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. 

[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 @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.

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. 

Goes up or down, the impact is the same for everyone.  When a property goes down it wipes out the same equity gains for all...from a percentage standpoint.  From a dollar standpoint, the only one that matters, the more equity you have in a property, the more you have to lose.
Property 1:
Property Value = $200k
Equity = $100k (50%)
Market/Equity Loss/New PV = 20%/$40k/$160k
Cash flow after loss = Same as before loss

Property 2:
Property Value = $200k
Equity = $40k (20%)
Market/Equity Loss/New PV = 20%/$40k/$160k
Cash flow after loss = Same as before loss

[Joe Villeneuve]

Quote from @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. 

Nope.  Quite simple.  Two things happen:
1 - Cumulated CF = DP.  This means I've recovered all of my cost.
2 - Appreciated Equity gain equals original purchased equity (DP)

[Michael Wooldridge]

Quote from @Joe Villeneuve:

Quote from @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. 

Nope.  Quite simple.  Two things happen:
1 - Cumulated CF = DP.  This means I've recovered all of my cost.
2 - Appreciated Equity gain equals original purchased equity (DP)

Not understanding why you are selling vs holding though. Unless your model assumes no future capital additions? And it’s a constant build off the original capital? 

 Not to mention the lost cash flow as you move out on a few months of rentals? Even if I’m cash flowing something low say $1600 a month between prepping for the sale, selling, and then buying next one it’s easy to be out 6-7500 there alone. 

[John Carbone]

Quote from @Michael Wooldridge:

Quote from @Joe Villeneuve:

Quote from @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. 

Nope.  Quite simple.  Two things happen:
1 - Cumulated CF = DP.  This means I've recovered all of my cost.
2 - Appreciated Equity gain equals original purchased equity (DP)

Not understanding why you are selling vs holding though. Unless your model assumes no future capital additions? And it’s a constant build off the original capital? 

I don’t see how it makes sense.

cashout refi seems optimal if wanting max leverage.

selling:
 —losing a low fixed rate mortgage
—-closing costs
—-needing to find similar property that will cash flow or better

— buying an overpriced asset at a high rate that will be difficult to refi later with negative equity 

seems like a good deal for a realtor. 

[Michael Wooldridge]

Quote from @John Carbone:

Quote from @Michael Wooldridge:

Quote from @Joe Villeneuve:

Quote from @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. 

Nope.  Quite simple.  Two things happen:
1 - Cumulated CF = DP.  This means I've recovered all of my cost.
2 - Appreciated Equity gain equals original purchased equity (DP)

Not understanding why you are selling vs holding though. Unless your model assumes no future capital additions? And it’s a constant build off the original capital? 

I don’t see how it makes sense.

cashout refi seems optimal if wanting max leverage.

selling:
 —losing a low fixed rate mortgage
—-closing costs
—-needing to find similar property that will cash flow or better

seems like a good deal for a realtor. 

 There’s probably a scenario where if you had low income and had to leverage each property to climb a new tier in the beginning. BUt I can’t think of a scenario where it makes sense to consolidate cash flowing properties. Unless you never add new capital. And even then once the cash flow from multiple properties lets you buy 1 a year then 2 a year etc… I really don’t get it.

[John Carbone]

Quote from @Michael Wooldridge:

Quote from @John Carbone:

Quote from @Michael Wooldridge:

Quote from @Joe Villeneuve:

Quote from @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. 

Nope.  Quite simple.  Two things happen:
1 - Cumulated CF = DP.  This means I've recovered all of my cost.
2 - Appreciated Equity gain equals original purchased equity (DP)

Not understanding why you are selling vs holding though. Unless your model assumes no future capital additions? And it’s a constant build off the original capital? 

I don’t see how it makes sense.

cashout refi seems optimal if wanting max leverage.

selling:
 —losing a low fixed rate mortgage
—-closing costs
—-needing to find similar property that will cash flow or better

seems like a good deal for a realtor. 

 There’s probably a scenario where if you had low income and had to leverage each property to climb a new tier in the beginning. BUt I can’t think of a scenario where it makes sense to consolidate cash flowing properties. Unless you never add new capital. And even then once the cash flow from multiple properties lets you buy 1 a year then 2 a year etc… I really don’t get it.

