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

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

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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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.:

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?
1. I agree
2. I don't necessarily. I do estimate that Charlotte will continue growing over the next 10 years for various reasons (pop/job growth, tax rates, enormous NY to NC migration, etc.). If you want to go more into that, we can.
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Andrey Y.
Specialist · Honolulu, HI · Member since 2014 · 1k+ posts · 1k+ 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.
Have to respectfully disagree with your blanket statements. There is a big difference between what SHOULD BE and what IS.
The long-term trend being flat what you speak of, that may be true for Indy, or for the entire USA as a whole (although that is also technically false, for the USA RE values have slightly outpaced inflation), but real estate is LOCAL.
Why should an investor pay attention to other places which they are not invested in? Makes zero sense. Its like saying "Well I am invested in Russian stocks, but ya know the USA bond market shows this, and psychology states blah blah" Not useful.
The person flipping houses in Hawaii, buying timberland in Oregon, or buying rentals in the Bay Area doesn't care if the long term trend in Detroit was 0% or the entire USA was 3.5%.
3 Reply
Account Closed
Investor · Indianapolis, IN · Member since 2017 · 47 posts · 80 votes
9y
Originally posted by @Andrey Y.:

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.
Have to respectfully disagree with your blanket statements. There is a big difference between what SHOULD BE and what IS.
The long-term trend being flat what you speak of, that may be true for Indy, or for the entire USA as a whole (although that is also technically false, for the USA RE values have slightly outpaced inflation), but real estate is LOCAL.
Why should an investor pay attention to other places which they are not invested in? Makes zero sense. Its like saying "Well I am invested in Russian stocks, but ya know the USA bond market shows this, and psychology states blah blah" Not useful.
The person flipping houses in Hawaii, buying timberland in Oregon, or buying rentals in the Bay Area doesn't care if the long term trend in Detroit was 0% or the entire USA was 3.5%.
You're missing the point.
My long term trend was true even in California for longer than it was false.
Do you expect California to continue appreciating at the rate it has?
Actual lasting increase in the value of real estate is a historical aberration. It should not continue, especially in places where it has already gone completely insane, and to bet on it continuing is a hell of a gamble.
0 Reply
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 @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?
Forever is a bit of a long time line:) Has China been growing since 5000 BC? I guess yes. I get your point still.
But this has been true over the short term as well as the long.
Take any 10 year period from 1890 to 1990 and you'll see flat real estate values, with the exception of a few short lived booms and busts.
0 Reply
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 @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?
Forever is a bit of a long time line:) Has China been growing since 5000 BC? I guess yes. I get your point still.
But this has been true over the short term as well as the long.
Take any 10 year period from 1890 to 1990 and you'll see flat real estate values, with the exception of a few short lived booms and busts.
Some areas are flat some are not. This area example below does not look flat to me.
2 Reply
Brent Coombs
Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes
9y
Originally posted by @Jon Q.:
Originally posted by @Brent Coombs:
@Jon Q., seems to me, if in "hot" markets we ALREADY can't get positive cash flow (otherwise, it's NOT "hot"), that means that in your (literal) napkin drawing, those markets (while hot) would NEVER be at or below your DOT - but always above - which means that there would ALWAYS be the possibility/probability that the peak, followed by inevitable downturn, would ALWAYS be closer at hand than if you DIDN'T buy in those markets, at THOSE times, right?
That is, unless you really only buy well below market value at all times after all!
Hmmm. Plugging THAT virtue would have made for a MUCH better opening post, imho.
(Aren't bargains hard to come by in "hot" markets? You'd need all the skills of a seasoned Flipper, right?) My 2c...
Thanks Brent. Not necessarily. I just acquired three properties in these markets that are all cash flowing.
Also, read what I wrote about exceptions. And no, I'm not a flipper and flipping property is not investing.
It seems that YOUR definition of "hot" is different than mine then. My definition suggests that "hot" is when the prices have gone up BEYOND what would make practical sense for cash flow investors.
ie. For normal (75%-leveraging) Investors, they no longer cash flow positively if purchased at "hot" market value.
But if you mean: Once upon a time you could get 2%/m in this area easily, but, now it's "hot" so it's only getting 1.3%/m, then sorry, I disagree with definition of "hot". More likely, the higher values/rents are just overdue, reverting to what should have been the historical norm. Which means, most cash flow investors will still be happy to invest there, not just those caught up in the hype of buying in "hot" markets.
Yes, I read your bit about "exceptions", but, that didn't seem to be what your focus was on, (which, SHOULD have been?)
And I wasn't suggesting you need the skills of a Flipper to ACTUALLY flip, but rather, you would need them to know if you were genuinely giving yourself a chance to regularly buy UNDER-market value, in "hot" markets. Cheers...
0 Reply
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 @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?
Forever is a bit of a long time line:) Has China been growing since 5000 BC? I guess yes. I get your point still.
But this has been true over the short term as well as the long.
Take any 10 year period from 1890 to 1990 and you'll see flat real estate values, with the exception of a few short lived booms and busts.
Some areas are flat some are not. This area example below does not look flat to me.
So one area has had a good run over 30 years of money printing and reduction of interest rates and is now arguably the most overvalued real estate market in the US.
So the theory is, that area is more likely to appreciate even more than others, based on that? Am I getting this right? Because that seems to be conventional wisdom here on BP. Buy in CA for appreciation or in Indianapolis for cash flow.
San Francisco is vastly overvalued and in the long run will not continue to appreciate at the rate it has, best case scenario. Worst case and more likely scenario it reverts back towards historical norms.
Or maybe it just keeps going up forever until no one can buy anything there.
Substitution effect will play out in the long run as well.
0 Reply
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 @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 @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.
But this has been true over the short term as well as the long.
