Buy in this Economy?


#1

Hi Everyone,

Do you think this is a good time to buy a park given the state of the economy? Prices are high and many are saying that we are teetering on the brink of an even worse recession than the one in '08. Is it perhaps a better idea to remain liquid and buy when the expected drop in real estate occurs?

I would appreciate any and all input on this topic!

–Shelly


#2

It’s a great question. Hard to say exactly where we are in the RE cycle but I think most would agree we’re closer to a peak than a trough. I guess that’s one reason I like the idea of investing in MHP’s. Much more recession resistant than most other types of RE (or other investments for that matter). However, I’d feel uncomfortable paying market rate today with little positive cash flow. My goal is to find a park(s) off market with high positive cash flow out of the gate. If the economy tanks and the value of my park declines, I don’t really care because as long as I don’t sell it I don’t realize any loss. Cash flow will carry you through. Just make sure you’re buying a good deal in a good market (and current low interest rates don’t hurt either). Good luck!


#3

Thank you for your response. I was wondering, if the market crashes will credit dry up because the banks are going to get squeezed due to the increase in defaults they will experience? If so, then doesn’t it make sense to borrow now while credit is more readily available? I am depending on a loan to buy a park.
Or, perhaps, after a crash, it may just be a matter of experiencing a significant rise in interest rates which will be offset by lower purchase prices.


#4

@chads gives excellent advice. There are almost always some off-market deals to be found if you are persistent. Park prices have gone up quite a bit in my area over the past 12 months, but even at the higher levels, with bank financing at 5% or so, they still can make sense as purchases.

And yes, if we have a market crash and the banks start losing money on defaults, their lending will dry up quickly. Ironically, when banks aren’t lending on deals, that’s often when the risk (and prices) are lowest, and when banks are bidding each other to win business, that’s when the risk is the highest (as are the prices).

Every market is different, but if you find a deal that makes sense based on sales price, current (and future) cash flow, and cost of borrowed funds, then do the deal now.


#5

Wow! You both gave great responses. Thanks so much! My inclination is to proceed, along the lines you have both suggested, because when all is said and done, we are still offering the cheapest housing in the market and people will always need a place to live. This fact will protect the cash flow.