I just had a friend of mine who has a PHD in statistics look at this and he thinks this is lunacy (I needed a second opinion as Joe seems credible) It’s just glorified leverage, and doing a refi up to 80 percent is the same thing. Buying multiples with a sale just increases leverage and risk across more properties. 

[Michael Wooldridge]

Quote from @John Carbone:

Quote from @Michael Wooldridge:

Quote from @John Carbone:

Quote from @Michael Wooldridge:

Quote from @Joe Villeneuve:

Quote from @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. 

Nope.  Quite simple.  Two things happen:
1 - Cumulated CF = DP.  This means I've recovered all of my cost.
2 - Appreciated Equity gain equals original purchased equity (DP)

Not understanding why you are selling vs holding though. Unless your model assumes no future capital additions? And it’s a constant build off the original capital? 

I don’t see how it makes sense.

cashout refi seems optimal if wanting max leverage.

selling:
 —losing a low fixed rate mortgage
—-closing costs
—-needing to find similar property that will cash flow or better

seems like a good deal for a realtor. 

 There’s probably a scenario where if you had low income and had to leverage each property to climb a new tier in the beginning. BUt I can’t think of a scenario where it makes sense to consolidate cash flowing properties. Unless you never add new capital. And even then once the cash flow from multiple properties lets you buy 1 a year then 2 a year etc… I really don’t get it.

I just had a friend of mine who has a PHD in statistics look at this and he thinks this is lunacy. It’s just glorified leverage, and doing a refi up to 80 percent is the same thing. Buying multiples with a sale just increases leverage and risk across more properties. 

 I personally can’t see the math working. Especially after 5 years. but even at 10 years, you give up to much cash flow. Unless the property itself isn’t worthwhile I don’t see it. Now using the refi to grab more cash flow to create a snowball effect. The math works. 

But I can’t figure it out and not much details - so I don’t know. 

[James Hamling]

Quote from @Michael Wooldridge:

Quote from @John Carbone:

Quote from @Michael Wooldridge:

Quote from @Joe Villeneuve:

Quote from @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. 

Nope.  Quite simple.  Two things happen:
1 - Cumulated CF = DP.  This means I've recovered all of my cost.
2 - Appreciated Equity gain equals original purchased equity (DP)

Not understanding why you are selling vs holding though. Unless your model assumes no future capital additions? And it’s a constant build off the original capital? 

I don’t see how it makes sense.

cashout refi seems optimal if wanting max leverage.

selling:
 —losing a low fixed rate mortgage
—-closing costs
—-needing to find similar property that will cash flow or better

seems like a good deal for a realtor. 

 There’s probably a scenario where if you had low income and had to leverage each property to climb a new tier in the beginning. BUt I can’t think of a scenario where it makes sense to consolidate cash flowing properties. Unless you never add new capital. And even then once the cash flow from multiple properties lets you buy 1 a year then 2 a year etc… I really don’t get it.

 Ok, let's game this out a bit. 

Say you have spent 7 years saving, eating Ramen for every meal, and have used what of your active income possible to buy 4 properties. 

Let's say the average purchase price was $200k. Of which you put down 20%. 

Each has a cash flow pre-tax of $400 mnth, making a grand total of $1,600mnth or BETTER said 21mnths to purchase. 

That cash-flow is, again, pre-tax. Uncle Same wants his cut so, you don't actually get to keep or use that $1,600mnth, post tax it's $1,040 or 38.5mnth to purchase. 

The time to purchase is if prices stay exactly flat, for years, it would take you "only" a bit over 3 years to purchase another property from the cashflow. 

BUT, with appreciation of only 5% which is WAY less then what appreciation has been for years, and very easy to average that over any multi year span REGUARDLESS of what people may THINK is going to happen, let's just work with facts of what HAS happened. So, at JUST 5% appreciation, that is $40k, in 1 year. ONE! And you can utilize 100% of that, Uncle Sam does not scalp 1/3, as long as you 1031. 

The difference is TIME. And time is "THE" factor when working with compounding returns. Your greatly shifting the framework in how often things compound. Vs 3yrs, it is 1. 

This is a simplification to help illustrate the general premise, so please people don't make idiotic replies calling this out as a specific exact detail by detail thing, it's an example. 

