"Hot" markets explained + why you should Buy Now!

Buying & Selling Real Estate
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"Hot" markets explained + why you should Buy Now!

Jon Q.
Investor · Berkeley, CA · Member since 2015 · 1k+ posts · 713 votes

Now is the time to BUY!

Here is what is occurring in virtually all "hot" real estate markets nationally:

"Hot" = strong population and job growth markets and therefore increasing price trend line 

This applies to San Jose, San Francisco, Los Angeles, Seattle, Denver, Dallas, Austin, San Antonio, Houston, Charlotte, Raleigh, Atlanta, Ft. Lauderdale and many other markets on the list below...  

This specifically is a chart of market price, as it moves through real estate market cycles in a "hot" market that has an increasing price trend line.  Once prices surpass the point in the center, your ability to cash-flow disappears (though there are a few exceptions). Again, although there are a few exceptions.... Generally... for SFRS with 4 bedroom / 2 baths, once price moves beyond $120/125K, generating cash-flow becomes difficult if not impossible.   With 3 bedroom / 2 baths, once price moves beyond $100/110K, generating cash-flow becomes difficult or impossible. In "hot" markets, although market cycles are continuously occurring and prices rise a fall... there is an increasing trend line and therefore the next bottom will have market prices that are higher than the last bottom. Market prices rise at a faster rate than market rents, so... your ability to generate cash-flow eventually disappears.  In this chart, that is the point in the center.   Exceptions: Though unusual, it is possible for these situations to occur: Markets where rents are rising at the same rate as market prices.  Dallas MSA might apply, but although rents are rising quickly, I think prices are rising at a quicker rate. Fixers Acquired at Deep Discount.  Properties that you can acquire at a severe discount to market price because there is a significant problem with the problem and you're able to fix it for less than the discount you were able to negotiate on the purchase price. Other exceptions? Thoughts?

Hot Markets

Here is a list of states ranked by population growth percentage (column 3). For purposes of this post, I would define a "hot" market as markets that are in the top 20 in this chart.

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Josh Caldwell
Investor · Dallas TX, United States · Member since 2014 · 1k+ posts · 1k+ votes
9y

This is a fantastic time to buy real estate, but not in the hot markets.  Hot market get hot because people speculate into them and drive the prices beyond sustainable cash flow levels.  IF you invest with this model you will get you *** handed to you eventually.  Those of us who learned this lesson in 2008, invest for cash flow not appreciation. My market of Pittsburgh is a great cash flow market. Our rent to price ratio is much better than anything you will find in CA.  Find a market that looks like mine does and invest for the long term.  

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  • Matt R.
    Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes
    9y
    Originally posted by @Account Closed:
    Originally posted by @Andrey Y.:
    Originally posted by @Account Closed:
    Originally posted by @Andrey Y.:

    So much rationalization on this thead from "cash flow" investors.

    So the year over year, long term 9% annual appreciation and 6% annual rent growth over the last 40+ years in Honolulu is speculation and irrational exuberance? Similar numbers are found in Sam Francisco, San Jose, and to a slightly less extent LA and Sam Diego.

    I've said this in another thread. The proponderance of investors on BP who have attained 7 figures of PROFITs from rental have all been from coastal markets such as LA, SF, SD, Bay Area, NYC, Seattle, and Hawaii. This is nothing more than simple observation.

    Why? Because cash flow is not profit. How long do you think it will take you to net $1M in profit from buying cash-flowing rentals in non-appreciating markets, hoping a CapEx expense doesn't wipe 2 years of their cash flow?

    Of course people from Indy, Michigan, Tennessee, etc. will bring up Case-Shiller, but ignore the last 40 years of actual data. I think my high six figures in profit balance sheet investing in HI, is so irrationally exuberant!! I mean, Case-Shiller knows better. I think I should just chalk it up to a Christmas miracle. Prices are high in these locations for a reason, folks.

    You're obviously referring to me.

    I buy properties that DO appreciate. I'm not a "cash flow" investor. I'm also not a degenerate gambler who thinks that buying in freaking Hawaii and California is a great idea now because "it always goes up".

    Real estate overall does not go up in the long term. That's just a fact.

    "Prices are high in these locations for a reason, folks."

    Right, and high prices mean that prices will go even higher. That's just how it works. Right?

    The prices in most of the areas you mentioned are unsustainable and unsupported by incomes. Be a speculator all you want but know that the only thing underpinning those prices is other speculators. Or as I call them, greater fools.

    Your entire argument is that since these areas have appreciated in the past, outpacing local incomes, they will continue to do so, indefinitely. Good luck.

     What is your definition of the "past"? Those appreciation and rental income growth I stated INCLUDE THE DOWN CYCLES. That is important to understand. I am talking about from the 1970s to 2010s .. Do you plan to live to 180 years old? I'm not counting on that. I'd say that time frame is long enough to be sustainable and supported. I guess people that invest for profit are degenerate gamblers.

    A lot of people who have a $60K income are coming in with $500K of appreciation equity. There is little evidence that MEDIAN incomes absolutely dictate the "actual" value of a market or submarket. The value of a property is nothing more, nothing less than what someone is willing to pay.

    And I would say it's not long enough to be sustainable. That means absolutely nothing. Especially when the very long term trend line in general is flat.

    There's zero reason to believe you're going to continue seeing that type of appreciation. Real estate should not outpace local incomes. The only reason it has is that this country has been on a drunken binge of higher debt and lower interest rates for 30 years. Combined with hordes of people pouring into "real estate investing" over the last couple of decades.

    But hey if you think that since your property has gone from 50K to 500K over the last 40 years that means it will go from 500K to 5M over the next 40 that's on you.

    Again your entire argument is that appreciation begets more appreciation. Which is nonsense, especially in something like housing which I don't care what BP thinks, will pretty much always revert to the end user fundamentals.

    Real estate should not appreciate.

     That is an interesting take and could be right in many areas and maybe not as much in other areas. Warren Buffet bought a Cali vacation home in the 70s for 150k. His wife passed a few years back and he does not need anymore so he is selling it today. How much? 11,000,000.00. That is 7000% appreciation? Location matters still. 

    0Reply
  • Marco G.
    Investor · Dallas, TX · Member since 2015 · 446 posts · 197 votes
    9y
    Originally posted by @Jon Q.:

    Those if you investing in cities in Texas, Arizona, California, Washington, Arizona, Florida and other high-population/growth markets:

    What specific cities are you invested in?

    How long have you invested?

    What are your thoughts about the market?

    What variables are in place and what trends are you seeing?

    Do you believe that these trends are short-term or long-term? Why?

    @Andrey Y.

    Dallas. 

    2009. 

    Rents are up 25% in the last two years in the two areas I've invested. I own multiple properties. It's not a sustainable rate in the long term, and I expect it will level off in a year or two. Neighborhood changing for the better. 

    Overall, massive population and job growth in diverse industries is changing Dallas. I don't expect a continuation of the rate/trend indefinitely. I haven't found any appealing deals during my casual searches in the last two years and was worried I was buying at a "bad" time two years ago but the deal pencilled out so I did it.

    If we had a 10-15% decline in property values I'd be at breakeven from purchase price. That's a sufficiently comfortable cushion for me, so I don't worry about that anymore.

    Right now it seems investor money flow is starting to slowly move away. I didn't hear much about Indiana in 2014/15. In 2016 legislation was passed in the City of Dallas mandating certifications of owners of building condition and random inspections on most rental property. Property taxes are around 2.78% and lots of reappraisals happening to catch up. DOM is getting a little longer and it's summer.

    Am I selling? No. But I'm not buying either. If something works I'd buy, but I personally can't afford to eat the losses until rents catch up in the hot markets in the coastal cities. If I could, that is where I would invest though.  

    0Reply
  • Marco G.
    Investor · Dallas, TX · Member since 2015 · 446 posts · 197 votes
    9y
    Originally posted by @Account Closed:

    https://hotelivory.wordpress.com/2010/08/29/a-very-long-view-on-house-prices/

     I'm ok with that in what remains of my lifetime, in large part due to our mortgage system here. Not the .1%, but the 4-8%, since it doesn't factor in leverage. 

    0Reply
  • Account Closed
    Investor · Indianapolis, IN · Member since 2017 · 47 posts · 80 votes
    9y
    Originally posted by @Marco G.:
    Originally posted by @Account Closed:

    https://hotelivory.wordpress.com/2010/08/29/a-very...

     I'm ok with that in what remains of my lifetime, in large part due to our mortgage system here. Not the .1%, but the 4-8%, since it doesn't factor in leverage. 

     Right, but that's a question of cash flow which is my point.

    Notice that the 0.1% is only achieved at 2008 pricing which if you look at the trend line was FAR above the historical mean.

    0Reply
  • Account Closed
    Investor · Indianapolis, IN · Member since 2017 · 47 posts · 80 votes
    9y
    Originally posted by @Matt R.:
    Originally posted by @Account Closed:
    Originally posted by @Andrey Y.:
    Originally posted by @Account Closed:
    Originally posted by @Andrey Y.:

    So much rationalization on this thead from "cash flow" investors.

    So the year over year, long term 9% annual appreciation and 6% annual rent growth over the last 40+ years in Honolulu is speculation and irrational exuberance? Similar numbers are found in Sam Francisco, San Jose, and to a slightly less extent LA and Sam Diego.

    I've said this in another thread. The proponderance of investors on BP who have attained 7 figures of PROFITs from rental have all been from coastal markets such as LA, SF, SD, Bay Area, NYC, Seattle, and Hawaii. This is nothing more than simple observation.

    Why? Because cash flow is not profit. How long do you think it will take you to net $1M in profit from buying cash-flowing rentals in non-appreciating markets, hoping a CapEx expense doesn't wipe 2 years of their cash flow?

    Of course people from Indy, Michigan, Tennessee, etc. will bring up Case-Shiller, but ignore the last 40 years of actual data. I think my high six figures in profit balance sheet investing in HI, is so irrationally exuberant!! I mean, Case-Shiller knows better. I think I should just chalk it up to a Christmas miracle. Prices are high in these locations for a reason, folks.

    You're obviously referring to me.

    I buy properties that DO appreciate. I'm not a "cash flow" investor. I'm also not a degenerate gambler who thinks that buying in freaking Hawaii and California is a great idea now because "it always goes up".

