Expand or Consolidate Holdings Now?

Question

I am reading the book The Millionaire Real Estate Investor by Gary Keller right now and finding the book fascinating. It is one of the best investment books I have read in a while. He has a section in there where he tells investors to focus like a laser on their net worth and making sure it is always growing.

In terms of how real estate fits into that, he says you can expand net worth by buying new properties or paying down debt (mortgage or otherwise). In light of the COVID-19, foggy outlook on the economy, eviction bans, not to mention being in an election year with all the unknowns that brings do you expand or consolidate right now?

In my market every house hitting the market has 6 offers above asking price within hours. It is absolutely crazy if your are out there as an investor hoping to buy below market and make the numbers work. That is not to say there isn't some off market deals to be had, but so far I haven't found a lot of those. So I thought a discussion around all this would be good. Here are 3 questions I would pose to everyone...

• Are you expanding (buying new properties) or consolidating (paying off debt, saving cash, etc.) right now?
• How long to you think you will follow this strategy given the current environment?
• Why (from your point of view) are you following this strategy right now?

I am on the fence. I want to keep buying, despite it being really hard to get a deal, but the cautious part of me says I should just be paying off debt, consolidating, saving cash, etc.

Stone Jin · Answer

@Michael Temple We just closed on an MLS property in Sylvania last Friday.  Currently there are 2-3 I would consider making offers on but I need to stabilize my current portfolio.  As my tenants are moving out, I'm raising rents up to $200 to align with the market.  I'm still getting considerable interests at higher rent points.

Example, we listed a property for rent in North Sylvania at $1900 a month, was rented in 6 days sight unseen.  They have the option to view the property when the tenants move out but its a newer built house 2200 sqft 4/2.5 with no competition in the marketplace.   I think when you look at a specific niche, you need to be realistic about what you can get for rent.  I know in the past we talked you were always surprised what I list my properties for.  The demand for nice rental homes is there in north west ohio.

I'm still fairly cautious when buying, usually doing a 1031 exchange or using financing (30 year fixed).  However I think with investor rates in the low 4% range, you can't really lose if you buy at a fair price.  What I've learned in Phoenix is that you may not start at the 1% rule but you'll end up there some day.  Example, we bought a house for 145K in 2015, I leased it for 1200-1400 throughout the years, tenant moved out this month, relisted for 1700.   Had I stopped in 2015 and said 1200 rent on 145K doesn't meet the 1% rule, I'd be kicking myself now.

Last point, I'm actually seeing appreciation in NWO similar to Phoenix.  With low interest rates and investors moving from extremely hot markets to tertiary markets it is forcing the prices to go up.  Plus with all the new money in circulation, I have a hard time seeing how that money will not eventually end up in assets.

Michael Temple · Answer

@Marcus Auerbach My concern with that line of reasoning is judging each specific market in question. If you are in a growing market, i.e. growing population with an increased demand for housing I can see that. In my market (Toledo, OH) we have been on a moderately stable to slight decline in population for the last 20-30 years. Typically after each 10 year census track release we see our area shrank a little. Not a lot, we aren't losing tons of people, but we are also not nearly as large as we were 40 years ago.

However our prices on housing keep going up and up. To me that doesn't add up. I am concerned with ultra low interest rates that our demand is not driven by healthy growth, i.e. economic and population, but rather on speculation and low interest rates making debt easier to manage. We saw this leading up to 2008 housing bubble pop as well where houses were increasing by staggering amounts (in my area) only to crash back to earth when the market corrected.

So I am wondering if we aren't getting set up for that again in 2-5 years. I just can't see housing prices continuing on this tear like they have been for the last 2-3 years continuing indefinitely, especially with a decreasing population, again, speaking about just my area. I realize some markets are definitely growing and might be able to sustain this for a while.

Dave Poeppelmeier · Answer

@Michael Temple Hey Michael, I'm also here in Toledo, buy I'm pretty specific in buying around UT. I too have been buying mostly off-market deals, because people know I buy around UT. The last house I bought was from a friend of a friend of a friend. Do you buy in a certain area of town? Like @Michael P. said, let people know what you're doing and keep letting them know what you're doing, and if you need to give them a nice $5k incentive then do it. But at the same time, you can still find houses on the MLS but you are doing the right thing, going in with cash and no contingencies. Like I tell my clients, if the numbers still work for you at the end of the day regarding your cash flow that's the biggest thing. Also, if you find anything around UT let me know (I can't do $5k for those houses, but I'll see what I can do)

Michael P. · Answer

Sounds like you’re just browsing the MLS. That’s not how you find good deals. You have to source off market deals yourself, or otherwise find someone else doing it and pay them nice referral fees to kick you deals.

Marcus Auerbach · Answer

It does not matter that much what the economy or the stock market is doing, housing is driven by supply and demand. You don't need stocks to sleep in, you can sell them all. You do need a house and we don't have enough. Millennisals have started buying and that is just the beginning, while old folks live longer and are limiting supply. New construction can not bridge the gap in the midwest.

Based on this, prices will keep trending up and so RE is probably cheaper this year than next year. I have personally two BRRRR's in the works and many of my clients are buying - you are right, low rates make up for higher prices, for now at least.

Try to focus on deals that don't show well on the MLS and anything listed over 2 weeks.

Michael P. · Answer

I have no skills in finding off market deals. I just will pay $5,000 to whoever who brings me a great deal, and that's been working. So if you find a great deal you know where to find me hehe.

Michael Temple · Answer

@Michael P. yes, that is primarily where I have been searching and it is VERY frustrating, to say the least. I see you are also in my market so it is good to hear advice about sourcing off-market from someone local. I am ramping this up. I wasn't really sure how to do it before, but a couple of courses fixed this for me. It would be nice to go talk to a seller and not be outbid 15 minutes later. Is this primarily how you obtain your deals?

Michael Temple · Answer

I forgot to mention in the original post one thing that is swaying me to keep buying properties and even going a bit high on them is because interest rates are so low right now. If you are able to get some nice properties for the long haul and lock in 30 year rates where they are now you might still do well over the long term, BUT it is also easy to overbid and find yourself cash flowing $50-75 per month if you are lucky. That is not my idea of fun.

Michael Temple · Answer

@Kelly Becker are you finding these primarily on market (MLS) or off market right now? My MLS listed deals are insane to chase in my market right now. I see a listing pop up and it switches to pending before I can even go see it. I have also been putting down all cash offers, no contingencies, at asking price, and still lose out to higher bids. It is stunning me how hot our local market is right, at least for the listed offerings.

Kelly Becker · Answer

We are still finding deals, I’m go in f to keep buying rental properties

Expand or Consolidate Holdings Now?

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