Housing crash deniers ???

[Greg R.]

Unfortunately I've been away for a few months while taking care of some personal matters, so I haven't been able to keep up on discussions. 

However, several months ago there were ample amount of folks here insisting that a market crash/ correction was impossible and that prices would only continue to increase.

Curious if there are still people out there who feel this way? If so, I'd love to see some data that supports your view that the market isn't going to crash/ correct. 

[John Carbone]

Quote from @Carlos Ptriawan:

Quote from @John Carbone: depression with massive layoffs - not what the fed is going for. It’s a bit more complicated though, because food is up a lot (not likely to come down) and have you seen car payments lately? The bubble in the car market makes housing seem sane to a certain degree. I think food and transportation costs are going to drag housing a bit further from baseline levels when all is said and done. 

All these food and transportation inflations are actually happening because of one factor only: During covid, the shipping freight charge is raising 400% because (sometimes) the port closes or no workers.

It's all a logistical issue.

Now about your STR in TN, it raises because of cheap lending from Fed, same as in CA, the price goes up $300k without reason.

Yeah, I would say our mountain town is in for 30-50 percent drop even with strong rents like we still have now. Even when shipping opens back up if oil stays high I don’t see that subsiding. Eventually the Covid excuse needs to go away with supply chain issues. I think 35k is the new minimum income now going forward though which increases floor on housing. 

[Michael Wooldridge]

Quote from @John Carbone:

Quote from @Carlos Ptriawan:

Quote from @John Carbone: depression with massive layoffs - not what the fed is going for. It’s a bit more complicated though, because food is up a lot (not likely to come down) and have you seen car payments lately? The bubble in the car market makes housing seem sane to a certain degree. I think food and transportation costs are going to drag housing a bit further from baseline levels when all is said and done. 

All these food and transportation inflations are actually happening because of one factor only: During covid, the shipping freight charge is raising 400% because (sometimes) the port closes or no workers.

It's all a logistical issue.

Now about your STR in TN, it raises because of cheap lending from Fed, same as in CA, the price goes up $300k without reason.

Yeah, I would say our mountain town is in for 30-50 percent drop even with strong rents like we still have now. Even when shipping opens back up if oil stays high I don’t see that subsiding. Eventually the Covid excuse needs to go away with supply chain issues. I think 35k is the new minimum income now going forward though which increases floor on housing. 

 China was still shutting down not the long ago. It’s why the supply chain element keeps coming up. 

[Greg R.]

Quote from @Greg R.:

Quote from @Greg R.:

@John Carbone @Carlos Ptriawan @Bruce Woodruff @Michael Wooldridge

@Michael Wooldridge

@Michael Wooldridge@Michael Wooldridge@Michael Wooldridge@Michael Wooldridge

Here is link to WSJ article, need a membership... https://www.wsj.com/articles/h...

Waiting on your response @James Hamling 

[Carlos Ptriawan]

The problem with the chart is it uses an aggregated number of nationwide houses

However more detail here, if we see the statistical distribution in this chart :

It's easily understood that MoM price reduction changes only occurred in less than 25% of the available market, mainly CA/AZ/WA/NV only. So @James Hamling also has point here saying that his MN market would not be affected even with larger interest rate, as the deviation in the mortgage payment is still within 1 sigma deviation. His market is still at making an all-time high. While CA market price regressed to the 2020 level.

[Michael Wooldridge]

Quote from @Greg R.:

Quote from @Greg R.:

Quote from @Greg R.:

@John Carbone @Carlos Ptriawan @Bruce Woodruff @Michael Wooldridge

@Michael Wooldridge 
@Michael Wooldridge@Michael Wooldridge@Michael Wooldridge

Here is link to WSJ article, need a membership... https://www.wsj.com/articles/h...

Waiting on your response @James Hamling 

Builder one is obvious. They are subjected to shorter term loans. Depending on the leverage model (and they vary greatly) they would be in for more pain on the loans. In the case of the builders they absolutely might want to dump product. But there isn't that much of it and they stopped building awhile ago for that reason. New build now require bigger downpayments... 

BTW that secondary market. Do you think the buyer who is getting a big deal will sell cheap or sell slowly smartly? Those people will sell for the long term gain 100%. It's the reason to buy cheap. 