    Real estate overall does not go up in the long term. That's just a fact.

    "Prices are high in these locations for a reason, folks."

    Right, and high prices mean that prices will go even higher. That's just how it works. Right?

    The prices in most of the areas you mentioned are unsustainable and unsupported by incomes. Be a speculator all you want but know that the only thing underpinning those prices is other speculators. Or as I call them, greater fools.

    Your entire argument is that since these areas have appreciated in the past, outpacing local incomes, they will continue to do so, indefinitely. Good luck.

     What is your definition of the "past"? Those appreciation and rental income growth I stated INCLUDE THE DOWN CYCLES. That is important to understand. I am talking about from the 1970s to 2010s .. Do you plan to live to 180 years old? I'm not counting on that. I'd say that time frame is long enough to be sustainable and supported. I guess people that invest for profit are degenerate gamblers.

    A lot of people who have a $60K income are coming in with $500K of appreciation equity. There is little evidence that MEDIAN incomes absolutely dictate the "actual" value of a market or submarket. The value of a property is nothing more, nothing less than what someone is willing to pay.

    And I would say it's not long enough to be sustainable. That means absolutely nothing. Especially when the very long term trend line in general is flat.

    There's zero reason to believe you're going to continue seeing that type of appreciation. Real estate should not outpace local incomes. The only reason it has is that this country has been on a drunken binge of higher debt and lower interest rates for 30 years. Combined with hordes of people pouring into "real estate investing" over the last couple of decades.

    But hey if you think that since your property has gone from 50K to 500K over the last 40 years that means it will go from 500K to 5M over the next 40 that's on you.

    Again your entire argument is that appreciation begets more appreciation. Which is nonsense, especially in something like housing which I don't care what BP thinks, will pretty much always revert to the end user fundamentals.

    Real estate should not appreciate.

     That is an interesting take and could be right in many areas and maybe not as much in other areas. Warren Buffet bought a Cali vacation home in the 70s for 150k. His wife passed a few years back and he does not need anymore so he is selling it today. How much? 11,000,000.00. That is 7000% appreciation? Location matters still. 

    I'm not disputing that appreciation happens.

    I'm disputing that:

    1. Real estate appreciates in general, because it doesn't.

    2. Past appreciation is a predictor of future appreciation. If anything, you should expect the opposite, since real estate is not generally an appreciating asset because as a usable good it should be supported by end user fundamentals.

    0Reply
  • Matt R.
    Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes
    9y
    Originally posted by @Account Closed:
    Originally posted by @Matt R.:
    Originally posted by @Account Closed:
    Originally posted by @Andrey Y.:
    Originally posted by @Account Closed:
    Originally posted by @Andrey Y.:

    So much rationalization on this thead from "cash flow" investors.

    So the year over year, long term 9% annual appreciation and 6% annual rent growth over the last 40+ years in Honolulu is speculation and irrational exuberance? Similar numbers are found in Sam Francisco, San Jose, and to a slightly less extent LA and Sam Diego.

    I've said this in another thread. The proponderance of investors on BP who have attained 7 figures of PROFITs from rental have all been from coastal markets such as LA, SF, SD, Bay Area, NYC, Seattle, and Hawaii. This is nothing more than simple observation.

    Why? Because cash flow is not profit. How long do you think it will take you to net $1M in profit from buying cash-flowing rentals in non-appreciating markets, hoping a CapEx expense doesn't wipe 2 years of their cash flow?

    Of course people from Indy, Michigan, Tennessee, etc. will bring up Case-Shiller, but ignore the last 40 years of actual data. I think my high six figures in profit balance sheet investing in HI, is so irrationally exuberant!! I mean, Case-Shiller knows better. I think I should just chalk it up to a Christmas miracle. Prices are high in these locations for a reason, folks.

    You're obviously referring to me.

    I buy properties that DO appreciate. I'm not a "cash flow" investor. I'm also not a degenerate gambler who thinks that buying in freaking Hawaii and California is a great idea now because "it always goes up".

    Real estate overall does not go up in the long term. That's just a fact.

    "Prices are high in these locations for a reason, folks."

    Right, and high prices mean that prices will go even higher. That's just how it works. Right?

    The prices in most of the areas you mentioned are unsustainable and unsupported by incomes. Be a speculator all you want but know that the only thing underpinning those prices is other speculators. Or as I call them, greater fools.

    Your entire argument is that since these areas have appreciated in the past, outpacing local incomes, they will continue to do so, indefinitely. Good luck.

     What is your definition of the "past"? Those appreciation and rental income growth I stated INCLUDE THE DOWN CYCLES. That is important to understand. I am talking about from the 1970s to 2010s .. Do you plan to live to 180 years old? I'm not counting on that. I'd say that time frame is long enough to be sustainable and supported. I guess people that invest for profit are degenerate gamblers.

    A lot of people who have a $60K income are coming in with $500K of appreciation equity. There is little evidence that MEDIAN incomes absolutely dictate the "actual" value of a market or submarket. The value of a property is nothing more, nothing less than what someone is willing to pay.

    And I would say it's not long enough to be sustainable. That means absolutely nothing. Especially when the very long term trend line in general is flat.

    There's zero reason to believe you're going to continue seeing that type of appreciation. Real estate should not outpace local incomes. The only reason it has is that this country has been on a drunken binge of higher debt and lower interest rates for 30 years. Combined with hordes of people pouring into "real estate investing" over the last couple of decades.

    But hey if you think that since your property has gone from 50K to 500K over the last 40 years that means it will go from 500K to 5M over the next 40 that's on you.

    Again your entire argument is that appreciation begets more appreciation. Which is nonsense, especially in something like housing which I don't care what BP thinks, will pretty much always revert to the end user fundamentals.

    Real estate should not appreciate.

     That is an interesting take and could be right in many areas and maybe not as much in other areas. Warren Buffet bought a Cali vacation home in the 70s for 150k. His wife passed a few years back and he does not need anymore so he is selling it today. How much? 11,000,000.00. That is 7000% appreciation? Location matters still. 

    I'm not disputing that appreciation happens.

    I'm disputing that:

    1. Real estate appreciates in general, because it doesn't.

    2. Past appreciation is a predictor of future appreciation. If anything, you should expect the opposite, since real estate is not generally an appreciating asset because as a usable good it should be supported by end user fundamentals.

     In general, adjusted for inflation, not much if any appreciation for many locations agreed. Past appreciation or lack of could be a general indicator still. Many other factors to consider at the sametime and if those factors are the same or improving and you are in the same long historical appreciating location there is a much better chance of apprecation perhaps. The same would go if it was the opposite sitiuation. No historical apprecation area combined with same conditions as past then expect no apprecation moving forward perhaps. 

    0Reply
  • Jon Q.
    OP
    Investor · Berkeley, CA · Member since 2015 · 1k+ posts · 713 votes
    9y
    Originally posted by @Account Closed:
    Originally posted by @Account Closed:
    Originally posted by @Andrey Y.:
    Originally posted by @Account Closed:
    Originally posted by @Andrey Y.:

    So much rationalization on this thead from "cash flow" investors.

    So the year over year, long term 9% annual appreciation and 6% annual rent growth over the last 40+ years in Honolulu is speculation and irrational exuberance? Similar numbers are found in Sam Francisco, San Jose, and to a slightly less extent LA and Sam Diego.

    I've said this in another thread. The proponderance of investors on BP who have attained 7 figures of PROFITs from rental have all been from coastal markets such as LA, SF, SD, Bay Area, NYC, Seattle, and Hawaii. This is nothing more than simple observation.

    Why? Because cash flow is not profit. How long do you think it will take you to net $1M in profit from buying cash-flowing rentals in non-appreciating markets, hoping a CapEx expense doesn't wipe 2 years of their cash flow?

    Of course people from Indy, Michigan, Tennessee, etc. will bring up Case-Shiller, but ignore the last 40 years of actual data. I think my high six figures in profit balance sheet investing in HI, is so irrationally exuberant!! I mean, Case-Shiller knows better. I think I should just chalk it up to a Christmas miracle. Prices are high in these locations for a reason, folks.

    You're obviously referring to me.

    I buy properties that DO appreciate. I'm not a "cash flow" investor. I'm also not a degenerate gambler who thinks that buying in freaking Hawaii and California is a great idea now because "it always goes up".

    Real estate overall does not go up in the long term. That's just a fact.

    "Prices are high in these locations for a reason, folks."

    Right, and high prices mean that prices will go even higher. That's just how it works. Right?

    The prices in most of the areas you mentioned are unsustainable and unsupported by incomes. Be a speculator all you want but know that the only thing underpinning those prices is other speculators. Or as I call them, greater fools.

    Your entire argument is that since these areas have appreciated in the past, outpacing local incomes, they will continue to do so, indefinitely. Good luck.

     What is your definition of the "past"? Those appreciation and rental income growth I stated INCLUDE THE DOWN CYCLES. That is important to understand. I am talking about from the 1970s to 2010s .. Do you plan to live to 180 years old? I'm not counting on that. I'd say that time frame is long enough to be sustainable and supported. I guess people that invest for profit are degenerate gamblers.

    A lot of people who have a $60K income are coming in with $500K of appreciation equity. There is little evidence that MEDIAN incomes absolutely dictate the "actual" value of a market or submarket. The value of a property is nothing more, nothing less than what someone is willing to pay.

    And I would say it's not long enough to be sustainable. That means absolutely nothing. Especially when the very long term trend line in general is flat.

    There's zero reason to believe you're going to continue seeing that type of appreciation. Real estate should not outpace local incomes. The only reason it has is that this country has been on a drunken binge of higher debt and lower interest rates for 30 years. Combined with hordes of people pouring into "real estate investing" over the last couple of decades.

    But hey if you think that since your property has gone from 50K to 500K over the last 40 years that means it will go from 500K to 5M over the next 40 that's on you.

    Again your entire argument is that appreciation begets more appreciation. Which is nonsense, especially in something like housing which I don't care what BP thinks, will pretty much always revert to the end user fundamentals.

    Real estate should not appreciate.

    " it should not", but it does.  I prefer to live in the real world and make money doing it!

    No, it doesn't.

    It does for the simple and obvious fact that they're not making more land and population is growing exponentially.  When you have a finite supply and increasing demand... appreciation results. 

