What is your opinion about the multi-units and/or commercial R/E market outlook for 2009 and 2010?

Location: Los Angeles, CA. I have a 1031 exch client (already sold and needs to buy) who is getting cold feet about reinvesting in a multi-unit or commercial R/E property. With approx $2M to reinvest, we cannot find QUALITY properties that MAKE SENSE (7.5%++ CAP rate) and he feels that the prices are going to tumble big time, by the end of 2009 and 2010! What is your opinion? Thanks!
In Buying Property - Asked by Michel B. - Jul 29, 2009
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Paul S.
Glendora, CA

If he stays in California he is probably right. Why not go to a state where the market cycles are a bit more even? Find something with a good cap. You might give up the expectation for a big future value (buyers plan on that in Calif) for something that has a stready cash flow that is higher than you would get in California. On the other hand if you look in LoopNet in Calif, retail, 12% cap you might find the cash flow here on somthing that is actually doing better in the bad times.

Jul 29, 2009
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Davide P.
Pinole, CA

I think your client has the right idea, up to an extent...I personally agree that values are still due to come down a bit - I'm seeing many larger ($1M-3M) apartments becoming distressed and selling for great prices! Depending on how much is due out of the $2M, it might not be a bad idea to pay the capital gains taxes while it’s still 15%, especially if it gets raised to 18-20%. If the taxes due isn’t that much, it might be worth it to sit around a few more months and wait for the right property! At the same time however, if there's a property out there making slightly less than your desired 7.5% but it has a good upside potential, where else can you place $2M and make that kind of return?? Not very many locations if you ask me...

Jul 29, 2009
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