Take any 10 year period from 1890 to 1990 and you'll see flat real estate values, with the exception of a few short lived booms and busts.
Some areas are flat some are not. This area example below does not look flat to me.
So one area has had a good run over 30 years of money printing and reduction of interest rates and is now arguably the most overvalued real estate market in the US.
So the theory is, that area is more likely to appreciate even more than others, based on that? Am I getting this right? Because that seems to be conventional wisdom here on BP. Buy in CA for appreciation or in Indianapolis for cash flow.
San Francisco is vastly overvalued and in the long run will not continue to appreciate at the rate it has, best case scenario. Worst case and more likely scenario it reverts back towards historical norms.
Or maybe it just keeps going up forever until no one can buy anything there.
Substitution effect will play out in the long run as well.
IMO long term value is mostly determined by supply and demand and everything reverts to that eventually. There will be times of over or under valued in between.
The sun will be dead in a few billion years, 100% agree on that part, nothing goes up forever. It is in the meantime I guess:)
1 Reply
Matt R.
Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes
9y
When we look at the Bay area Case Schiller graph above, we can see for some who entered at any of the previous peaks and if they had the holding cost covered, overall they were mostly ok. Even those suckers who bought at the peak of the peak going back 30 years. Circles back to REI location really matters folks.
0 Reply
Matt R.
Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes
9y
Some might be interested in the question well how about the cash flow? We know of many SF apts that were $500 rent in 2000 are now $3500. So yes that was also pretty good. This partially explains why the shait cost so much more in the first place. Then we look at SFH total profits (cash flow+ equity) since 2000...nationally 1,2, 3 LA, SF and San Diego. Hmmm, interesting, there seems to be a location profit pattern going on here.
1 Reply
Andrey Y.
Specialist · Honolulu, HI · Member since 2014 · 1k+ posts · 1k+ 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 @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?
Forever is a bit of a long time line:) Has China been growing since 5000 BC? I guess yes. I get your point still.
But this has been true over the short term as well as the long.
Take any 10 year period from 1890 to 1990 and you'll see flat real estate values, with the exception of a few short lived booms and busts.
Some areas are flat some are not. This area example below does not look flat to me.
Didn't you know Matt, we are all going to live to 380 years old. No point in being a real estate investor. We should all just put all our money into a Vanguard index fund, sit around being super frugal and miss out on life experiences for 30-40 years.. and by the time we are 65-70 we will have $800K.. then we could just "Use the 4% rule" and pull out $35K per year to live on. Sounds swell, doesn't it?
Not each market and submarket on earth has the same economic factors and supply and demand constraints.
1 Reply
Matt R.
Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes
9y
Then we can examine some basic world geography. What do LA, SF and SD have that some others don't? Major ports (Air / Ocean) to Asia, the world's new economic growth centers. Some may be able to see how this all works physically and then apply to physical RE. Think East Coast USA history then add 250 years into the future.
0 Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
9y
@Account Closed as one that was born and raised in the bay area and been in the real estate industry all my life there started in 1975 personally my dad in 1965. You have a few things at play there that just cant be recreated in most other markets in the world...
One is geographic there simply is not any land to build on.. so that creates a supply side issue..
TWO who was to know it was to become silicon valley and engineer central with super high wages.. I mean even BART janitors back in the late 70s were making 60k a year... I know I had clients that were such.
Three weather is some of the finest in the world
so when you take supply side HUGE wages and marry those you has escalation in prices..
Now I grew up in Cupertino my parents paid 32k for their home in 1969... you probably paid the same amount or there abouts for the same type of home all over america... well today its north of 2 million.. that same home in most other parts of America is no where near that.. some other high priced markets it might hit 1 million for 2,400 sq ft 3 and 2 on 6k sq ft lot.. in other parts of America it might only sell for 50 bucks a foot.
So growing up when they hit 100k we thought NO WAY NO how could they go any higher LOL.
when you talk other parts of the country the same demographics , geographics and job situation just is not the same.
then you throw in all the Asian buyers, all the Buyers from India and those folks Cherish real estate like no others. So this is what you have.. I can't say whether it will continue up or not.. but i certainly don't predict it coming back down unless there is a major major calamity.. And to be fair that did happen in 1989 with the Loma Prieta Earthquake and the first iraq war... property values in many parts of the SF bay area dropped 20 to 50% in the coming years but came back in 3 to 5 years and made new highs and has continued to do so..
So in my mind High tech would have to relocate Google facebook Intel Genentec and a host of others would have to decamp for values to crash.
The other thing i see traveling all around the country like i do ( and I will be in Indy next 3 days FYI)... is you have a surplus of very old housing.. that simply does not exist in most west coast venues.. age is much newer.
Now I do like that saleforce moved to Indy that has created opps for us in the areas we work.. and I think you will continue to see this in these mid west rust belt cities..
But I agree with you on a major point those buying D and D disguised and marketed as C class are in for a rude awakening over time. those properties in my mind are ONLY appropriate for locals that can run them and stay right on top of them.. that message I have been consistent with from day one when I got on BP 3 years ago.
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5 Reply
Matt R.
Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes
9y
Great points from Jay, the CA residential BP historian. We can test these West Coast port theories as well. If this newer history is true then Seattle with major Asian influenced ports would have same progress. Yep Seattle is right up there as well. How about Vancouver, Canada? Samething. Asians are contributing massively to everything west coast REI folks, position for it.
0 Reply
Matt R.
Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes
9y
One tiny little factor with the Asian REI influence....they work so hard to get, they never sell. That property will not be for public sale ever, ok maybe in an emergency. It is another snowball effect. It is not like the Mexicans from Mexico are far behind either. Is is not a sell later deal for them either. Only a stupid American would sell their CA RE.
0 Reply
Account Closed
Investor · Indianapolis, IN · Member since 2017 · 47 posts · 80 votes
9y
Originally posted by @Andrey Y.:

Originally posted by @Matt R.:
Originally posted by @Account Closed:

Originally posted by @Matt R.:

Originally posted by @Account Closed:

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?
Forever is a bit of a long time line:) Has China been growing since 5000 BC? I guess yes. I get your point still.
But this has been true over the short term as well as the long.
Take any 10 year period from 1890 to 1990 and you'll see flat real estate values, with the exception of a few short lived booms and busts.
Some areas are flat some are not. This area example below does not look flat to me.
Didn't you know Matt, we are all going to live to 380 years old. No point in being a real estate investor. We should all just put all our money into a Vanguard index fund, sit around being super frugal and miss out on life experiences for 30-40 years.. and by the time we are 65-70 we will have $800K.. then we could just "Use the 4% rule" and pull out $35K per year to live on. Sounds swell, doesn't it?
Not each market and submarket on earth has the same economic factors and supply and demand constraints.
"Didn't you know Matt, we are all going to live to 380 years old"
This is by far the stupidest interpretation of my position in this entire thread.
"We should all just put all our money into a Vanguard index fund, sit around being super frugal and miss out on life experiences for 30-40 years.. and by the time we are 65-70 we will have $800K.. then we could just "Use the 4% rule" and pull out $35K per year to live on. Sounds swell, doesn't it?"
Well that sounds better than betting that overpriced areas will become even more overpriced.
Bet away, good luck.
0 Reply
Account Closed
Investor · Indianapolis, IN · Member since 2017 · 47 posts · 80 votes
9y
Originally posted by @Matt R.:

One tiny little factor with the Asian REI influence....they work so hard to get, they never sell. That property will not be for public sale ever, ok maybe in an emergency. It is another snowball effect. It is not like the Mexicans from Mexico are far behind either. Is is not a sell later deal for them either. Only a stupid American would sell their CA RE.
You mean like the Japanese in the 80s? Oh, wait.
1 Reply
Account Closed
Investor · Indianapolis, IN · Member since 2017 · 47 posts · 80 votes
9y
Originally posted by @Jay Hinrichs:
@Account Closed as one that was born and raised in the bay area and been in the real estate industry all my life there started in 1975 personally my dad in 1965. You have a few things at play there that just cant be recreated in most other markets in the world...
One is geographic there simply is not any land to build on.. so that creates a supply side issue..
TWO who was to know it was to become silicon valley and engineer central with super high wages.. I mean even BART janitors back in the late 70s were making 60k a year... I know I had clients that were such.
Three weather is some of the finest in the world
so when you take supply side HUGE wages and marry those you has escalation in prices..
Now I grew up in Cupertino my parents paid 32k for their home in 1969... you probably paid the same amount or there abouts for the same type of home all over america... well today its north of 2 million.. that same home in most other parts of America is no where near that.. some other high priced markets it might hit 1 million for 2,400 sq ft 3 and 2 on 6k sq ft lot.. in other parts of America it might only sell for 50 bucks a foot.
So growing up when they hit 100k we thought NO WAY NO how could they go any higher LOL.
when you talk other parts of the country the same demographics , geographics and job situation just is not the same.
then you throw in all the Asian buyers, all the Buyers from India and those folks Cherish real estate like no others. So this is what you have.. I can't say whether it will continue up or not.. but i certainly don't predict it coming back down unless there is a major major calamity.. And to be fair that did happen in 1989 with the Loma Prieta Earthquake and the first iraq war... property values in many parts of the SF bay area dropped 20 to 50% in the coming years but came back in 3 to 5 years and made new highs and has continued to do so..
So in my mind High tech would have to relocate Google facebook Intel Genentec and a host of others would have to decamp for values to crash.
The other thing i see traveling all around the country like i do ( and I will be in Indy next 3 days FYI)... is you have a surplus of very old housing.. that simply does not exist in most west coast venues.. age is much newer.
Now I do like that saleforce moved to Indy that has created opps for us in the areas we work.. and I think you will continue to see this in these mid west rust belt cities..
But I agree with you on a major point those buying D and D disguised and marketed as C class are in for a rude awakening over time. those properties in my mind are ONLY appropriate for locals that can run them and stay right on top of them.. that message I have been consistent with from day one when I got on BP 3 years ago.
Well yes, SF RE has appreciated dramatically, but I've heard these points before and I always respond with this.
1. The weather is nice. That can make an area expensive, but unless the weather is getting nicer by the year I don't see why it would cause further appreciation.
2. Geographical constraints ignore the substitution effect which will come into play over the long run. Supply of RE is not limited in the sense that small cities can expand and there is a hell of a lot of land in this country to build on.
I just don't see San Francisco to continue appreciating at its current rate. Even with incomes being what they are, affordability is in the crapper already. With continued appreciation no end user will be able to afford a house there. Without end users you have a purely speculative market supported only by a constant influx of new speculators. And we all know what that means.
Side note, international RE buyers like the ones you mention are probably the stupidest of stupid investors to ever exist. We all know what these types of people do when the market starts to turn.
"But I agree with you on a major point those buying D and D disguised and marketed as C class are in for a rude awakening over time."
Yes, this entire "passive cash flow in the ghetto" thing will come crashing down some day and it's going to be hilarious.
0 Reply
Account Closed
Investor · Indianapolis, IN · Member since 2017 · 47 posts · 80 votes
9y
Originally posted by @Matt R.:

Great points from Jay, the CA residential BP historian. We can test these West Coast port theories as well. If this newer history is true then Seattle with major Asian influenced ports would have same progress. Yep Seattle is right up there as well. How about Vancouver, Canada? Samething. Asians are contributing massively to everything west coast REI folks, position for it.
Vancouver is the epitome of speculative idiocy. Toronto is right behind it.
The average home in Toronto has lost something like $150K in value over the last 3 months.
Vancouver and Toronto are both massive speculative bubbles and are going to crash and crash hard.
Magical air boxes crapping out hundreds of thousands of dollars. People actually believe this stuff. What a freaking joke.
0 Reply
Jon Q.
OP
Investor · Berkeley, CA · Member since 2015 · 1k+ posts · 713 votes
9y
Originally posted by @Matt R.:

Great points from Jay, the CA residential BP historian. We can test these West Coast port theories as well. If this newer history is true then Seattle with major Asian influenced ports would have same progress. Yep Seattle is right up there as well. How about Vancouver, Canada? Samething. Asians are contributing massively to everything west coast REI folks, position for it.
Chinese buyers have significantly impacted Vancouver's property prices. I'm not sure if you were aware, but prices in Vancouver recently experienced a ~20% drop after new regulation (15% tax) was put in place to curb "international" (aka Chinese) buyers... (see link below).
If this is a market you've been watching, it might be a buying opportunity. Vancouver is a very attractive market for many reasons, but this regulation will put a damper on it's growth temporarily. If I decide to move out of the country, Vancouver would be my first choice. I was in Vancouver to the run the Vancouver Marathon last year. It's insanely beautiful and likely my second favorite city after San Francisco.
https://www.theguardian.com/world/2016/aug/02/vancouver-real-estate-foreign-house-buyers-tax
0 Reply
David Faulkner
Investor · Orange County, CA · Member since 2015 · 2k+ posts · 3k+ votes
9y
Originally posted by @Jon Q.:

For various reasons, I just don't see pricing going down significantly in larger markets in TX, NC, AZ, CA and other high-population/job growth states.
What about your good buddy's slightly better than a cocktail napkin diagram?
You aren't trying to flip-flop on us now are you Jon? If so, that's a strong contrarian indicator ... I will have to seriously reassess all of my CA positions :)
0 Reply
Jon Q.
OP
Investor · Berkeley, CA · Member since 2015 · 1k+ posts · 713 votes
9y
Originally posted by @David Faulkner:
Originally posted by @Jon Q.:

For various reasons, I just don't see pricing going down significantly in larger markets in TX, NC, AZ, CA and other high-population/job growth states.
What about your good buddy's slightly better than a cocktail napkin diagram?
You aren't trying to flip-flop on us now are you Jon? If so, that's a strong contrarian indicator ... I will have to seriously reassess all of my CA positions :)
David,
Maybe you haven't read my previous posts or my original post above? It's getting quite tiring, so this will be the final time I do it. All markets go through market cycles (see chart I originally posted and you re-posted above) and currently most markets will likely be bottoming over the next 12-36 months. Even though there are cycles, in my first posting on this thread, my observation and forecast is that some markets will have an increasing trend line. If you have additional questions feel free to ask, but I assume you're aware of what a trend line is. If not, just google it. Suffice to say, that in these markets I estimate that in the next bottom you'll see price levels above market bottom in the prior cycle.
And, though I've spoken to him a few times, whether or not Dr.Glenn Mueller is my "buddy" irrelevant. What is relevant is that he is the foremost expert on real estate market cycles in the United States, so I tend to follow his research and heavily weight it when I'm conducting my own. Feel free to Google his name and do your own research.
Best,
Jon
0 Reply
Bill S.Pro Member
Moderator
Rental Property Investor · Denver, CO · Member since 2013 · 4k+ posts · 2k+ votes
9y
@Jon Q. your population chart is a bit out of whack. For example the one area I know a little about (Colorado) has already meet the projected population growth of 30%. According to the census bureau the population in Colorado was 4,327,000 in 2000. According to World Population Review. They project based on Census projections and estimate the current population at 5,658,000. That is roughly the 30% change and we still have 13 more years to go. I understand when writing for a broad perspective sometimes the specific numbers aren't as accurate as could be the case. I would suggest you update your population projections since that's a key piece of information to determine your "hot" market.
0 Reply
Matt R.
Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes
9y
Originally posted by @Account Closed:

Originally posted by @Matt R.:
One tiny little factor with the Asian REI influence....they work so hard to get, they never sell. That property will not be for public sale ever, ok maybe in an emergency. It is another snowball effect. It is not like the Mexicans from Mexico are far behind either. Is is not a sell later deal for them either. Only a stupid American would sell their CA RE.
You mean like the Japanese in the 80s? Oh, wait.
Its does not mean they can't lose money. It is more about the total economic activity maybe, influx of investments, jobs, trade, new ideas, new population and the impact overall of that difference when we compare to lessor Asian influenced locations in this case.
0 Reply
Jon Q.
OP
Investor · Berkeley, CA · Member since 2015 · 1k+ posts · 713 votes
9y
There is a lack of new housing nationally… and this will not be fixed by our government or anyone else anytime soon. fyi: the median cost of a house in the U.S. is currently $263,000
http://www.politico.com/agenda/story/2017/07/07/housing-crisis-shortage-no-fix-000472
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