    Even so, this debate is meaningless because it assumes you're not targeting your entry and exits into the market.  Most intelligent investors are, including yourself, so why are you wasting your time with this argument? 

    The further you go into the future, the more difficult it is to project what will happen, but I'm confident that over the next 5-10 years,  if you've bought a high quality well built property, at a good price, in a good location, you're cash flowing, and you're invested in a market forecasted to experience strong population/job growth, you'll do okay.

    0Reply
  • Jon Q.
    OP
    Investor · Berkeley, CA · Member since 2015 · 1k+ posts · 713 votes
    9y
    Originally posted by @Matt R.:
    Originally posted by @Account Closed:
    Originally posted by @Matt R.:
    Originally posted by @Account Closed:
    Originally posted by @Andrey Y.:
    Originally posted by @Account Closed:
    Originally posted by @Andrey Y.:

    So much rationalization on this thead from "cash flow" investors.

    So the year over year, long term 9% annual appreciation and 6% annual rent growth over the last 40+ years in Honolulu is speculation and irrational exuberance? Similar numbers are found in Sam Francisco, San Jose, and to a slightly less extent LA and Sam Diego.

    I've said this in another thread. The proponderance of investors on BP who have attained 7 figures of PROFITs from rental have all been from coastal markets such as LA, SF, SD, Bay Area, NYC, Seattle, and Hawaii. This is nothing more than simple observation.

    Why? Because cash flow is not profit. How long do you think it will take you to net $1M in profit from buying cash-flowing rentals in non-appreciating markets, hoping a CapEx expense doesn't wipe 2 years of their cash flow?

    Of course people from Indy, Michigan, Tennessee, etc. will bring up Case-Shiller, but ignore the last 40 years of actual data. I think my high six figures in profit balance sheet investing in HI, is so irrationally exuberant!! I mean, Case-Shiller knows better. I think I should just chalk it up to a Christmas miracle. Prices are high in these locations for a reason, folks.

    You're obviously referring to me.

    I buy properties that DO appreciate. I'm not a "cash flow" investor. I'm also not a degenerate gambler who thinks that buying in freaking Hawaii and California is a great idea now because "it always goes up".

    Real estate overall does not go up in the long term. That's just a fact.

    "Prices are high in these locations for a reason, folks."

    Right, and high prices mean that prices will go even higher. That's just how it works. Right?

    The prices in most of the areas you mentioned are unsustainable and unsupported by incomes. Be a speculator all you want but know that the only thing underpinning those prices is other speculators. Or as I call them, greater fools.

    Your entire argument is that since these areas have appreciated in the past, outpacing local incomes, they will continue to do so, indefinitely. Good luck.

     What is your definition of the "past"? Those appreciation and rental income growth I stated INCLUDE THE DOWN CYCLES. That is important to understand. I am talking about from the 1970s to 2010s .. Do you plan to live to 180 years old? I'm not counting on that. I'd say that time frame is long enough to be sustainable and supported. I guess people that invest for profit are degenerate gamblers.

    A lot of people who have a $60K income are coming in with $500K of appreciation equity. There is little evidence that MEDIAN incomes absolutely dictate the "actual" value of a market or submarket. The value of a property is nothing more, nothing less than what someone is willing to pay.

    And I would say it's not long enough to be sustainable. That means absolutely nothing. Especially when the very long term trend line in general is flat.

    There's zero reason to believe you're going to continue seeing that type of appreciation. Real estate should not outpace local incomes. The only reason it has is that this country has been on a drunken binge of higher debt and lower interest rates for 30 years. Combined with hordes of people pouring into "real estate investing" over the last couple of decades.

    But hey if you think that since your property has gone from 50K to 500K over the last 40 years that means it will go from 500K to 5M over the next 40 that's on you.

    Again your entire argument is that appreciation begets more appreciation. Which is nonsense, especially in something like housing which I don't care what BP thinks, will pretty much always revert to the end user fundamentals.

    Real estate should not appreciate.

     That is an interesting take and could be right in many areas and maybe not as much in other areas. Warren Buffet bought a Cali vacation home in the 70s for 150k. His wife passed a few years back and he does not need anymore so he is selling it today. How much? 11,000,000.00. That is 7000% appreciation? Location matters still. 

    I'm not disputing that appreciation happens.

    I'm disputing that:

    1. Real estate appreciates in general, because it doesn't.

    2. Past appreciation is a predictor of future appreciation. If anything, you should expect the opposite, since real estate is not generally an appreciating asset because as a usable good it should be supported by end user fundamentals.

     In general, adjusted for inflation, not much if any appreciation for many locations agreed. Past appreciation or lack of could be a general indicator still. Many other factors to consider at the sametime and if those factors are the same or improving and you are in the same long historical appreciating location there is a much better chance of apprecation perhaps. The same would go if it was the opposite sitiuation. No historical apprecation area combined with same conditions as past then expect no apprecation moving forward perhaps. 

    As far as demand is concerned, population and job growth are the two strongest predictors.  Past is no guarantee of future results.  For example, look at New York, which is ranked 46th for its forecasted population growth until 2030.  Or look at Austin in 2003... would anyone project south by southwest would become an international tech conference and it would become a tech city?  No, but when I researched the city and did my homework, it became clear that there were conditions in place for this city to experience significant growth over next 10 years... which clearly happened. 

    Thera are many other regional and local variables to consider (development costs, regulation, city politics, crime, diversification of jobs types/primarily services and tech, educational institutions, state capitals, cost of housing, path of growth, makeup of neighborhood / owners VS renters, etc..). 

    0Reply
  • Account Closed
    Investor · Indianapolis, IN · Member since 2017 · 47 posts · 80 votes
    9y
    Originally posted by @Jon Q.:
    Originally posted by @Account Closed:
    Originally posted by @Jon Q.:
    Originally posted by @Account Closed:
    Originally posted by @Andrey Y.:
    Originally posted by @Account Closed:
    Originally posted by @Andrey Y.:

    So much rationalization on this thead from "cash flow" investors.

    So the year over year, long term 9% annual appreciation and 6% annual rent growth over the last 40+ years in Honolulu is speculation and irrational exuberance? Similar numbers are found in Sam Francisco, San Jose, and to a slightly less extent LA and Sam Diego.

    I've said this in another thread. The proponderance of investors on BP who have attained 7 figures of PROFITs from rental have all been from coastal markets such as LA, SF, SD, Bay Area, NYC, Seattle, and Hawaii. This is nothing more than simple observation.

    Why? Because cash flow is not profit. How long do you think it will take you to net $1M in profit from buying cash-flowing rentals in non-appreciating markets, hoping a CapEx expense doesn't wipe 2 years of their cash flow?

    Of course people from Indy, Michigan, Tennessee, etc. will bring up Case-Shiller, but ignore the last 40 years of actual data. I think my high six figures in profit balance sheet investing in HI, is so irrationally exuberant!! I mean, Case-Shiller knows better. I think I should just chalk it up to a Christmas miracle. Prices are high in these locations for a reason, folks.

    You're obviously referring to me.

    I buy properties that DO appreciate. I'm not a "cash flow" investor. I'm also not a degenerate gambler who thinks that buying in freaking Hawaii and California is a great idea now because "it always goes up".

    Real estate overall does not go up in the long term. That's just a fact.

    "Prices are high in these locations for a reason, folks."

    Right, and high prices mean that prices will go even higher. That's just how it works. Right?

    The prices in most of the areas you mentioned are unsustainable and unsupported by incomes. Be a speculator all you want but know that the only thing underpinning those prices is other speculators. Or as I call them, greater fools.

    Your entire argument is that since these areas have appreciated in the past, outpacing local incomes, they will continue to do so, indefinitely. Good luck.

     What is your definition of the "past"? Those appreciation and rental income growth I stated INCLUDE THE DOWN CYCLES. That is important to understand. I am talking about from the 1970s to 2010s .. Do you plan to live to 180 years old? I'm not counting on that. I'd say that time frame is long enough to be sustainable and supported. I guess people that invest for profit are degenerate gamblers.

    A lot of people who have a $60K income are coming in with $500K of appreciation equity. There is little evidence that MEDIAN incomes absolutely dictate the "actual" value of a market or submarket. The value of a property is nothing more, nothing less than what someone is willing to pay.

    And I would say it's not long enough to be sustainable. That means absolutely nothing. Especially when the very long term trend line in general is flat.

    There's zero reason to believe you're going to continue seeing that type of appreciation. Real estate should not outpace local incomes. The only reason it has is that this country has been on a drunken binge of higher debt and lower interest rates for 30 years. Combined with hordes of people pouring into "real estate investing" over the last couple of decades.

    But hey if you think that since your property has gone from 50K to 500K over the last 40 years that means it will go from 500K to 5M over the next 40 that's on you.

    Again your entire argument is that appreciation begets more appreciation. Which is nonsense, especially in something like housing which I don't care what BP thinks, will pretty much always revert to the end user fundamentals.

    Real estate should not appreciate.

    " it should not", but it does.  I prefer to live in the real world and make money doing it!

    No, it doesn't.

    It does for the simple and obvious fact that they're not making more land and population is growing exponentially.  When you have a finite supply and increasing demand... appreciation results. 

    Even so, this debate is meaningless because it assumes you're not targeting your entry and exits into the market.  Most intelligent investors are, including yourself, so why are you wasting your time with this argument? 

    The further you go into the future, the more difficult it is to project what will happen, but I'm confident that over the next 5-10 years,  if you've bought a high quality well built property, at a good price, in a good location, you're cash flowing, and you're invested in a market forecasted to experience strong population/job growth, you'll do okay.

    "It does for the simple and obvious fact that they're not making more land and population is growing exponentially. When you have a finite supply and increasing demand... appreciation results."

    No. If that were true hundreds of years of statistics would reflect it. But they don't. 

    "Even so, this debate is meaningless because it assumes you're not targeting your entry and exits into the market. Most intelligent investors are, including yourself, so why are you wasting your time with this argument?"

    Because most investors are not all that intelligent and the conventional "cash flow vs appreciation" wisdom is a load of crap.

     "The further you go into the future, the more difficult it is to project what will happen, but I'm confident that over the next 5-10 years, if you've bought a high quality well built property, at a good price, in a good location, you're cash flowing, and you're invested in a market forecasted to experience strong population/job growth, you'll do okay."