This action is called "Pyramiding". It is the most powerful means to grow and scale a portfolio. The equitable returns far outpace cash-flow post tax potential. The only way to have cash flow exceed equitable gains is via someone making a total idiotic sale of the property to you. the general value basis in ever market for properties is of such that a 20 cap, it's just not a thing, right, more or less a 30+. So this is why equitable returns on a 3,5,7yr schedule always outpace cash-flow returns. Only question is at which "off-ramp" is best for tapping and redeploying capital be it yr3, 5 or 7. 

Also, depreciation comes into play. 

To be clear, the above strategy of "Pyramiding" is one from the standard rental market. STR's and the potential performance of such, as mentioned above, is that anomaly where a 30+cap is not only possible, but many do this regularly in STR, and more. That changes the calculus, considerably. The cap rate of the gross rents is an important factor for the premise.

[John Carbone]

Quote from @James Hamling:

Quote from @Michael Wooldridge:

Quote from @John Carbone:

Quote from @Michael Wooldridge:

Quote from @Joe Villeneuve:

Quote from @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. 

Nope.  Quite simple.  Two things happen:
1 - Cumulated CF = DP.  This means I've recovered all of my cost.
2 - Appreciated Equity gain equals original purchased equity (DP)

Not understanding why you are selling vs holding though. Unless your model assumes no future capital additions? And it’s a constant build off the original capital? 

I don’t see how it makes sense.

cashout refi seems optimal if wanting max leverage.

selling:
 —losing a low fixed rate mortgage
—-closing costs
—-needing to find similar property that will cash flow or better

seems like a good deal for a realtor. 

 There’s probably a scenario where if you had low income and had to leverage each property to climb a new tier in the beginning. BUt I can’t think of a scenario where it makes sense to consolidate cash flowing properties. Unless you never add new capital. And even then once the cash flow from multiple properties lets you buy 1 a year then 2 a year etc… I really don’t get it.

 Ok, let's game this out a bit. 

Say you have spent 7 years saving, eating Ramen for every meal, and have used what of your active income possible to buy 4 properties. 

Let's say the average purchase price was $200k. Of which you put down 20%. 

Each has a cash flow pre-tax of $400 mnth, making a grand total of $1,600mnth or BETTER said 21mnths to purchase. 

That cash-flow is, again, pre-tax. Uncle Same wants his cut so, you don't actually get to keep or use that $1,600mnth, post tax it's $1,040 or 38.5mnth to purchase. 

The time to purchase is if prices stay exactly flat, for years, it would take you "only" a bit over 3 years to purchase another property from the cashflow. 

BUT, with appreciation of only 5% which is WAY less then what appreciation has been for years, and very easy to average that over any multi year span REGUARDLESS of what people may THINK is going to happen, let's just work with facts of what HAS happened. So, at JUST 5% appreciation, that is $40k, in 1 year. ONE! And you can utilize 100% of that, Uncle Sam does not scalp 1/3, as long as you 1031. 

The difference is TIME. And time is "THE" factor when working with compounding returns. Your greatly shifting the framework in how often things compound. Vs 3yrs, it is 1. 

This is a simplification to help illustrate the general premise, so please people don't make idiotic replies calling this out as a specific exact detail by detail thing, it's an example. 

This action is called "Pyramiding". It is the most powerful means to grow and scale a portfolio. The equitable returns far outpace cash-flow post tax potential. The only way to have cash flow exceed equitable gains is via someone making a total idiotic sale of the property to you. the general value basis in ever market for properties is of such that a 20 cap, it's just not a thing, right, more or less a 30+. So this is why equitable returns on a 3,5,7yr schedule always outpace cash-flow returns. Only question is at which "off-ramp" is best for tapping and redeploying capital be it yr3, 5 or 7. 

Also, depreciation comes into play. 

We are talking different market. Short term rentals the cash flow outpaces equity gains.
 
what your saying makes sense, but it assumes, that home values will rise. I won’t argue that history shows it always does over a long horizon, but it’s not a guarantee, even you envision an up to 7 percent drop. 

im all for max leverage when real estate is fairly valued or undervalued and your example makes perfect sense in that scenario.  

[Rodney Sums]

Quote from @JD Martin:

Quote from @Jay Hinrichs:

Quote from @Greg R.:

Quote from @David Song:

@Greg R.

Housing prices will always go up. Buy anytime. - bigger pockets.com

Reality: numerous REI lost their life savings in 2009 and maybe 2022. Over leveraging, insufficient reserve, short term loan with balloon payment, etc.