[John Carbone]

Quote from @Carlos Ptriawan:

The problem with the chart is it uses an aggregated number of nationwide houses

However more detail here, if we see the statistical distribution in this chart :

It's easily understood that MoM price reduction changes only occurred in less than 25% of the available market, mainly CA/AZ/WA/NV only. So @James Hamling also has point here saying that his MN market would not be affected even with larger interest rate, as the deviation in the mortgage payment is still within 1 sigma deviation. His market is still at making an all-time high. While CA market price regressed to the 2020 level.

Can’t give James a pass because of his market. Going back 2 weeks he was saying 20 percent nationally was impossible. Nobody on here other than him cares about Minneapolis market. It’s all been based on the national median home value, no cherry picking markets. 

[Hersh Shah]

Quote from @Greg Scott:

The market may correct, but I firmly believe there won't be a crash.  The reason is simple, equity.

Before 2008 people with no income could get liars loans and buy much more real estate than they could afford.  We heard stories of cleaning ladies buying multiple million dollar homes.  When home prices starting falling, the whole thing collapses like a house of cards because nobody had any equity.  They couldn't sell and get out.  We had cascading foreclosures creating a downward spiral.

Recently, prices have been surging.  Given the laws passed after the Great Recession, appraisals and lending is highly restricted.  Appraisals have not been keeping up with prices and lenders won't lend above appraised value.  We sold a house in 2021 and in one day had 20 offers.  Several of them had acceleration clauses stating they would pay more than anyone else up to $X.  Both of them waived any financing contingency because they KNEW the house wouldn't appraise for what they were offering.  They had to make up the difference with cash.  Those people have a ton of equity in their homes.  If they had to sell, they might take a haircut, but they aren't going to get foreclosed. 

There is no  house of cards here to come tumbling down.

 Very well said!

[Michael Wooldridge]

Quote from @John Carbone:

Quote from @Carlos Ptriawan:

The problem with the chart is it uses an aggregated number of nationwide houses

However more detail here, if we see the statistical distribution in this chart :

It's easily understood that MoM price reduction changes only occurred in less than 25% of the available market, mainly CA/AZ/WA/NV only. So @James Hamling also has point here saying that his MN market would not be affected even with larger interest rate, as the deviation in the mortgage payment is still within 1 sigma deviation. His market is still at making an all-time high. While CA market price regressed to the 2020 level.

Can’t give James a pass because of his market. Going back 2 weeks he was saying 20 percent nationally was impossible. Nobody on here other than him cares about Minneapolis market. It’s all been based on the national median home value, no cherry picking markets. 

Well then do you not get a pass? If just the markets @Carlos Ptriawan listed have the big drops at 20%. Nationally won’t hit 20% either. Unless you are interpreting James saying the markets wouldn’t drop at all? Which I haven’t seen him say.  

That data Carlos posted though is a double edged sword to both of your arguments. 

[John Carbone]

Quote from @Michael Wooldridge:

Quote from @John Carbone:

Quote from @Carlos Ptriawan:

The problem with the chart is it uses an aggregated number of nationwide houses

However more detail here, if we see the statistical distribution in this chart :

It's easily understood that MoM price reduction changes only occurred in less than 25% of the available market, mainly CA/AZ/WA/NV only. So @James Hamling also has point here saying that his MN market would not be affected even with larger interest rate, as the deviation in the mortgage payment is still within 1 sigma deviation. His market is still at making an all-time high. While CA market price regressed to the 2020 level.

Can’t give James a pass because of his market. Going back 2 weeks he was saying 20 percent nationally was impossible. Nobody on here other than him cares about Minneapolis market. It’s all been based on the national median home value, no cherry picking markets. 

Well then do you not get a pass? If just the markets @Carlos Ptriawan listed have the big drops at 20%. Nationally won’t hit 20% either. Unless you are interpreting James saying the markets wouldn’t drop at all? Which I haven’t seen him say.  

That data Carlos posted though is a double edged sword to both of your arguments. 

No, I won’t get a pass, national median home value has to drop 20 percent. I’d have to find the post I made for the exact amount that was peak.  James initially said no drop, then he was 5-7 percent as “adjustments”. I don’t disagree with the charts, generally though markets tend to overshoot on the way up and the way down, which is why my floor is 20 percent. I think Carlos is right on fair value though. 

[Bruce Woodruff]

Now this has just been overthought by a ton guys.....It's just Real Estate. Prices and rates go up, Prices and rates go down. Some of the reasons we understand and can control, some we don't and can't.