    Probably, but that's not the point.

    0Reply
  • Jon Q.
    OP
    Investor · Berkeley, CA · Member since 2015 · 1k+ posts · 713 votes
    9y

    It is my point.

    In all markets, for many reasons, prices will rise and fall (market cycles)... but in certain markets I believe that prices will rise more than fall over the next 5-10 years, likely longer... as many of those variables that are in place I don't see changing.

    0Reply
  • Account Closed
    Investor · Indianapolis, IN · Member since 2017 · 47 posts · 80 votes
    9y
    Originally posted by @Matt R.:
    Originally posted by @Account Closed:
    Originally posted by @Matt R.:
    Originally posted by @Account Closed:
    Originally posted by @Andrey Y.:
    Originally posted by @Account Closed:
    Originally posted by @Andrey Y.:

    So much rationalization on this thead from "cash flow" investors.

    So the year over year, long term 9% annual appreciation and 6% annual rent growth over the last 40+ years in Honolulu is speculation and irrational exuberance? Similar numbers are found in Sam Francisco, San Jose, and to a slightly less extent LA and Sam Diego.

    I've said this in another thread. The proponderance of investors on BP who have attained 7 figures of PROFITs from rental have all been from coastal markets such as LA, SF, SD, Bay Area, NYC, Seattle, and Hawaii. This is nothing more than simple observation.

    Why? Because cash flow is not profit. How long do you think it will take you to net $1M in profit from buying cash-flowing rentals in non-appreciating markets, hoping a CapEx expense doesn't wipe 2 years of their cash flow?

    Of course people from Indy, Michigan, Tennessee, etc. will bring up Case-Shiller, but ignore the last 40 years of actual data. I think my high six figures in profit balance sheet investing in HI, is so irrationally exuberant!! I mean, Case-Shiller knows better. I think I should just chalk it up to a Christmas miracle. Prices are high in these locations for a reason, folks.

    You're obviously referring to me.

    I buy properties that DO appreciate. I'm not a "cash flow" investor. I'm also not a degenerate gambler who thinks that buying in freaking Hawaii and California is a great idea now because "it always goes up".

    Real estate overall does not go up in the long term. That's just a fact.

    "Prices are high in these locations for a reason, folks."

    Right, and high prices mean that prices will go even higher. That's just how it works. Right?

    The prices in most of the areas you mentioned are unsustainable and unsupported by incomes. Be a speculator all you want but know that the only thing underpinning those prices is other speculators. Or as I call them, greater fools.

    Your entire argument is that since these areas have appreciated in the past, outpacing local incomes, they will continue to do so, indefinitely. Good luck.

     What is your definition of the "past"? Those appreciation and rental income growth I stated INCLUDE THE DOWN CYCLES. That is important to understand. I am talking about from the 1970s to 2010s .. Do you plan to live to 180 years old? I'm not counting on that. I'd say that time frame is long enough to be sustainable and supported. I guess people that invest for profit are degenerate gamblers.

    A lot of people who have a $60K income are coming in with $500K of appreciation equity. There is little evidence that MEDIAN incomes absolutely dictate the "actual" value of a market or submarket. The value of a property is nothing more, nothing less than what someone is willing to pay.

    And I would say it's not long enough to be sustainable. That means absolutely nothing. Especially when the very long term trend line in general is flat.

    There's zero reason to believe you're going to continue seeing that type of appreciation. Real estate should not outpace local incomes. The only reason it has is that this country has been on a drunken binge of higher debt and lower interest rates for 30 years. Combined with hordes of people pouring into "real estate investing" over the last couple of decades.

    But hey if you think that since your property has gone from 50K to 500K over the last 40 years that means it will go from 500K to 5M over the next 40 that's on you.

    Again your entire argument is that appreciation begets more appreciation. Which is nonsense, especially in something like housing which I don't care what BP thinks, will pretty much always revert to the end user fundamentals.

    Real estate should not appreciate.

     That is an interesting take and could be right in many areas and maybe not as much in other areas. Warren Buffet bought a Cali vacation home in the 70s for 150k. His wife passed a few years back and he does not need anymore so he is selling it today. How much? 11,000,000.00. That is 7000% appreciation? Location matters still. 

    I'm not disputing that appreciation happens.

    I'm disputing that:

    1. Real estate appreciates in general, because it doesn't.

    2. Past appreciation is a predictor of future appreciation. If anything, you should expect the opposite, since real estate is not generally an appreciating asset because as a usable good it should be supported by end user fundamentals.

     In general, adjusted for inflation, not much if any appreciation for many locations agreed. Past appreciation or lack of could be a general indicator still. Many other factors to consider at the sametime and if those factors are the same or improving and you are in the same long historical appreciating location there is a much better chance of apprecation perhaps. The same would go if it was the opposite sitiuation. No historical apprecation area combined with same conditions as past then expect no apprecation moving forward perhaps. 

    Yes, exactly. This is true. Correlation causation and all.

    But I would say past appreciation alone is at best irrelevant and at worst means you are less likely to see appreciation in the future.

    San Francisco has good fundamentals and high incomes but even then prices are completely unsupported by those fundamentals. As such I would not rely on them as a predictor of future growth. That type of speculation is already priced in by the 1,000 other speculators that came before you.

    This is why I laugh my *** of at the "appreciation vs cash flow" debate. The entire argument is summed up as "you can either buy worthless crap that cash flows or crap that has already appreciated through the roof and hope for a greater fool to pay more".

    Both of those strategies are pretty stupid IMO.

    1Reply
  • Account Closed
    Investor · Indianapolis, IN · Member since 2017 · 47 posts · 80 votes
    9y
    Originally posted by @Jon Q.:

    It is my point.

    In all markets, for many reasons, prices will rise and fall (market cycles)... but in certain markets I believe that prices will rise more than fall over the next 5-10 years, likely longer.

     Well 5-10 years is not a long time.

    0Reply
  • Jon Q.
    OP
    Investor · Berkeley, CA · Member since 2015 · 1k+ posts · 713 votes
    9y
    Originally posted by @Account Closed:
    Originally posted by @Matt R.:
    Originally posted by @Account Closed:
    Originally posted by @Matt R.:
    Originally posted by @Account Closed:
    Originally posted by @Andrey Y.:
    Originally posted by @Account Closed:
    Originally posted by @Andrey Y.:

    So much rationalization on this thead from "cash flow" investors.

    So the year over year, long term 9% annual appreciation and 6% annual rent growth over the last 40+ years in Honolulu is speculation and irrational exuberance? Similar numbers are found in Sam Francisco, San Jose, and to a slightly less extent LA and Sam Diego.

    I've said this in another thread. The proponderance of investors on BP who have attained 7 figures of PROFITs from rental have all been from coastal markets such as LA, SF, SD, Bay Area, NYC, Seattle, and Hawaii. This is nothing more than simple observation.

    Why? Because cash flow is not profit. How long do you think it will take you to net $1M in profit from buying cash-flowing rentals in non-appreciating markets, hoping a CapEx expense doesn't wipe 2 years of their cash flow?

    Of course people from Indy, Michigan, Tennessee, etc. will bring up Case-Shiller, but ignore the last 40 years of actual data. I think my high six figures in profit balance sheet investing in HI, is so irrationally exuberant!! I mean, Case-Shiller knows better. I think I should just chalk it up to a Christmas miracle. Prices are high in these locations for a reason, folks.

    You're obviously referring to me.

    I buy properties that DO appreciate. I'm not a "cash flow" investor. I'm also not a degenerate gambler who thinks that buying in freaking Hawaii and California is a great idea now because "it always goes up".

    Real estate overall does not go up in the long term. That's just a fact.

    "Prices are high in these locations for a reason, folks."

    Right, and high prices mean that prices will go even higher. That's just how it works. Right?

    The prices in most of the areas you mentioned are unsustainable and unsupported by incomes. Be a speculator all you want but know that the only thing underpinning those prices is other speculators. Or as I call them, greater fools.

    Your entire argument is that since these areas have appreciated in the past, outpacing local incomes, they will continue to do so, indefinitely. Good luck.

     What is your definition of the "past"? Those appreciation and rental income growth I stated INCLUDE THE DOWN CYCLES. That is important to understand. I am talking about from the 1970s to 2010s .. Do you plan to live to 180 years old? I'm not counting on that. I'd say that time frame is long enough to be sustainable and supported. I guess people that invest for profit are degenerate gamblers.

    A lot of people who have a $60K income are coming in with $500K of appreciation equity. There is little evidence that MEDIAN incomes absolutely dictate the "actual" value of a market or submarket. The value of a property is nothing more, nothing less than what someone is willing to pay.

    And I would say it's not long enough to be sustainable. That means absolutely nothing. Especially when the very long term trend line in general is flat.

    There's zero reason to believe you're going to continue seeing that type of appreciation. Real estate should not outpace local incomes. The only reason it has is that this country has been on a drunken binge of higher debt and lower interest rates for 30 years. Combined with hordes of people pouring into "real estate investing" over the last couple of decades.

    But hey if you think that since your property has gone from 50K to 500K over the last 40 years that means it will go from 500K to 5M over the next 40 that's on you.

    Again your entire argument is that appreciation begets more appreciation. Which is nonsense, especially in something like housing which I don't care what BP thinks, will pretty much always revert to the end user fundamentals.

    Real estate should not appreciate.

     That is an interesting take and could be right in many areas and maybe not as much in other areas. Warren Buffet bought a Cali vacation home in the 70s for 150k. His wife passed a few years back and he does not need anymore so he is selling it today. How much? 11,000,000.00. That is 7000% appreciation? Location matters still. 

    I'm not disputing that appreciation happens.

    I'm disputing that:

    1. Real estate appreciates in general, because it doesn't.

    2. Past appreciation is a predictor of future appreciation. If anything, you should expect the opposite, since real estate is not generally an appreciating asset because as a usable good it should be supported by end user fundamentals.

     In general, adjusted for inflation, not much if any appreciation for many locations agreed. Past appreciation or lack of could be a general indicator still. Many other factors to consider at the sametime and if those factors are the same or improving and you are in the same long historical appreciating location there is a much better chance of apprecation perhaps. The same would go if it was the opposite sitiuation. No historical apprecation area combined with same conditions as past then expect no apprecation moving forward perhaps. 