Flippers bought in Q1 2022 will learn the lesson now. Many of them are losing their shirt. None will tell you publicly.

The price decline started in April 2022, and has been declining for the last 4 months. The bottom has not been reached yet. This is nationwide, from CA to Texas, everywhere. 

Couldn't agree more. There seems to be a fantasy land that some folks are living in where prices never go down, and no matter the conditions - it's always the right time to buy. And you're right, the people who've lost everything from the flips they bought in Q1 are awfully quiet right now. Too much ego/ pride to come on BP forms and expose their foolishness. 

 Foolishness   little harsh dont you think ?   WE flip a lot of property and build new..  what i have seen is new builds sales are not nearly what they were a few years ago and more in line with 2016 pace.  So far for me at least prices have held ..  In the cash flow deals we do its nothing has slowed down at all so all those cash flow flippers are doing quite well as rents have risen to the point that higher rates the cash flows are just the same and those that have low interest debt are really looking good right now for buying in Jan Feb.. :)  

I think if/when we have a crash it will be the same suspects as 08  CA VEgas Phx  were values ran up real quick.. I sold one of my Vegas properties that went up over 30% in one year and then when i put it on market I sold it for 40k over ask and that was in May of this year.. 

The other thing people are not mentioning and most dont really know.. Is it really depends on the state your in.. For owner occ.. Purchase Money mortgages there is no deficiency judgement allowed by law. This is true in  CA OR WA NV AZ and a few others.. In other states does not matter the lender can and will go after deficiencies ( think Texas) .  This  is one reason the melt down was so severe in  CA NV and AZ in 08  the only thing owner occ's lost was equity and credit score they did not have anyone coming after them ( unless they had second mortgages those the lender can get a deficiency. 

I wanted to add some real stats for my Oregon new builds.. Price points 675k to 850k.. I started 14 specs in Q 1 I have sold 8 of them all for full price plus extras..  No bidding wars of course as I dont really like that  but Zero concessions and Extra's of course carry a nice mark up for all the time and effort we take to customize these homes for the buyers.

But lets talk about these buyers.. 6 of the 8 are empty nesters one paid cash two paid very large down's and decided to use their VA loans so their loans were less than 50% ARV. The others sold properties are put 20 to 40% down.. Again though we are going to have to work for it unlike the years past were it was taking orders. We also have substantial equity in this project with a great bank and banker so if we have to hold its only going to cost me about 10k a month to hold 40 million worth of retail sales and we can do that for a very long time if we needed to.

On our mid west east coast fundings for flippers for mainly investor purchases IE these are rental houses.. so our clients either sell to the cash flow investor or they are BRRR even with rates going up to 7 to 8% on BRRR my clients are in these good enough and rents have risen enough ( even section 8) that these still cash flow with very little or no money out of their pocket.

I just did two in N. Ohio for one of my clients I 100% funded it for them plus i fund 100% of rehab. So all they do is pay utls.. and they refinanced with local bank got 25k cash back and are positive over 600 a month on the two..  that was two weeks ago in just one of the 5 markets i do this in.  Of course I only work with very experienced locals I dont do this for the general public.

 Jay, what makes you think you know anything about this subject? You've only been involved in this stuff for the past 50+ years 🤣🤣

I have been hearing about "the crash" pretty much since I arrived on these boards 8 or 9 years ago. I have no idea what metric "the crash" is, but what I do know is that investors like Jay have just plugged along and kept making money. 

Frankly, I don't even see the point in a post like this. If you're wrong, you just look like a fool. If you're right, so what? What's your carnival prize if you win - rubbing it in the face of BP forum members? 

 LOL you said carnival prize. Nice

[John Carbone]

Quote from @James Hamling:

Quote from @Michael Wooldridge:

Quote from @John Carbone:

Quote from @Michael Wooldridge:

Quote from @Joe Villeneuve:

Quote from @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. 

Nope.  Quite simple.  Two things happen:
1 - Cumulated CF = DP.  This means I've recovered all of my cost.
2 - Appreciated Equity gain equals original purchased equity (DP)

Not understanding why you are selling vs holding though. Unless your model assumes no future capital additions? And it’s a constant build off the original capital? 

