Sell When Everyone Else is Buying...and Vice Versa
By Rob Minton & John Mazzara
You always hear about trying to time the market's bottom when it comes to buying a property.
You've heard the phrase "buy when there's blood on the street" and probably have taken note of expert investor Warren Buffet's advice, "Be greedy when everyone else is fearful, and fearful when everyone else is greedy."
Those lessons are being taken advantage of by real estate investors in today's real estate market, as distressed properties are available at bargain prices and have made up a large percentage of real estate sales in the past year.
There's another lesson in today's news, however, about the flip side of that equation: selling at the top of the market, being fearful when others are greedy.
The lesson is about MetLife Inc. According to an Associated Press article, Metlife sold a pair of giant apartment complexes in New York in 2006, near the height of the real estate boom. It was a record sale -- $5.4 billion for 110 buildings and 11,000 apartments overlooking the East River.
Things were going great at the time, with real estate prices in New York (and just about everywhere else) soaring. Instead of holding on to the property, which had been built by MetLife in the 1940s when there was a demand for housing for returning World War II veterans, and seeing what additional appreciation it might bring, though, MetLife sold. It might not have been fearful, but it was at least a cautious move at a time when everyone else was greedy.
The buyers of the property at the time had big plans. They were going to convert some of the rent-controlled units to luxury apartments and capitalize on the huge demand for high-priced digs at the time. However, as the real estate market deteriorated, the investors ran into problems.
A state court ruled that some of the rent increases were improper, according to the AP article. The value of the property, analysts pointed out, dropped to $2 billion, less than what the more than $4 billion owed on the property. The article states that now, facing bankruptcy, the investors will turn the property over to their lenders.
On the surface, the bankruptcy and forfeiture of the properties to lenders make it look like a poor investment for the group who purchased the apartment complexes in 2006. But the real lesson is how good MetLife's investment was.
It built the properties into the demand of World War II veterans. It held he properties for 60 years, enjoying the cash flow and -- you can bet -- paying down debt while the properties appreciated. And when others were greedy, it sold them near the height of the market.
How many similar stories will there be to come out of this current market, when investors are buying low and into the demand for affordable housing?
This story is a great example of knowing when to buy. And when to sell, which is one we don't always see.
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