    Yes, right. I buy in gentrifying neighborhoods in cash flow markets.

    "and you are in the same long historical appreciating location there is a much better chance of apprecation perhaps"

    I would say past appreciation is at best irrelevant and at worst means you are less likely to see appreciation in the future.

    San Francisco has good fundamentals and high incomes but even then prices are completely unsupported by those fundamentals. As such I would not rely on them as a predictor of future growth. That type of speculation is already priced in by the 1,000 other speculators that came before you.

    In re to "past appreciation"... I probably agree, but not always.  it depends if the variables driving demand and limiting supply continue... if so they likely will continue experiencing appreciation over time.  But appreciation is a result, not an ingredient.

    0Reply
  • Jon Q.
    OP
    Investor · Berkeley, CA · Member since 2015 · 1k+ posts · 713 votes
    9y
    Originally posted by @Account Closed:
    Originally posted by @Jon Q.:

    It is my point.

    In all markets, for many reasons, prices will rise and fall (market cycles)... but in certain markets I believe that prices will rise more than fall over the next 5-10 years, likely longer.

     Well 5-10 years is not a long time.

    Try projecting a stocks' likely performance over 10 years :-)  Whether you like it or not, your job as an investor is to seek to project th future.  And you are projecting the future every time you consider buying a property that you think will cash flow.  How well you do that will in part contribute to your performance.

    How confident are you that you can project the future over a longer time period?

    I'd bet not very...  so 10 years is very useful.  It's a full market cycle.

    0Reply
  • Account Closed
    Investor · Indianapolis, IN · Member since 2017 · 47 posts · 80 votes
    9y
    Originally posted by @Jon Q.:
    Originally posted by @Account Closed:
    Originally posted by @Matt R.:
    Originally posted by @Account Closed:
    Originally posted by @Matt R.:
    Originally posted by @Account Closed:
    Originally posted by @Andrey Y.:
    Originally posted by @Account Closed:
    Originally posted by @Andrey Y.:

    So much rationalization on this thead from "cash flow" investors.

    So the year over year, long term 9% annual appreciation and 6% annual rent growth over the last 40+ years in Honolulu is speculation and irrational exuberance? Similar numbers are found in Sam Francisco, San Jose, and to a slightly less extent LA and Sam Diego.

    I've said this in another thread. The proponderance of investors on BP who have attained 7 figures of PROFITs from rental have all been from coastal markets such as LA, SF, SD, Bay Area, NYC, Seattle, and Hawaii. This is nothing more than simple observation.

    Why? Because cash flow is not profit. How long do you think it will take you to net $1M in profit from buying cash-flowing rentals in non-appreciating markets, hoping a CapEx expense doesn't wipe 2 years of their cash flow?

    Of course people from Indy, Michigan, Tennessee, etc. will bring up Case-Shiller, but ignore the last 40 years of actual data. I think my high six figures in profit balance sheet investing in HI, is so irrationally exuberant!! I mean, Case-Shiller knows better. I think I should just chalk it up to a Christmas miracle. Prices are high in these locations for a reason, folks.

    You're obviously referring to me.

    I buy properties that DO appreciate. I'm not a "cash flow" investor. I'm also not a degenerate gambler who thinks that buying in freaking Hawaii and California is a great idea now because "it always goes up".

    Real estate overall does not go up in the long term. That's just a fact.

    "Prices are high in these locations for a reason, folks."

    Right, and high prices mean that prices will go even higher. That's just how it works. Right?

    The prices in most of the areas you mentioned are unsustainable and unsupported by incomes. Be a speculator all you want but know that the only thing underpinning those prices is other speculators. Or as I call them, greater fools.

    Your entire argument is that since these areas have appreciated in the past, outpacing local incomes, they will continue to do so, indefinitely. Good luck.

     What is your definition of the "past"? Those appreciation and rental income growth I stated INCLUDE THE DOWN CYCLES. That is important to understand. I am talking about from the 1970s to 2010s .. Do you plan to live to 180 years old? I'm not counting on that. I'd say that time frame is long enough to be sustainable and supported. I guess people that invest for profit are degenerate gamblers.

    A lot of people who have a $60K income are coming in with $500K of appreciation equity. There is little evidence that MEDIAN incomes absolutely dictate the "actual" value of a market or submarket. The value of a property is nothing more, nothing less than what someone is willing to pay.

    And I would say it's not long enough to be sustainable. That means absolutely nothing. Especially when the very long term trend line in general is flat.

    There's zero reason to believe you're going to continue seeing that type of appreciation. Real estate should not outpace local incomes. The only reason it has is that this country has been on a drunken binge of higher debt and lower interest rates for 30 years. Combined with hordes of people pouring into "real estate investing" over the last couple of decades.

    But hey if you think that since your property has gone from 50K to 500K over the last 40 years that means it will go from 500K to 5M over the next 40 that's on you.

    Again your entire argument is that appreciation begets more appreciation. Which is nonsense, especially in something like housing which I don't care what BP thinks, will pretty much always revert to the end user fundamentals.

    Real estate should not appreciate.

     That is an interesting take and could be right in many areas and maybe not as much in other areas. Warren Buffet bought a Cali vacation home in the 70s for 150k. His wife passed a few years back and he does not need anymore so he is selling it today. How much? 11,000,000.00. That is 7000% appreciation? Location matters still. 

    I'm not disputing that appreciation happens.

    I'm disputing that:

    1. Real estate appreciates in general, because it doesn't.

    2. Past appreciation is a predictor of future appreciation. If anything, you should expect the opposite, since real estate is not generally an appreciating asset because as a usable good it should be supported by end user fundamentals.

     In general, adjusted for inflation, not much if any appreciation for many locations agreed. Past appreciation or lack of could be a general indicator still. Many other factors to consider at the sametime and if those factors are the same or improving and you are in the same long historical appreciating location there is a much better chance of apprecation perhaps. The same would go if it was the opposite sitiuation. No historical apprecation area combined with same conditions as past then expect no apprecation moving forward perhaps. 

    Yes, right. I buy in gentrifying neighborhoods in cash flow markets.

    "and you are in the same long historical appreciating location there is a much better chance of apprecation perhaps"

    I would say past appreciation is at best irrelevant and at worst means you are less likely to see appreciation in the future.

    San Francisco has good fundamentals and high incomes but even then prices are completely unsupported by those fundamentals. As such I would not rely on them as a predictor of future growth. That type of speculation is already priced in by the 1,000 other speculators that came before you.

    In re to "past appreciation"... I probably agree, but not always.  it depends if the variables driving demand and limiting supply continue... if so they likely will continue experiencing appreciation over time.  But appreciation is a result, not an ingredient.

    Appreciation is an effect, not a cause.

    So I don't disagree that fundamentals matter.

    However historically real estate is generally relatively flat and this includes population growth etc.

    0Reply
  • Account Closed
    Investor · Indianapolis, IN · Member since 2017 · 47 posts · 80 votes
    9y
    Originally posted by @Jon Q.:
    Originally posted by @Account Closed:
    Originally posted by @Jon Q.:

    It is my point.

    In all markets, for many reasons, prices will rise and fall (market cycles)... but in certain markets I believe that prices will rise more than fall over the next 5-10 years, likely longer.

     Well 5-10 years is not a long time.

    How confident are you that you can project the future over a longer time period?

    I'd net not very...  so 10 years is very useful.  It's a full market cycle.

    I'm not confident at all.

    That's why I don't buy for "appreciation" as in general market appreciation.

    I buy for appreciation as in full on gentrification and major demographic change in the most confined area possible.

    That I can predict.

    And even that is risky.

    0Reply
  • Matt R.
    Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes
    9y
    Originally posted by @Jon Q.:
    Originally posted by @Matt R.:
    Originally posted by @Account Closed:
    Originally posted by @Matt R.:
    Originally posted by @Account Closed:
    Originally posted by @Andrey Y.:
    Originally posted by @Account Closed:
    Originally posted by @Andrey Y.:

    So much rationalization on this thead from "cash flow" investors.

    So the year over year, long term 9% annual appreciation and 6% annual rent growth over the last 40+ years in Honolulu is speculation and irrational exuberance? Similar numbers are found in Sam Francisco, San Jose, and to a slightly less extent LA and Sam Diego.

    I've said this in another thread. The proponderance of investors on BP who have attained 7 figures of PROFITs from rental have all been from coastal markets such as LA, SF, SD, Bay Area, NYC, Seattle, and Hawaii. This is nothing more than simple observation.

    Why? Because cash flow is not profit. How long do you think it will take you to net $1M in profit from buying cash-flowing rentals in non-appreciating markets, hoping a CapEx expense doesn't wipe 2 years of their cash flow?

    Of course people from Indy, Michigan, Tennessee, etc. will bring up Case-Shiller, but ignore the last 40 years of actual data. I think my high six figures in profit balance sheet investing in HI, is so irrationally exuberant!! I mean, Case-Shiller knows better. I think I should just chalk it up to a Christmas miracle. Prices are high in these locations for a reason, folks.

    You're obviously referring to me.

    I buy properties that DO appreciate. I'm not a "cash flow" investor. I'm also not a degenerate gambler who thinks that buying in freaking Hawaii and California is a great idea now because "it always goes up".

    Real estate overall does not go up in the long term. That's just a fact.

    "Prices are high in these locations for a reason, folks."

    Right, and high prices mean that prices will go even higher. That's just how it works. Right?

    The prices in most of the areas you mentioned are unsustainable and unsupported by incomes. Be a speculator all you want but know that the only thing underpinning those prices is other speculators. Or as I call them, greater fools.

    Your entire argument is that since these areas have appreciated in the past, outpacing local incomes, they will continue to do so, indefinitely. Good luck.

     What is your definition of the "past"? Those appreciation and rental income growth I stated INCLUDE THE DOWN CYCLES. That is important to understand. I am talking about from the 1970s to 2010s .. Do you plan to live to 180 years old? I'm not counting on that. I'd say that time frame is long enough to be sustainable and supported. I guess people that invest for profit are degenerate gamblers.

    A lot of people who have a $60K income are coming in with $500K of appreciation equity. There is little evidence that MEDIAN incomes absolutely dictate the "actual" value of a market or submarket. The value of a property is nothing more, nothing less than what someone is willing to pay.

