It is no surprise that the sluggish housing market is also having an impact on real estate that is purchased and held for investment. A few years ago everyone was a wannabe real estate investor, because real estate was the road to quick wealth and cocktail party conversation was dominated by how much our houses increased in value. It was fashionable to be in real estate. Do you really think Donald Chump Trump could introduce a line of neckwear for men had it not been for the rise in real estate?

We would receive calls into our office from people declaring themselves to be a real estate investor, but a quick response such as “Oh, how many properties do you own?” would usually reveal the true status which was “yes, in fact they did see a commercial on TV regarding real estate investment.”

These days investment real estate has lost some of its luster. It is only for the seriously committed and not for the weekend dabbler as indicated by the sales results of the last three months. The two reasons being (1) money and (2) financing. Since both are harder to obtain and increased amounts are required to purchase, many would be buyers who were playing the real estate roulette wheel hoping that values would forever increase are no longer in the market. Plus the only reason to buy income property is for the income stream that is generated. For income to be produced a substantial down payment is required before the rents begin to pay the PITI (principal, interest, taxes and insurance).

Opportunity for the Contrarians

If you do not have the heard mentality, then there could be opportunity for you. If you think that the time to buy is when others are selling, then it might be time to consider jumping into the market. With both Pasadena real estate markets (residential and income) selling about 50% less units this first quarter, it appears from the chart above that prices are definitely softening.

Unlike residential real estate where emotion is a large factor in the purchase decision, investment real estate is just the opposite. Much more of a black and white decision. If it doesn’t make money, there is no reason to buy it.

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