But it's fun to talk about I guess......

[Michael Wooldridge]

Quote from @Bruce Woodruff:

Now this has just been overthought by a ton guys.....It's just Real Estate. Prices and rates go up, Prices and rates go down. Some of the reasons we understand and can control, some we don't and can't.

But it's fun to talk about I guess......

Have to kill time between business somehow right?  

[John Carbone]

Quote from @Michael Wooldridge:

Quote from @Bruce Woodruff:

Now this has just been overthought by a ton guys.....It's just Real Estate. Prices and rates go up, Prices and rates go down. Some of the reasons we understand and can control, some we don't and can't.

But it's fun to talk about I guess......

Have to kill time between business somehow right?  

This is what happens when everyone earns income from passive real estate investments. Become 70 year olds in nursing homes, only decades sooner. (I’m joking) 

[Michael Wooldridge]

Quote from @John Carbone:

Quote from @Michael Wooldridge:

Quote from @Bruce Woodruff:

Now this has just been overthought by a ton guys.....It's just Real Estate. Prices and rates go up, Prices and rates go down. Some of the reasons we understand and can control, some we don't and can't.

But it's fun to talk about I guess......

Have to kill time between business somehow right?  

This is what happens when everyone earns income from passive real estate investments. Become 70 year olds in nursing homes, only decades sooner. 

Maybe. For me it’s my day job. My busy season so I’m not going out to do things as I need ot be available but I do have time between meetings or contracts etc… 

Now come winter I’ll be quiet because I play hooky most of January to go skiiing. Same thing in Feb and end of December actually. 

That said your point about staying busy is why I’m delaying retirement. I need enough passive income to spend on a lot of fun things to stay busy :) 
 

[Bruce Woodruff]

Haha, I 'retired' a couple years ago and wish I was still swinging that hammer....

[John Carbone]

Quote from @Bruce Woodruff:

Haha, I 'retired' a couple years ago and wish I was still swinging that hammer....

 Atleast we aren’t all on a forum discussing matlock reruns! 

[James Hamling]

Quote from @Carlos Ptriawan:

Quote from @James Hamling:

Quote from @John Carbone:

Quote from @James Hamling:

Quote from @John Carbone:

Quote from @James Hamling:

Quote from @John Carbone:

Quote from @James Hamling:

Quote from @John Carbone:

Quote from @Joe Villeneuve:

Quote from @John Carbone:

Quote from @Joe Villeneuve:

Quote from @Michael Wooldridge:

@John Carbone from the sounds of things you are a long term investor that is working to replacing his income with CF. My w2 also funds pretty quick purchases for properties. 

Your such a feckless Troll!     Spending the day spewing lies, distortions, rants and baseless attacks. 

yes, as the founder of a tech start-up, without doubt 0 innovation. Founder of more then a dozen companies, absolutely, imitator without doubt. Yes, one Absolutely achieves "Top Producer" via idiocy.    

What have you achieved? Of course you must be "the" innovator supreme, please, bestow upon us your accolades of achievement kind sir. With out doubt they are so numerous that it would be a grand list of so many.    Please, delight us all with accounts of your conquests.......

You and John are bringing up good points. Your heated argumentation is classic when two men see a baby elephant and a giant elephant from different distances. They both correct.

I can accept now when you say a 6% rate is normal because the mortgage/rent ratio is still within one sigma deviation from middle-class income AND your market appreciation is only $200-$300 more when translated to the mortgage payment.  

CA/WA/AZ/NV mortgage/rent ratio is entirely different so our market can not survive with 6% "normal" rate.

The Fed rate hike only kills the west coast market, put it that way --not nationwide.

 West of Rockies, not my jam. I have a close associate who runs west coast things, stories I hear from him are ridiculous. There headquartered in Seattle area. So I don't really keep a pulse of things there and have anecdotal info at best. CA is an anomaly unto itself, it really is. D.C. is similarly an anomaly unto itself. Things tend to work more like there own separate economies in such. 

Similarly I don't keep pules to upper NE, but it seems like really nobody does. When's the last time anyone heard anything about investing in Maine, Vermont, New Hampshire..... It's as if they don't exist, much like North Dakota. 