    And I would say it's not long enough to be sustainable. That means absolutely nothing. Especially when the very long term trend line in general is flat.

    There's zero reason to believe you're going to continue seeing that type of appreciation. Real estate should not outpace local incomes. The only reason it has is that this country has been on a drunken binge of higher debt and lower interest rates for 30 years. Combined with hordes of people pouring into "real estate investing" over the last couple of decades.

    But hey if you think that since your property has gone from 50K to 500K over the last 40 years that means it will go from 500K to 5M over the next 40 that's on you.

    Again your entire argument is that appreciation begets more appreciation. Which is nonsense, especially in something like housing which I don't care what BP thinks, will pretty much always revert to the end user fundamentals.

    Real estate should not appreciate.

     That is an interesting take and could be right in many areas and maybe not as much in other areas. Warren Buffet bought a Cali vacation home in the 70s for 150k. His wife passed a few years back and he does not need anymore so he is selling it today. How much? 11,000,000.00. That is 7000% appreciation? Location matters still. 

    I'm not disputing that appreciation happens.

    I'm disputing that:

    1. Real estate appreciates in general, because it doesn't.

    2. Past appreciation is a predictor of future appreciation. If anything, you should expect the opposite, since real estate is not generally an appreciating asset because as a usable good it should be supported by end user fundamentals.

     In general, adjusted for inflation, not much if any appreciation for many locations agreed. Past appreciation or lack of could be a general indicator still. Many other factors to consider at the sametime and if those factors are the same or improving and you are in the same long historical appreciating location there is a much better chance of apprecation perhaps. The same would go if it was the opposite sitiuation. No historical apprecation area combined with same conditions as past then expect no apprecation moving forward perhaps. 

    As far as demand is concerned, population and job growth are the two strongest predictors.  Past is no guarantee of future results.  For example, look at New York, which is ranked 46th for its forecasted population growth until 2030.  Or look at Austin in 2003... would anyone project south by southwest would become an international tech conference and it would become a tech city?  No, but when I researched the city and did my homework, it became clear that there were conditions in place for this city to experience significant growth over next 10 years... which clearly happened. 

    Thera are many other regional and local variables to consider (development costs, regulation, city politics, crime, diversification of jobs types/primarily services and tech, educational institutions, state capitals, cost of housing, path of growth, makeup of neighborhood / owners VS renters, etc..). 

    REI is considered high risk with no guarantees agreed. Some known past appreciation areas have fundamentals in place that give birth to future appreciation. These factors can have a snowball effect. LA for example is not known has a huge BIOtech area...guess what is now exploding in LA , biotech industry investments. Not that LA really needs more action but here we go with more high paying jobs and guys setting this up report "said he's been flooded with interest from researchers eager to work in LA BioMed's brand-new labs with some of the world's best scientists. " Is that going to help make some RE appreciate more...um yeah.

    0Reply
  • Account Closed
    Investor · Indianapolis, IN · Member since 2017 · 47 posts · 80 votes
    9y
    Originally posted by @Jon Q.:
    Originally posted by @Account Closed:
    Originally posted by @Matt R.:
    Originally posted by @Account Closed:
    Originally posted by @Matt R.:
    Originally posted by @Account Closed:
    Originally posted by @Andrey Y.:
    Originally posted by @Account Closed:
    Originally posted by @Andrey Y.:

    So much rationalization on this thead from "cash flow" investors.

    So the year over year, long term 9% annual appreciation and 6% annual rent growth over the last 40+ years in Honolulu is speculation and irrational exuberance? Similar numbers are found in Sam Francisco, San Jose, and to a slightly less extent LA and Sam Diego.

    I've said this in another thread. The proponderance of investors on BP who have attained 7 figures of PROFITs from rental have all been from coastal markets such as LA, SF, SD, Bay Area, NYC, Seattle, and Hawaii. This is nothing more than simple observation.

    Why? Because cash flow is not profit. How long do you think it will take you to net $1M in profit from buying cash-flowing rentals in non-appreciating markets, hoping a CapEx expense doesn't wipe 2 years of their cash flow?

    Of course people from Indy, Michigan, Tennessee, etc. will bring up Case-Shiller, but ignore the last 40 years of actual data. I think my high six figures in profit balance sheet investing in HI, is so irrationally exuberant!! I mean, Case-Shiller knows better. I think I should just chalk it up to a Christmas miracle. Prices are high in these locations for a reason, folks.

    You're obviously referring to me.

    I buy properties that DO appreciate. I'm not a "cash flow" investor. I'm also not a degenerate gambler who thinks that buying in freaking Hawaii and California is a great idea now because "it always goes up".

    Real estate overall does not go up in the long term. That's just a fact.

    "Prices are high in these locations for a reason, folks."

    Right, and high prices mean that prices will go even higher. That's just how it works. Right?

    The prices in most of the areas you mentioned are unsustainable and unsupported by incomes. Be a speculator all you want but know that the only thing underpinning those prices is other speculators. Or as I call them, greater fools.

    Your entire argument is that since these areas have appreciated in the past, outpacing local incomes, they will continue to do so, indefinitely. Good luck.

     What is your definition of the "past"? Those appreciation and rental income growth I stated INCLUDE THE DOWN CYCLES. That is important to understand. I am talking about from the 1970s to 2010s .. Do you plan to live to 180 years old? I'm not counting on that. I'd say that time frame is long enough to be sustainable and supported. I guess people that invest for profit are degenerate gamblers.

    A lot of people who have a $60K income are coming in with $500K of appreciation equity. There is little evidence that MEDIAN incomes absolutely dictate the "actual" value of a market or submarket. The value of a property is nothing more, nothing less than what someone is willing to pay.

    And I would say it's not long enough to be sustainable. That means absolutely nothing. Especially when the very long term trend line in general is flat.

    There's zero reason to believe you're going to continue seeing that type of appreciation. Real estate should not outpace local incomes. The only reason it has is that this country has been on a drunken binge of higher debt and lower interest rates for 30 years. Combined with hordes of people pouring into "real estate investing" over the last couple of decades.

    But hey if you think that since your property has gone from 50K to 500K over the last 40 years that means it will go from 500K to 5M over the next 40 that's on you.

    Again your entire argument is that appreciation begets more appreciation. Which is nonsense, especially in something like housing which I don't care what BP thinks, will pretty much always revert to the end user fundamentals.

    Real estate should not appreciate.

     That is an interesting take and could be right in many areas and maybe not as much in other areas. Warren Buffet bought a Cali vacation home in the 70s for 150k. His wife passed a few years back and he does not need anymore so he is selling it today. How much? 11,000,000.00. That is 7000% appreciation? Location matters still. 

    I'm not disputing that appreciation happens.

    I'm disputing that:

    1. Real estate appreciates in general, because it doesn't.

    2. Past appreciation is a predictor of future appreciation. If anything, you should expect the opposite, since real estate is not generally an appreciating asset because as a usable good it should be supported by end user fundamentals.

     In general, adjusted for inflation, not much if any appreciation for many locations agreed. Past appreciation or lack of could be a general indicator still. Many other factors to consider at the sametime and if those factors are the same or improving and you are in the same long historical appreciating location there is a much better chance of apprecation perhaps. The same would go if it was the opposite sitiuation. No historical apprecation area combined with same conditions as past then expect no apprecation moving forward perhaps. 

    Yes, right. I buy in gentrifying neighborhoods in cash flow markets.

    "and you are in the same long historical appreciating location there is a much better chance of apprecation perhaps"

    I would say past appreciation is at best irrelevant and at worst means you are less likely to see appreciation in the future.

    San Francisco has good fundamentals and high incomes but even then prices are completely unsupported by those fundamentals. As such I would not rely on them as a predictor of future growth. That type of speculation is already priced in by the 1,000 other speculators that came before you.

    In re to "past appreciation"... I probably agree, but not always.  it depends if the variables driving demand and limiting supply continue... if so they likely will continue experiencing appreciation over time.  But appreciation is a result, not an ingredient.

    For the record I don't disagree that these factors matter.

    However MANY, although maybe not you, do believe that real estate always goes up in general. Which is crap.

    Also, population growth has never driven real estate very high except in the short term under certain circumstances.

    The vast vast majority of markets will stay flat in the long term. Being priced out of an entire area permanently is the exception, not the rule.

    0Reply
  • Jon Q.
    OP
    Investor · Berkeley, CA · Member since 2015 · 1k+ posts · 713 votes
    9y
    Originally posted by @Account Closed:
    Originally posted by @Jon Q.:
    Originally posted by @Account Closed:
    Originally posted by @Jon Q.:

    It is my point.

    In all markets, for many reasons, prices will rise and fall (market cycles)... but in certain markets I believe that prices will rise more than fall over the next 5-10 years, likely longer.

     Well 5-10 years is not a long time.

    How confident are you that you can project the future over a longer time period?

    I'd net not very...  so 10 years is very useful.  It's a full market cycle.

    I'm not confident at all.

    That's why I don't buy for "appreciation" as in general market appreciation.

    I buy for appreciation as in full on gentrification and major demographic change.

    That I can predict.

    And even that is risky.

    I don't disagree. My average returns are made up of 12-20% cash flow and 5-15% appreciation. Cash flow I feel I can project at 90-95% accuracy prior to buying and appreciation at much lower accuracy, but I believe that if I'm buying and market that is experiencing significant population and job growth, my properties will appreciate.  If they don't, I'm still fine.  Diversification of return is an added risk mitigation.

    0Reply
  • Jon Q.
    OP
    Investor · Berkeley, CA · Member since 2015 · 1k+ posts · 713 votes
    9y
    Originally posted by @Account Closed:
    Originally posted by @Account Closed:
    Originally posted by @Matt R.:
    Originally posted by @Account Closed:
    Originally posted by @Matt R.:
    Originally posted by @Account Closed:
    Originally posted by @Andrey Y.:
    Originally posted by @Account Closed:
    Originally posted by @Andrey Y.:

    So much rationalization on this thead from "cash flow" investors.

    So the year over year, long term 9% annual appreciation and 6% annual rent growth over the last 40+ years in Honolulu is speculation and irrational exuberance? Similar numbers are found in Sam Francisco, San Jose, and to a slightly less extent LA and Sam Diego.

