Where many want to be, but not where I want to be...

Question

hi all!I'm in my mid-50's and semi-retired. Have been for a few years now. My 'hobby' (among several) is economics, and my personal view is the only way out of our debt mess in the future is going to be through a lot of inflation. You don't need "hyperinflation" and we won't see that, but eventually we will see a lot of inflation. My best guess is a repeat of "that 70's show".In any case, at present I am "asset rich, and income poor", and thus looking at becoming a buy-and-hold landlord. I live in the Seattle region, which is just too darn expensive for such an enterprise, so I am mostly considering Houston at present. I understand I can still buy managed rentals there that will return a profit.My goal (unless someone redirects me on this forum sometime soon), is to pick up 9 rentals in the next month and hit my 10 home max with Fannie mortgages. Eventually I would like to get to 40-50 units. I'll finance the first 9, then roll them up into non-Fannie financing unless I find another lender, and then rinse and repeat.I am not blind to the problems and potential pitfalls of all this, having friends who have invested in rentals in the past and are presently landlords with multiple units.My ideal world would be a 'perfect partner' looking to match my estimated $500k initial outlay so we could go bigger, but I have yet to do that homework in between moving my primary residence. At least that will be over in the next few days.What else about me? Married, 2 teens, dog lover! Prior experience includes running a multi-million revenue per year service business. Good understanding of accounting, no fears of real estate finance, and well versed in various home rehab as I have basically 'done it all' in my own homes over time. And I suck as a tile setter.DPs. Nothing about this post should be considered either an ad or promo or solicitation. It's just introducing me and where I am going. Would love feedback, especially if you are invested in Houston.

Dan K. · Answer

in 2009 I told pp you would see "inflation in the things you need, deflation in the things you own". We are nearing the end of that trend. I believe it is inflation in darn near everything but wages due to wage arbitrage across borders.However 'real goods' have real costs that include real expertise to get out of the ground, and one cannot wage arbitrage a nickel mine to India.Now we have "inflation in the wages of the skillful, and deflation in the wages of the unskilled but willful ". That is a recipient for real social discord at some time but not soon.Short of a debt jubilee, I expect little to change beyond an increase in class warfare rhetoric. Best to invest where the skilled are needed and will be in demand for a long time to come.

Vala Shahabi · Answer

Welcome to BP @Dan K. Its refreshing to see someone just put it all out there and make an interesting conversation. I do agree that inflation is a strong possibly. Believe it or not, the rich is already experiencing this simply by market demand. Walk into a Land Rover dealership and you'll be floored by how difficult it is to buy a Range Rover and how much you'll pay over MSRP. The fed has eased the rates for too long and its going to catch up to us all. I like your conservative approach of looking out of state in a market you feel can better handle the inflation. I recommend you read this BP blog http://www.biggerpockets.com/renewsblog/2014/08/18... Best of luck on achieving your goals!

Patrick Britton · Answer

I'm a big fan of property management especially in the cases of multi-families, so I'm happy that you are looking at that too.If you are looking at energy what is your take on refineries and the refinery industry? We've got two up here in Bellingham that employ a lot of people and have been responsible for a slight increase in housing prices over the past 5 years or so.Anyway, it must be an exciting time for you and I look forward to hearing from you.Until then

Dan K. · Answer

@Patrick Britton I am not averse to my own back yard at all. Part of my philosophy is to invest where the energy is (Houston) because I see energy as the master commodity.Another part is to have managed rentals if possible so I can still be marginally involved, but not fully involved.When I look at the smaller towns of WA, I usually ask myself "what happens there in a crisis?" Like 2009-11. What supports the town? Who has the jobs and will they still be there?I distinctly recall empty freeways in Bellevue during rush hour after the last crash. I marveled at it and thought of how many must have been hit. Now, things seem booming around here again, yet I can't but help believe that the Fed has dodged a debt bullet by creating ever more debt yet again. Invariably the Fed creates the crisis, and then shifts the blame. Easy money created the lady two, why should it not create the next?In my own case, not only can I finance, I can literally bail my own rear out if necessary via other investments.I'll drop you a PM on the 4 plex units anyway as they may still be worth my taking a look and they are just up the road.

Patrick Britton · Answer

Welcome Dan. Well if you are out of Bothell, Washington why not have a look closer to home? Yes, Seattle is very expensive. Perhaps you should look closer to where I am in Bellingham or perhaps even Snohomish County.I know that in Bellingham there are a good number of 4-plexes that are very attractive for those who are asset rich. As well, I personally know of two 4-plexes in Everson that with a little bit of work, could provide 15% cash on cash return, if not higher. There's also one in Bellingham (I'm not sure if it's still on the market though) that based on its net operating income and it's cap rate is underpriced by approximately $20,000. A word of caution on acquiring 9 rentals within a month though... As a lender, I deal with a lot of investors and rental property owners and I will tell you from first-hand experience that if you attempt to purchase/finance too many properties too quickly, the lender may want you to tap the brakes or flat out deny any financing. This is especially true for those who are "new" to rental properties.So in your case quite frankly, I would look to buy one 4-plex within the next 45 to 60 days and another one 60 days after that closes. This will bring you to 8 units and will test your property management skills and patience for renters very well.I would also say lastly that having a rental property is not really an investment, but rather a business and must be treated as such.I hope this helps

Dan K. · Answer

Ask yourself what this will mean:http://www.zerohedge.com/news/2014-09-03/god-crude...And you'll know why I am looking first in Houston.

Ned Carey · Answer

@Dan K. Welcome to BPI agree inflation is coming. Hyper inflation while not likely is not out of the question. A more realistic expectation is "Stagflation" of the 70s; inflation of prices without inflation of wages. For real estate that means we could have a long period of expenses increasing faster than rents. On the other hand it could be a total windfall for people with hard assets like real estate. My plan is to make sure my properties are all great deals with great cash flow.