[James Hamling]

Quote from @Michael Wooldridge:

Quote from @John Carbone:

Quote from @Carlos Ptriawan:

The problem with the chart is it uses an aggregated number of nationwide houses

However more detail here, if we see the statistical distribution in this chart :

It's easily understood that MoM price reduction changes only occurred in less than 25% of the available market, mainly CA/AZ/WA/NV only. So @James Hamling also has point here saying that his MN market would not be affected even with larger interest rate, as the deviation in the mortgage payment is still within 1 sigma deviation. His market is still at making an all-time high. While CA market price regressed to the 2020 level.

Can’t give James a pass because of his market. Going back 2 weeks he was saying 20 percent nationally was impossible. Nobody on here other than him cares about Minneapolis market. It’s all been based on the national median home value, no cherry picking markets. 

Well then do you not get a pass? If just the markets @Carlos Ptriawan listed have the big drops at 20%. Nationally won’t hit 20% either. Unless you are interpreting James saying the markets wouldn’t drop at all? Which I haven’t seen him say.  

That data Carlos posted though is a double edged sword to both of your arguments. 

 Yeah, I NEVER said prices wouldn't drop at all. I said the market, as in the U.S.A. housing market as a whole, which is what was presented in discussion, will not COLLAPSE, or CRASH. That there would NOT be a national average drop in price of 20%-30% as some on here argued vehemently it would. 

I also have been saying, from beginning, there will be localized market DEVIATIONS from my projected average market adjustments ~7% (again, a national #, not one specific market). 

I have said prices WILL step back a touch, looking more like a more normal seasonal adjustment, consolidation, which we have not had the last 2 fall/winter seasons. 

AND I have said, from beginning, there WILL be a collapse in VOLUME. Exclusively to volume. 

Individual markets may see deviations that range wildly in % adjustment for the national market "average". 2008 was the exact same, there was a national average and specific markets experienced deviations from that. This has always been the case and will always be the case. 

[James Hamling]

Quote from @Bruce Woodruff:

Haha, I 'retired' a couple years ago and wish I was still swinging that hammer....

 Same! 

I had a GC friend call this summer begging me to come back into the trades. I asked if he's nuts, first he couldn't afford me and second I'm an old-man now, I don't bounce like I used too, lol. He threw a # out, I seriously reconsidered that whole "can't afford me" statement, it was a ridiculous #. 

I am jealous of the younger guys in it now, I hope they know how great they got it. 

[John Carbone]

Quote from @Greg R.:

Quote from @Greg R.:

Quote from @Greg R.:

@John Carbone @Carlos Ptriawan @Bruce Woodruff @Michael Wooldridge

@Michael Wooldridge

@Michael Wooldridge@Michael Wooldridge@Michael Wooldridge@Michael Wooldridge

Here is link to WSJ article, need a membership... https://www.wsj.com/articles/h...

Waiting on your response @James Hamling 

I’m not shocked at the 20 percent discount. Here in tennessee I know a builder who has been doing a spec home every 3-4 months with a crew. He told me he is all in for around 400k per build and he was getting 1m for these all during Covid. I think he’s down to 800k for them now, and he will stop when it’s around 700k and revert to building for actual clients. The cost to build being ridiculously high is a MYTH now. Yes, costs to build now are still higher than pre Covid but nowhere near the premium builders are claiming, it is just gouging. Lumber and oil prices are down and they are able to source at lower prices now. Homebuilders will need to build or else their stocks go to 0. We have a temporary market imbalance. 

these tradesmen are going to get hit pretty hard as long as rates stay this high. I hope they saved and invested, based on what I’ve seen over the years, they are likely the driver behind the $1000+ a month car payments. 

the construction shortage bubble has already popped as well: 

https://www.google.com/amp/s/w...
 

[Michael Wooldridge]

Quote from @James Hamling:

Quote from @Carlos Ptriawan:

Quote from @James Hamling:

Quote from @John Carbone:

Quote from @James Hamling:

Quote from @John Carbone:

Quote from @James Hamling:

Quote from @John Carbone:

Quote from @James Hamling:

Quote from @John Carbone:

Quote from @Joe Villeneuve:

Quote from @John Carbone:

Quote from @Joe Villeneuve:

Quote from @Michael Wooldridge:

@John Carbone from the sounds of things you are a long term investor that is working to replacing his income with CF. My w2 also funds pretty quick purchases for properties. 