    I've said this in another thread. The proponderance of investors on BP who have attained 7 figures of PROFITs from rental have all been from coastal markets such as LA, SF, SD, Bay Area, NYC, Seattle, and Hawaii. This is nothing more than simple observation.

    Why? Because cash flow is not profit. How long do you think it will take you to net $1M in profit from buying cash-flowing rentals in non-appreciating markets, hoping a CapEx expense doesn't wipe 2 years of their cash flow?

    Of course people from Indy, Michigan, Tennessee, etc. will bring up Case-Shiller, but ignore the last 40 years of actual data. I think my high six figures in profit balance sheet investing in HI, is so irrationally exuberant!! I mean, Case-Shiller knows better. I think I should just chalk it up to a Christmas miracle. Prices are high in these locations for a reason, folks.

    You're obviously referring to me.

    I buy properties that DO appreciate. I'm not a "cash flow" investor. I'm also not a degenerate gambler who thinks that buying in freaking Hawaii and California is a great idea now because "it always goes up".

    Real estate overall does not go up in the long term. That's just a fact.

    "Prices are high in these locations for a reason, folks."

    Right, and high prices mean that prices will go even higher. That's just how it works. Right?

    The prices in most of the areas you mentioned are unsustainable and unsupported by incomes. Be a speculator all you want but know that the only thing underpinning those prices is other speculators. Or as I call them, greater fools.

    Your entire argument is that since these areas have appreciated in the past, outpacing local incomes, they will continue to do so, indefinitely. Good luck.

     What is your definition of the "past"? Those appreciation and rental income growth I stated INCLUDE THE DOWN CYCLES. That is important to understand. I am talking about from the 1970s to 2010s .. Do you plan to live to 180 years old? I'm not counting on that. I'd say that time frame is long enough to be sustainable and supported. I guess people that invest for profit are degenerate gamblers.

    A lot of people who have a $60K income are coming in with $500K of appreciation equity. There is little evidence that MEDIAN incomes absolutely dictate the "actual" value of a market or submarket. The value of a property is nothing more, nothing less than what someone is willing to pay.

    And I would say it's not long enough to be sustainable. That means absolutely nothing. Especially when the very long term trend line in general is flat.

    There's zero reason to believe you're going to continue seeing that type of appreciation. Real estate should not outpace local incomes. The only reason it has is that this country has been on a drunken binge of higher debt and lower interest rates for 30 years. Combined with hordes of people pouring into "real estate investing" over the last couple of decades.

    But hey if you think that since your property has gone from 50K to 500K over the last 40 years that means it will go from 500K to 5M over the next 40 that's on you.

    Again your entire argument is that appreciation begets more appreciation. Which is nonsense, especially in something like housing which I don't care what BP thinks, will pretty much always revert to the end user fundamentals.

    Real estate should not appreciate.

     That is an interesting take and could be right in many areas and maybe not as much in other areas. Warren Buffet bought a Cali vacation home in the 70s for 150k. His wife passed a few years back and he does not need anymore so he is selling it today. How much? 11,000,000.00. That is 7000% appreciation? Location matters still. 

    I'm not disputing that appreciation happens.

    I'm disputing that:

    1. Real estate appreciates in general, because it doesn't.

    2. Past appreciation is a predictor of future appreciation. If anything, you should expect the opposite, since real estate is not generally an appreciating asset because as a usable good it should be supported by end user fundamentals.

     In general, adjusted for inflation, not much if any appreciation for many locations agreed. Past appreciation or lack of could be a general indicator still. Many other factors to consider at the sametime and if those factors are the same or improving and you are in the same long historical appreciating location there is a much better chance of apprecation perhaps. The same would go if it was the opposite sitiuation. No historical apprecation area combined with same conditions as past then expect no apprecation moving forward perhaps. 

    Yes, right. I buy in gentrifying neighborhoods in cash flow markets.

    "and you are in the same long historical appreciating location there is a much better chance of apprecation perhaps"

    I would say past appreciation is at best irrelevant and at worst means you are less likely to see appreciation in the future.

    San Francisco has good fundamentals and high incomes but even then prices are completely unsupported by those fundamentals. As such I would not rely on them as a predictor of future growth. That type of speculation is already priced in by the 1,000 other speculators that came before you.

    In re to "past appreciation"... I probably agree, but not always.  it depends if the variables driving demand and limiting supply continue... if so they likely will continue experiencing appreciation over time.  But appreciation is a result, not an ingredient.

    For the record I don't disagree that these factors matter.

    "However MANY, although maybe not you, do believe that real estate always goes up in general. Which is crap."

    No experienced investor thinks this.

    "Also, population growth has never driven real estate very high except in the short term under certain circumstances."

    I don't agree.

    "The vast vast majority of markets will stay flat in the long term. Being priced out of an entire area permanently is the exception, not the rule."

    I don't agree. And I don't think this is even useful. I don't care about a "majority".  I don't invest in a majority. I invest in growing markets.

    0Reply
  • Greg H.Pro Member
    Moderator
    Broker/Flipper · Austin, TX · Member since 2013 · 4k+ posts · 4k+ votes
    9y

    @Jon S.  

    I do appreciate that you defend your proclamations even though I disagree with almost every one of them.  I typically don't pay attention to marco views other than how it effects the psyche of the masses.  There were several posts from you in the last year that we were set for a decline(phase 3 of 4) What changed ?

    My questions for you is since you go in to great detail in your postings, why does it appear that you have incorrect information on your website regarding your purchases ? I cannot find any of the streets on the 3 properties you list in Austin. The one on Ponderosa was most surprising as you indicated in was a HUD home purchase in 2016 in an upper middle class neighborhood for $103,400? No way a property in an upper middle class neighborhood sold for that in Austin unless it was burned. I checked the MLS and my HUD database(as I track HUD sales and would be pissed at myself if I missed that one!) and not one property sold for that amount in 2016. Just curious

    2Reply
  • Account Closed
    Investor · Indianapolis, IN · Member since 2017 · 47 posts · 80 votes
    9y
    Originally posted by @Jon Q.:
    Originally posted by @Account Closed:
    Originally posted by @Jon Q.:
    Originally posted by @Account Closed:
    Originally posted by @Jon Q.:

    It is my point.

    In all markets, for many reasons, prices will rise and fall (market cycles)... but in certain markets I believe that prices will rise more than fall over the next 5-10 years, likely longer.

     Well 5-10 years is not a long time.

    How confident are you that you can project the future over a longer time period?

    I'd net not very...  so 10 years is very useful.  It's a full market cycle.

    I'm not confident at all.

    That's why I don't buy for "appreciation" as in general market appreciation.

    I buy for appreciation as in full on gentrification and major demographic change.

    That I can predict.

    And even that is risky.

    I don't disagree. My average returns are made up of 12-20% cash flow and 5-15% appreciation. Cash flow I feel I can project at 90-95% accuracy prior to buying and appreciation at much lower accuracy, but I believe that if I'm buying and market that is experiencing significant population and job growth, my properties will appreciate.  If they don't, I'm still fine.  Diversification of return is an added risk mitigation.

    Right.

    And if my neighborhoods don't gentrify I will rent my properties section 8.

    That said I would consider population growth especially in inland areas to be a minor factor at most. We've experienced population growth since 1890 I'm sure yet real estate has remained mostly flat.

    Coastal areas will boom and bust due to supply constraints but in the long run I would expect them to remain relatively flat as well, see substitution effect.

    Job growth fine but that's also cyclical and we are probably at or near cycle lows for unemployment. Edit, this is not relevant when you're targeting locations for long term job growth so nevermind.

    0Reply
  • Jon Q.
    OP
    Investor · Berkeley, CA · Member since 2015 · 1k+ posts · 713 votes
    9y
    Originally posted by @Greg H.:

    @Jon S.  

    I do appreciate that you defend your proclamations even though I disagree with almost every one of them.  I typically don't pay attention to marco views other than how it effects the psyche of the masses.  There were several posts from you in the last year that we were set for a decline(phase 3 of 4) What changed ?

    My questions for you is since you go in to great detail in your postings, why does it appear that you have incorrect information on your website regarding your purchases ? I cannot find any of the streets on the 3 properties you list in Austin. The one on Ponderosa was most surprising as you indicated in was a HUD home purchase in 2016 in an upper middle class neighborhood for $103,400? No way a property in an upper middle class neighborhood sold for that in Austin unless it was burned. I checked the MLS and my HUD database(as I track HUD sales and would be pissed at myself if I missed that one!) and not one property sold for that amount in 2016. Just curious

    Oh, you again.  Sorry you're mad you missed out :-)

    I'll be avoiding responding to anything you say on this thread.

    0Reply
  • Account Closed
    Investor · Indianapolis, IN · Member since 2017 · 47 posts · 80 votes
    9y
    Originally posted by @Jon Q.:
    Originally posted by @Account Closed:
    Originally posted by @Jon Q.:
    Originally posted by @Account Closed:
    Originally posted by @Matt R.:
    Originally posted by @Account Closed:
    Originally posted by @Matt R.:
    Originally posted by @Account Closed:
    Originally posted by @Andrey Y.:
    Originally posted by @Account Closed:
    Originally posted by @Andrey Y.:

    So much rationalization on this thead from "cash flow" investors.

    So the year over year, long term 9% annual appreciation and 6% annual rent growth over the last 40+ years in Honolulu is speculation and irrational exuberance? Similar numbers are found in Sam Francisco, San Jose, and to a slightly less extent LA and Sam Diego.

    I've said this in another thread. The proponderance of investors on BP who have attained 7 figures of PROFITs from rental have all been from coastal markets such as LA, SF, SD, Bay Area, NYC, Seattle, and Hawaii. This is nothing more than simple observation.

    Why? Because cash flow is not profit. How long do you think it will take you to net $1M in profit from buying cash-flowing rentals in non-appreciating markets, hoping a CapEx expense doesn't wipe 2 years of their cash flow?

    Of course people from Indy, Michigan, Tennessee, etc. will bring up Case-Shiller, but ignore the last 40 years of actual data. I think my high six figures in profit balance sheet investing in HI, is so irrationally exuberant!! I mean, Case-Shiller knows better. I think I should just chalk it up to a Christmas miracle. Prices are high in these locations for a reason, folks.

