine]

I'm in Portland. Rent has doubled in the last few years, despite no real wage increase. Prices have roughly doubled, and even higher percentage-wise in the low end of the market. After taking out a mortgage and factoring vacancy/expenses, it is rare to find houses that even earn 1% cash on cash return. Kind of stupid when I can walk into a bank and get 2% on a 12 month CD with no risk, no maintenance, no hassles.

I'm in the same boat as you, I sold all my properties early last year and am just camping out at this point with money sitting in CDs. I paid off my mortgage and have a HELOC on my house just in case I need to buy something in a fire sale.

Either rents are going to go up (unlikely given how high rent is now), or property values are going to come down. And it may be that they stay flat for 20 years and inflation chips away at the value while rent slowly ticks up. If that is the case, there will be a point where real estate can beat CDs again and I'll get back into it then.

The goal is to make optimal return for given risk, not to invest in real estate specifically. It's not a religion.

[Maccountant]

The benefit of your situation is you have cash, you're not looking to finance these deals to the hilt.

Real-estate runs in cycles, albeit the timing of the cycle is unpredictable. I guess you just have to look at the deals that are out there and fundamentally ask is that home worth what they are asking. Ultimately, you cannot compete with all the fools out there speculating with borrowed money.

I wish the market would cool off, I think rising interest rates will help a little to calm the frenzy, and a recession will no doubt help. I keep telling myself another contraction is just around the corner and when it happens I'll be able to low ball or pick up a short-sale. But our economy just hasn't turned that corner yet.

[Mother Fussbudget]

The Seattle area RE market is certainly nuts. But there are other cities where one can invest. I started investing in Indianapolis, and see it as an up and coming, yet still affordable market.  That market will do well whether or not Amazon (or some other tech company) starts a new headquarters there. 

Build your team, and make a deal / get in the market.  Don't fall into the fallacy of the 'paralysis of analysis' (something *I've* certainly been guilty of...  over fear I 'might' have another losing RE investment - like that South Seattle property from 2007-2010).

[robartsd]

Real-estate runs in cycles, albeit the timing of the cycle is unpredictable. I guess you just have to look at the deals that are out there and fundamentally ask is that home worth what they are asking. Ultimately, you cannot compete with all the fools out there speculating with borrowed money.

Real-estateThe stock market runs in cycles, albeit the timing of the cycle is unpredictable.

A key difference is that compared to real estate stocks can be purchased incrementally at low transaction cost - the only way to get something close involving real estate is REIT stocks. Real estate is also thousands of local markets rather than an essentially global stock market. It is better to look for a real estate market that is worth investing in rather than trying to time a particular local real estate market.