Your such a feckless Troll!     Spending the day spewing lies, distortions, rants and baseless attacks. 

yes, as the founder of a tech start-up, without doubt 0 innovation. Founder of more then a dozen companies, absolutely, imitator without doubt. Yes, one Absolutely achieves "Top Producer" via idiocy.    

What have you achieved? Of course you must be "the" innovator supreme, please, bestow upon us your accolades of achievement kind sir. With out doubt they are so numerous that it would be a grand list of so many.    Please, delight us all with accounts of your conquests.......

You and John are bringing up good points. Your heated argumentation is classic when two men see a baby elephant and a giant elephant from different distances. They both correct.

I can accept now when you say a 6% rate is normal because the mortgage/rent ratio is still within one sigma deviation from middle-class income AND your market appreciation is only $200-$300 more when translated to the mortgage payment.  

CA/WA/AZ/NV mortgage/rent ratio is entirely different so our market can not survive with 6% "normal" rate.

The Fed rate hike only kills the west coast market, put it that way --not nationwide.

 West of Rockies, not my jam. I have a close associate who runs west coast things, stories I hear from him are ridiculous. There headquartered in Seattle area. So I don't really keep a pulse of things there and have anecdotal info at best. CA is an anomaly unto itself, it really is. D.C. is similarly an anomaly unto itself. Things tend to work more like there own separate economies in such. 

Similarly I don't keep pules to upper NE, but it seems like really nobody does. When's the last time anyone heard anything about investing in Maine, Vermont, New Hampshire..... It's as if they don't exist, much like North Dakota. 

 Fastest thing I could find but New England grew dramatically last few years. Beautiful summers and great winter spots. Maine in particular: https://www.redfin.com/state/M...https://www.redfin.com/state/M...https://www.redfin.com/state/M...

220k median in 2020 to $375k median in 2022. Bit of a jump. Rents well too. not my investment spot but it did grow a a lot lately. Plus main is one of the few states you can ski down to the ocean so to speak. Mountains and beach close.

[Bruce Woodruff]

Quote from @James Hamling:

Quote from @Bruce Woodruff:

Haha, I 'retired' a couple years ago and wish I was still swinging that hammer....

 Same! 

I had a GC friend call this summer begging me to come back into the trades. I asked if he's nuts, first he couldn't afford me and second I'm an old-man now, I don't bounce like I used too, lol. He threw a # out, I seriously reconsidered that whole "can't afford me" statement, it was a ridiculous #. 

I am jealous of the younger guys in it now, I hope they know how great they got it. 

No they don't, it ain't like the old days when being a carpenter was pretty much like being in the military, except more fun, and just slightly more dangerous. Yeah, the last time I rode a ladder down, or loaded a roof, was my last....

But if you get a crazy hair, we should open a framing company. Nothing more fun than throwing up walls in the morning, right :-)

[Joe Villeneuve]

Quote from @John Carbone:

Quote from @Joe Villeneuve:

Quote from @John Carbone:

Quote from @Joe Villeneuve:

Quote from @John Carbone:

Quote from @Joe Villeneuve:

Quote from @Michael Wooldridge:

@John Carbone from the sounds of things you are a long term investor that is working to replacing his income with CF. My w2 also funds pretty quick purchases for properties. 

I get @Joe Villeneuve point about rolling the equity forward into more properties faster. I’ll have to play with the numbers I think perhaps cashing out a bunch of equity about 41-53 would allow me to retire almost instantly instead of 55-56 as planned but there’s  a lot of variables. Still it’s an interesting dynamic to play with. 

I’ve never been a big fan of flipping and given that I have the income to invest 25% down consistently and quickly, my major goals has always been to replace the invoice to retire early. but it’s absolutely faster the way Joe is discussing. I’m just not sure how much faster. 

As you said, "play with the numbers", do the math.  You'll be very surprised.  Einstein was once asked what he thought the greatest invention of the 20th Century was.  His answer was "compound Interest".  What he said after that was more important.  "Those that understand it, will live off those that don't".

Isn't doing a cashout refi up to 80 percent the same thing though? Why sell the performing asset? I understand the math of doing 20 percent down payments for higher COC, but you are also using more leverage. Not saying leverage isn't a good thing, but it goes both ways. Granted, historically using leverage in real estate works out great as you describe, but until interest rates moderate and prices level off, I see no reason to jack up the real estate leverage. A 20 percent reversion in prices can knock you back multiple years.