    You're obviously referring to me.

    I buy properties that DO appreciate. I'm not a "cash flow" investor. I'm also not a degenerate gambler who thinks that buying in freaking Hawaii and California is a great idea now because "it always goes up".

    Real estate overall does not go up in the long term. That's just a fact.

    "Prices are high in these locations for a reason, folks."

    Right, and high prices mean that prices will go even higher. That's just how it works. Right?

    The prices in most of the areas you mentioned are unsustainable and unsupported by incomes. Be a speculator all you want but know that the only thing underpinning those prices is other speculators. Or as I call them, greater fools.

    Your entire argument is that since these areas have appreciated in the past, outpacing local incomes, they will continue to do so, indefinitely. Good luck.

     What is your definition of the "past"? Those appreciation and rental income growth I stated INCLUDE THE DOWN CYCLES. That is important to understand. I am talking about from the 1970s to 2010s .. Do you plan to live to 180 years old? I'm not counting on that. I'd say that time frame is long enough to be sustainable and supported. I guess people that invest for profit are degenerate gamblers.

    A lot of people who have a $60K income are coming in with $500K of appreciation equity. There is little evidence that MEDIAN incomes absolutely dictate the "actual" value of a market or submarket. The value of a property is nothing more, nothing less than what someone is willing to pay.

    And I would say it's not long enough to be sustainable. That means absolutely nothing. Especially when the very long term trend line in general is flat.

    There's zero reason to believe you're going to continue seeing that type of appreciation. Real estate should not outpace local incomes. The only reason it has is that this country has been on a drunken binge of higher debt and lower interest rates for 30 years. Combined with hordes of people pouring into "real estate investing" over the last couple of decades.

    But hey if you think that since your property has gone from 50K to 500K over the last 40 years that means it will go from 500K to 5M over the next 40 that's on you.

    Again your entire argument is that appreciation begets more appreciation. Which is nonsense, especially in something like housing which I don't care what BP thinks, will pretty much always revert to the end user fundamentals.

    Real estate should not appreciate.

     That is an interesting take and could be right in many areas and maybe not as much in other areas. Warren Buffet bought a Cali vacation home in the 70s for 150k. His wife passed a few years back and he does not need anymore so he is selling it today. How much? 11,000,000.00. That is 7000% appreciation? Location matters still. 

    I'm not disputing that appreciation happens.

    I'm disputing that:

    1. Real estate appreciates in general, because it doesn't.

    2. Past appreciation is a predictor of future appreciation. If anything, you should expect the opposite, since real estate is not generally an appreciating asset because as a usable good it should be supported by end user fundamentals.

     In general, adjusted for inflation, not much if any appreciation for many locations agreed. Past appreciation or lack of could be a general indicator still. Many other factors to consider at the sametime and if those factors are the same or improving and you are in the same long historical appreciating location there is a much better chance of apprecation perhaps. The same would go if it was the opposite sitiuation. No historical apprecation area combined with same conditions as past then expect no apprecation moving forward perhaps. 

    Yes, right. I buy in gentrifying neighborhoods in cash flow markets.

    "and you are in the same long historical appreciating location there is a much better chance of apprecation perhaps"

    I would say past appreciation is at best irrelevant and at worst means you are less likely to see appreciation in the future.

    San Francisco has good fundamentals and high incomes but even then prices are completely unsupported by those fundamentals. As such I would not rely on them as a predictor of future growth. That type of speculation is already priced in by the 1,000 other speculators that came before you.

    In re to "past appreciation"... I probably agree, but not always.  it depends if the variables driving demand and limiting supply continue... if so they likely will continue experiencing appreciation over time.  But appreciation is a result, not an ingredient.

    For the record I don't disagree that these factors matter.

    "However MANY, although maybe not you, do believe that real estate always goes up in general. Which is crap."

    No experienced investor thinks this.

    "Also, population growth has never driven real estate very high except in the short term under certain circumstances."

    I don't agree.

    "The vast vast majority of markets will stay flat in the long term. Being priced out of an entire area permanently is the exception, not the rule."

    I don't agree. And I don't think this is even useful. I don't care about a "majority".  I don't invest in a majority. I invest in growing markets.

    1. Growing markets do not grow forever.

    2. The US is has been a "growing" country since its inception yet real estate is relatively flat since 1890. Why do you expect say Charlotte, NC to be any different exactly?

    0Reply
  • Matt R.
    Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes
    9y
    Originally posted by @Account Closed:
    Originally posted by @Account Closed:
    Originally posted by @Jon Q.:
    Originally posted by @Account Closed:
    Originally posted by @Matt R.:
    Originally posted by @Account Closed:
    Originally posted by @Matt R.:
    Originally posted by @Account Closed:
    Originally posted by @Andrey Y.:
    Originally posted by @Account Closed:
    Originally posted by @Andrey Y.:

    So much rationalization on this thead from "cash flow" investors.

    So the year over year, long term 9% annual appreciation and 6% annual rent growth over the last 40+ years in Honolulu is speculation and irrational exuberance? Similar numbers are found in Sam Francisco, San Jose, and to a slightly less extent LA and Sam Diego.

    I've said this in another thread. The proponderance of investors on BP who have attained 7 figures of PROFITs from rental have all been from coastal markets such as LA, SF, SD, Bay Area, NYC, Seattle, and Hawaii. This is nothing more than simple observation.

    Why? Because cash flow is not profit. How long do you think it will take you to net $1M in profit from buying cash-flowing rentals in non-appreciating markets, hoping a CapEx expense doesn't wipe 2 years of their cash flow?

    Of course people from Indy, Michigan, Tennessee, etc. will bring up Case-Shiller, but ignore the last 40 years of actual data. I think my high six figures in profit balance sheet investing in HI, is so irrationally exuberant!! I mean, Case-Shiller knows better. I think I should just chalk it up to a Christmas miracle. Prices are high in these locations for a reason, folks.

    You're obviously referring to me.

    I buy properties that DO appreciate. I'm not a "cash flow" investor. I'm also not a degenerate gambler who thinks that buying in freaking Hawaii and California is a great idea now because "it always goes up".

    Real estate overall does not go up in the long term. That's just a fact.

    "Prices are high in these locations for a reason, folks."

    Right, and high prices mean that prices will go even higher. That's just how it works. Right?

    The prices in most of the areas you mentioned are unsustainable and unsupported by incomes. Be a speculator all you want but know that the only thing underpinning those prices is other speculators. Or as I call them, greater fools.

    Your entire argument is that since these areas have appreciated in the past, outpacing local incomes, they will continue to do so, indefinitely. Good luck.

     What is your definition of the "past"? Those appreciation and rental income growth I stated INCLUDE THE DOWN CYCLES. That is important to understand. I am talking about from the 1970s to 2010s .. Do you plan to live to 180 years old? I'm not counting on that. I'd say that time frame is long enough to be sustainable and supported. I guess people that invest for profit are degenerate gamblers.

    A lot of people who have a $60K income are coming in with $500K of appreciation equity. There is little evidence that MEDIAN incomes absolutely dictate the "actual" value of a market or submarket. The value of a property is nothing more, nothing less than what someone is willing to pay.

    And I would say it's not long enough to be sustainable. That means absolutely nothing. Especially when the very long term trend line in general is flat.

    There's zero reason to believe you're going to continue seeing that type of appreciation. Real estate should not outpace local incomes. The only reason it has is that this country has been on a drunken binge of higher debt and lower interest rates for 30 years. Combined with hordes of people pouring into "real estate investing" over the last couple of decades.

    But hey if you think that since your property has gone from 50K to 500K over the last 40 years that means it will go from 500K to 5M over the next 40 that's on you.

    Again your entire argument is that appreciation begets more appreciation. Which is nonsense, especially in something like housing which I don't care what BP thinks, will pretty much always revert to the end user fundamentals.

    Real estate should not appreciate.

     That is an interesting take and could be right in many areas and maybe not as much in other areas. Warren Buffet bought a Cali vacation home in the 70s for 150k. His wife passed a few years back and he does not need anymore so he is selling it today. How much? 11,000,000.00. That is 7000% appreciation? Location matters still. 

    I'm not disputing that appreciation happens.

    I'm disputing that:

    1. Real estate appreciates in general, because it doesn't.

    2. Past appreciation is a predictor of future appreciation. If anything, you should expect the opposite, since real estate is not generally an appreciating asset because as a usable good it should be supported by end user fundamentals.

     In general, adjusted for inflation, not much if any appreciation for many locations agreed. Past appreciation or lack of could be a general indicator still. Many other factors to consider at the sametime and if those factors are the same or improving and you are in the same long historical appreciating location there is a much better chance of apprecation perhaps. The same would go if it was the opposite sitiuation. No historical apprecation area combined with same conditions as past then expect no apprecation moving forward perhaps. 

    Yes, right. I buy in gentrifying neighborhoods in cash flow markets.

    "and you are in the same long historical appreciating location there is a much better chance of apprecation perhaps"

    I would say past appreciation is at best irrelevant and at worst means you are less likely to see appreciation in the future.

    San Francisco has good fundamentals and high incomes but even then prices are completely unsupported by those fundamentals. As such I would not rely on them as a predictor of future growth. That type of speculation is already priced in by the 1,000 other speculators that came before you.

    In re to "past appreciation"... I probably agree, but not always.  it depends if the variables driving demand and limiting supply continue... if so they likely will continue experiencing appreciation over time.  But appreciation is a result, not an ingredient.

    For the record I don't disagree that these factors matter.

    "However MANY, although maybe not you, do believe that real estate always goes up in general. Which is crap."

    No experienced investor thinks this.

    "Also, population growth has never driven real estate very high except in the short term under certain circumstances."

    I don't agree.

    "The vast vast majority of markets will stay flat in the long term. Being priced out of an entire area permanently is the exception, not the rule."

    I don't agree. And I don't think this is even useful. I don't care about a "majority".  I don't invest in a majority. I invest in growing markets.

    1. Growing markets do not grow forever.

    2. The US is has been a "growing" country since its inception yet real estate is relatively flat since 1890. Why do you expect say Charlotte, NC to be any different exactly?

     Forever is a bit of a long time line:) Has China been growing since 5000 BC? I guess yes. I get your point still.

    1Reply
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