I don’t see how it makes sense.

cashout refi seems optimal if wanting max leverage.

selling:
 —losing a low fixed rate mortgage
—-closing costs
—-needing to find similar property that will cash flow or better

seems like a good deal for a realtor. 

 There’s probably a scenario where if you had low income and had to leverage each property to climb a new tier in the beginning. BUt I can’t think of a scenario where it makes sense to consolidate cash flowing properties. Unless you never add new capital. And even then once the cash flow from multiple properties lets you buy 1 a year then 2 a year etc… I really don’t get it.

 Ok, let's game this out a bit. 

Say you have spent 7 years saving, eating Ramen for every meal, and have used what of your active income possible to buy 4 properties. 

Let's say the average purchase price was $200k. Of which you put down 20%. 

Each has a cash flow pre-tax of $400 mnth, making a grand total of $1,600mnth or BETTER said 21mnths to purchase. 

That cash-flow is, again, pre-tax. Uncle Same wants his cut so, you don't actually get to keep or use that $1,600mnth, post tax it's $1,040 or 38.5mnth to purchase. 

The time to purchase is if prices stay exactly flat, for years, it would take you "only" a bit over 3 years to purchase another property from the cashflow. 

BUT, with appreciation of only 5% which is WAY less then what appreciation has been for years, and very easy to average that over any multi year span REGUARDLESS of what people may THINK is going to happen, let's just work with facts of what HAS happened. So, at JUST 5% appreciation, that is $40k, in 1 year. ONE! And you can utilize 100% of that, Uncle Sam does not scalp 1/3, as long as you 1031. 

The difference is TIME. And time is "THE" factor when working with compounding returns. Your greatly shifting the framework in how often things compound. Vs 3yrs, it is 1. 

This is a simplification to help illustrate the general premise, so please people don't make idiotic replies calling this out as a specific exact detail by detail thing, it's an example. 

This action is called "Pyramiding". It is the most powerful means to grow and scale a portfolio. The equitable returns far outpace cash-flow post tax potential. The only way to have cash flow exceed equitable gains is via someone making a total idiotic sale of the property to you. the general value basis in ever market for properties is of such that a 20 cap, it's just not a thing, right, more or less a 30+. So this is why equitable returns on a 3,5,7yr schedule always outpace cash-flow returns. Only question is at which "off-ramp" is best for tapping and redeploying capital be it yr3, 5 or 7. 

Also, depreciation comes into play. 

To be clear, the above strategy of "Pyramiding" is one from the standard rental market. STR's and the potential performance of such, as mentioned above, is that anomaly where a 30+cap is not only possible, but many do this regularly in STR, and more. That changes the calculus, considerably. The cap rate of the gross rents is an important factor for the premise.

Thanks for editing your post after my reply to include mention how it’s not applicable to STRs.

[Joe Villeneuve]

Quote from @Michael Wooldridge:

Quote from @Joe Villeneuve:

Quote from @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. 

Nope.  Quite simple.  Two things happen:
1 - Cumulated CF = DP.  This means I've recovered all of my cost.
2 - Appreciated Equity gain equals original purchased equity (DP)

Not understanding why you are selling vs holding though. Unless your model assumes no future capital additions? And it’s a constant build off the original capital? 

 Not to mention the lost cash flow as you move out on a few months of rentals? Even if I’m cash flowing something low say $1600 a month between prepping for the sale, selling, and then buying next one it’s easy to be out 6-7500 there alone. 

Basic math.
Example:  $100k property
1 - Original Buy with 20% DP ($20k) means I'm buying a property but only paying 1/5 of its value.
2 - Property appreciates to $120k
3 - New Equity = $40k, which is now 1/3 of the PV.  The buying power of the equity has gone down.
4 - If I sell the property, and use the equity on a new property at 20%, I'm once again buying a property worth 5 times what I'm paying for it = $200k
As far as the CF goes, if you wait until the equity = 2 times the original DP, that means you can buy 2 properties just like the first one.  That doubles the CF.
I agree about the cost of the sale, but that money comes from the mortgage paydown.  Note that whenever I refer to the increased equity (doubled), I always use the words "from appreciation"...and I'm not including the equity gained from the paydown.

[Joe Villeneuve]

Quote from @John Carbone:

Quote from @Michael Wooldridge:

Quote from @Joe Villeneuve:

Quote from @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. 