 I think the leverage aspect is misguided. I’m glad that investors in general follow this advice. When they are underwater and foreclose like has happened before in my area, I’ll purchase from their banks with leverage then. 

How are you increasing leverage?  You have the same number of loans.
Pulling out more equity with a sale than a refi.  Also, when you cash out, the mortgage payment goes up, and the cash flow goes down as a result.
Keep in mind that all appreciation is based on the PV, so increasing your total PV is exponentially increasing future gains from appreciation.
REFI is a linear return, with a step backwards.  Selling and moving forward gets you an exponential return.
It's the power of the penny...and that has nothing to do with "every penny adds up".  I don't want them adding,...I want them multiplying...like Gold(fish).
If you took a penny, and every day you doubled the previous day's total, (so day 1 would be 2c, day 2 would be 4c, etc...), how much money would you have if you did this for 30 straight days?  Simple math formula.

Your assumption though is that by selling and buying bigger and better is that the returns will be equal to the previous deal in a linear manner. As expansion goes up, risk of performance also goes up. Selling and buying bigger doesn’t mean a linear compounding increase in return. In theory, yes, multiplying the Pennies, but what happens when that 8th penny is only “worth” 4-5 pennies. I’d rather have a 20 percent return with minimal leverage than a 3-4 percent return on 5x leverage relying on overpriced underlying assets continuing to return at the same levels they did over the past decade.  

Using my system, you're not concerned how 8 years from now will impact what you are buying today because you won't have the same property 8 years from today.  The system only needs to have a handle on the next 3-5 years max.  You can always design deals to make this work.

You're not always going bigger.  Part of the steps will be splitting into more than one.

If you start with 50k in equity, and move it when it grows to $100k, then again when it reaches $200k (remember, this could be 4 properties with $50k equity), then $400k, then $800k...that's only 4 steps...and if that $800k was 20% DP's, that's $4M in PV.  Now, the system I use isn't buying SFH or MF continuously...particularly as the equity/PV grows.  As the numbers get bigger, I start to move into different types of RE...more suited to returns from the larger numbers.

But your system does require 3 percent appreciation. We have had gains substantially above that last decade. A mean reversal to fair value over the next 3-5 years will make your strategy not work out for people doing what you are saying now. Variance and standard deviations can be deadly when just using baseline 3 percent in projections. 

You really have no idea what I'm saying do you.  How can I not benefit even more if the appreciation is greater than 3%?  The use of 3% is just to play on the conservative side.  IF the property appreciates 12% in a year, I'm losing even more money if I don't sell...and gaining even more if I do.

[Joe Villeneuve]

Quote from @Greg R.:

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Quote from @Joe Villeneuve:

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Quote from @John Carbone:

 Also FWIW @Joe Villeneuve this PV logic is not correct. If you buy a $200K house w/ 40K down, you are not buying 5x your PV as some magical move. 

PV (present value) is the sum of the cash flows into the future discounted by a discount rate. PV is different for something unlevered (a house with no mortgage) vs something levered (a house with a mortgage). That is because the stream of cash flow for a house with no mortgage is different (higher) than the stream of cash flow for a house with a mortgage. 

So while I agree it's fair to say a $200K investment property has a PV of $200K (without leverage), that is not true once you add leverage to the investment property. "Mathematically" the present value of an 80% LTV $200K investment property would be exactly equal to $40K. So when you buy a property with 20% down, you are buying 1x the present value.

Same concept as enterprise value vs. market cap with companies. Enterprise value = market cap (equity) + net debt. Enterprise value = present value of all cash flows without leverage. Market cap = net present value of all cash flows with leverage. This is basic finance and I am more than happy to dive into it with anyone who wants to learn.

Ahhh, no

I'm with Joe on this. His system & logic make the most sense. 

...and the most dollar$.

[John Carbone]

Quote from @Joe Villeneuve:

Quote from @John Carbone:

Quote from @Joe Villeneuve:

Quote from @John Carbone:

Quote from @Joe Villeneuve:

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Quote from @Joe Villeneuve:

Quote from @Michael Wooldridge:

@John Carbone from the sounds of things you are a long term investor that is working to replacing his income with CF. My w2 also funds pretty quick purchases for properties. 

