Waiting to buy

Implications: Today is not the day to pull the trigger on the residential real estate market.

Analysis:  If you have been sitting on the sidelines like I have waiting for that perfect opportunity then my advise is to be patient and keep waiting. As 2007 winds to a close the residential property market is still struggling to not only find the bottom, but find some light at the end of a very dark tunnel. Sure there are some seemingly good buys out there today and you can even tell a great story of getting property at 60 cents or so on the dollar, but what are you really underwriting? For me, I use pretty typical underwriting standards to produce an IRR at 25% or more. Today that underwriting is tough to do because, at least on residential land deals, you have no idea what your absorbtion will be. The high levels of supply in the Florida market make the most basic underwriting impossible because without a good sense of absorbtion your carry cost will kill all your return.

The real opportunities will show their heads as the lenders that lent to developers begin taking back projects and selling them in mass at very steep discounts to a point where the absorbtion is insignificant compared to the discounted price that your basis will be. The sellers in this cycle will not be landowners, or developers. The real sellers will be lenders, builders, bankruptcy courts, and the FDIC. So keep your powder dry till mid 2008 and be patient for the real steals.