I get @Joe Villeneuve point about rolling the equity forward into more properties faster. I’ll have to play with the numbers I think perhaps cashing out a bunch of equity about 41-53 would allow me to retire almost instantly instead of 55-56 as planned but there’s  a lot of variables. Still it’s an interesting dynamic to play with. 

I’ve never been a big fan of flipping and given that I have the income to invest 25% down consistently and quickly, my major goals has always been to replace the invoice to retire early. but it’s absolutely faster the way Joe is discussing. I’m just not sure how much faster. 

As you said, "play with the numbers", do the math.  You'll be very surprised.  Einstein was once asked what he thought the greatest invention of the 20th Century was.  His answer was "compound Interest".  What he said after that was more important.  "Those that understand it, will live off those that don't".

Isn't doing a cashout refi up to 80 percent the same thing though? Why sell the performing asset? I understand the math of doing 20 percent down payments for higher COC, but you are also using more leverage. Not saying leverage isn't a good thing, but it goes both ways. Granted, historically using leverage in real estate works out great as you describe, but until interest rates moderate and prices level off, I see no reason to jack up the real estate leverage. A 20 percent reversion in prices can knock you back multiple years.

 I think the leverage aspect is misguided. I’m glad that investors in general follow this advice. When they are underwater and foreclose like has happened before in my area, I’ll purchase from their banks with leverage then. 

How are you increasing leverage?  You have the same number of loans.
Pulling out more equity with a sale than a refi.  Also, when you cash out, the mortgage payment goes up, and the cash flow goes down as a result.
Keep in mind that all appreciation is based on the PV, so increasing your total PV is exponentially increasing future gains from appreciation.
REFI is a linear return, with a step backwards.  Selling and moving forward gets you an exponential return.
It's the power of the penny...and that has nothing to do with "every penny adds up".  I don't want them adding,...I want them multiplying...like Gold(fish).
If you took a penny, and every day you doubled the previous day's total, (so day 1 would be 2c, day 2 would be 4c, etc...), how much money would you have if you did this for 30 straight days?  Simple math formula.

Your assumption though is that by selling and buying bigger and better is that the returns will be equal to the previous deal in a linear manner. As expansion goes up, risk of performance also goes up. Selling and buying bigger doesn’t mean a linear compounding increase in return. In theory, yes, multiplying the Pennies, but what happens when that 8th penny is only “worth” 4-5 pennies. I’d rather have a 20 percent return with minimal leverage than a 3-4 percent return on 5x leverage relying on overpriced underlying assets continuing to return at the same levels they did over the past decade.  

Using my system, you're not concerned how 8 years from now will impact what you are buying today because you won't have the same property 8 years from today.  The system only needs to have a handle on the next 3-5 years max.  You can always design deals to make this work.

You're not always going bigger.  Part of the steps will be splitting into more than one.

If you start with 50k in equity, and move it when it grows to $100k, then again when it reaches $200k (remember, this could be 4 properties with $50k equity), then $400k, then $800k...that's only 4 steps...and if that $800k was 20% DP's, that's $4M in PV.  Now, the system I use isn't buying SFH or MF continuously...particularly as the equity/PV grows.  As the numbers get bigger, I start to move into different types of RE...more suited to returns from the larger numbers.

But your system does require 3 percent appreciation. We have had gains substantially above that last decade. A mean reversal to fair value over the next 3-5 years will make your strategy not work out for people doing what you are saying now. Variance and standard deviations can be deadly when just using baseline 3 percent in projections. 

You really have no idea what I'm saying do you.  How can I not benefit even more if the appreciation is greater than 3%?  The use of 3% is just to play on the conservative side.  IF the property appreciates 12% in a year, I'm losing even more money if I don't sell...and gaining even more if I do.

You are misinterpreting what I’m saying. If housing goes down, which even the most optimistic (James) is saying 7 percent, that wipes away 2 years of “equity gains”. If it does 20-30 percent which is my projection, you are wiping away 5-10 years, which could be a lost decade for housing if we get stagflation after the drop. Also, there are selling costs associated with moving real estate transactions. It’s pretty simple to see what your saying. Leverage = optimal but you assume real estate only goes up. 

also, why bother selling low fixed rate mortgage assets now to get double the interest rate? Just because your “system” worked so well before doesn’t mean it’s the best thing to do right now. 
 

[Michael Wooldridge]

Quote from @Joe Villeneuve:

Quote from @John Carbone:

Quote from @Joe Villeneuve:

Quote from @John Carbone:

Quote from @Joe Villeneuve:

Quote from @John Carbone:

Quote from @Joe Villeneuve:

Quote from @Michael Wooldridge:

@John Carbone from the sounds of things you are a long term investor that is working to replacing his income with CF. My w2 also funds pretty quick purchases for properties. 

I get @Joe Villeneuve point about rolling the equity forward into more properties faster. I’ll have to play with the numbers I think perhaps cashing out a bunch of equity about 41-53 would allow me to retire almost instantly instead of 55-56 as planned but there’s  a lot of variables. Still it’s an interesting dynamic to play with. 

I’ve never been a big fan of flipping and given that I have the income to invest 25% down consistently and quickly, my major goals has always been to replace the invoice to retire early. but it’s absolutely faster the way Joe is discussing. I’m just not sure how much faster. 

As you said, "play with the numbers", do the math.  You'll be very surprised.  Einstein was once asked what he thought the greatest invention of the 20th Century was.  His answer was "compound Interest".  What he said after that was more important.  "Those that understand it, will live off those that don't".

Isn't doing a cashout refi up to 80 percent the same thing though? Why sell the performing asset? I understand the math of doing 20 percent down payments for higher COC, but you are also using more leverage. Not saying leverage isn't a good thing, but it goes both ways. Granted, historically using leverage in real estate works out great as you describe, but until interest rates moderate and prices level off, I see no reason to jack up the real estate leverage. A 20 percent reversion in prices can knock you back multiple years.

 I think the leverage aspect is misguided. I’m glad that investors in general follow this advice. When they are underwater and foreclose like has happened before in my area, I’ll purchase from their banks with leverage then. 

How are you increasing leverage?  You have the same number of loans.
Pulling out more equity with a sale than a refi.  Also, when you cash out, the mortgage payment goes up, and the cash flow goes down as a result.
Keep in mind that all appreciation is based on the PV, so increasing your total PV is exponentially increasing future gains from appreciation.
REFI is a linear return, with a step backwards.  Selling and moving forward gets you an exponential return.
It's the power of the penny...and that has nothing to do with "every penny adds up".  I don't want them adding,...I want them multiplying...like Gold(fish).
If you took a penny, and every day you doubled the previous day's total, (so day 1 would be 2c, day 2 would be 4c, etc...), how much money would you have if you did this for 30 straight days?  Simple math formula.

Your assumption though is that by selling and buying bigger and better is that the returns will be equal to the previous deal in a linear manner. As expansion goes up, risk of performance also goes up. Selling and buying bigger doesn’t mean a linear compounding increase in return. In theory, yes, multiplying the Pennies, but what happens when that 8th penny is only “worth” 4-5 pennies. I’d rather have a 20 percent return with minimal leverage than a 3-4 percent return on 5x leverage relying on overpriced underlying assets continuing to return at the same levels they did over the past decade.  

Using my system, you're not concerned how 8 years from now will impact what you are buying today because you won't have the same property 8 years from today.  The system only needs to have a handle on the next 3-5 years max.  You can always design deals to make this work.

You're not always going bigger.  Part of the steps will be splitting into more than one.

If you start with 50k in equity, and move it when it grows to $100k, then again when it reaches $200k (remember, this could be 4 properties with $50k equity), then $400k, then $800k...that's only 4 steps...and if that $800k was 20% DP's, that's $4M in PV.  Now, the system I use isn't buying SFH or MF continuously...particularly as the equity/PV grows.  As the numbers get bigger, I start to move into different types of RE...more suited to returns from the larger numbers.

But your system does require 3 percent appreciation. We have had gains substantially above that last decade. A mean reversal to fair value over the next 3-5 years will make your strategy not work out for people doing what you are saying now. Variance and standard deviations can be deadly when just using baseline 3 percent in projections. 

You really have no idea what I'm saying do you.  How can I not benefit even more if the appreciation is greater than 3%?  The use of 3% is just to play on the conservative side.  IF the property appreciates 12% in a year, I'm losing even more money if I don't sell...and gaining even more if I do.

 Not arguing over appreciation. 2.5-3% in even a bad environment is usually safe. I’m asking the math you use to decide on sell vs refi. That has to be a far more complex decision.