Nope.  Quite simple.  Two things happen:
1 - Cumulated CF = DP.  This means I've recovered all of my cost.
2 - Appreciated Equity gain equals original purchased equity (DP)

Not understanding why you are selling vs holding though. Unless your model assumes no future capital additions? And it’s a constant build off the original capital? 

I don’t see how it makes sense.

cashout refi seems optimal if wanting max leverage.

selling:
 —losing a low fixed rate mortgage
—-closing costs
—-needing to find similar property that will cash flow or better

— buying an overpriced asset at a high rate that will be difficult to refi later with negative equity 

seems like a good deal for a realtor. 

It doesn't make cents, it makes dollar$.
1 - Cash out refi reduces the cash flow on the original property due to the larger mortgage payment
2 - Closing costs comes from the mortgage paydown on the original property.  I'm not including that when I say "double the original equity".  Note that I always refer to that doubling coming from appreciation.
3 - Finding similar properties isn't a problem if your property search comes out of Market Analysis in the first place.
4 - Why am I buying an "overpriced asset"?
5 - Realtors are people too.  My realtors are happy people.  They know what, why, and where I look for properties.  They're well worth the money they get.

[Joe Villeneuve]

Quote from @John Carbone:

Quote from @Michael Wooldridge:

Quote from @John Carbone:

Quote from @Michael Wooldridge:

Quote from @Joe Villeneuve:

Quote from @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. 

Nope.  Quite simple.  Two things happen:
1 - Cumulated CF = DP.  This means I've recovered all of my cost.
2 - Appreciated Equity gain equals original purchased equity (DP)

Not understanding why you are selling vs holding though. Unless your model assumes no future capital additions? And it’s a constant build off the original capital? 

I don’t see how it makes sense.

cashout refi seems optimal if wanting max leverage.

selling:
 —losing a low fixed rate mortgage
—-closing costs
—-needing to find similar property that will cash flow or better

seems like a good deal for a realtor. 

 There’s probably a scenario where if you had low income and had to leverage each property to climb a new tier in the beginning. BUt I can’t think of a scenario where it makes sense to consolidate cash flowing properties. Unless you never add new capital. And even then once the cash flow from multiple properties lets you buy 1 a year then 2 a year etc… I really don’t get it.

I just had a friend of mine who has a PHD in statistics look at this and he thinks this is lunacy (I needed a second opinion as Joe seems credible) It’s just glorified leverage, and doing a refi up to 80 percent is the same thing. Buying multiples with a sale just increases leverage and risk across more properties. 

 Wrong on all accounts...and I do mean on ALL accounts.

[Joe Villeneuve]

Quote from @James Hamling:

Quote from @Michael Wooldridge:

Quote from @John Carbone:

Quote from @Michael Wooldridge:

Quote from @Joe Villeneuve:

Quote from @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. 

Nope.  Quite simple.  Two things happen:
1 - Cumulated CF = DP.  This means I've recovered all of my cost.
2 - Appreciated Equity gain equals original purchased equity (DP)

Not understanding why you are selling vs holding though. Unless your model assumes no future capital additions? And it’s a constant build off the original capital? 

I don’t see how it makes sense.

cashout refi seems optimal if wanting max leverage.

selling:
 —losing a low fixed rate mortgage
—-closing costs
—-needing to find similar property that will cash flow or better

seems like a good deal for a realtor. 

 There’s probably a scenario where if you had low income and had to leverage each property to climb a new tier in the beginning. BUt I can’t think of a scenario where it makes sense to consolidate cash flowing properties. Unless you never add new capital. And even then once the cash flow from multiple properties lets you buy 1 a year then 2 a year etc… I really don’t get it.

 Ok, let's game this out a bit. 

Say you have spent 7 years saving, eating Ramen for every meal, and have used what of your active income possible to buy 4 properties. 

Let's say the average purchase price was $200k. Of which you put down 20%. 

Each has a cash flow pre-tax of $400 mnth, making a grand total of $1,600mnth or BETTER said 21mnths to purchase. 

That cash-flow is, again, pre-tax. Uncle Same wants his cut so, you don't actually get to keep or use that $1,600mnth, post tax it's $1,040 or 38.5mnth to purchase. 

The time to purchase is if prices stay exactly flat, for years, it would take you "only" a bit over 3 years to purchase another property from the cashflow. 

BUT, with appreciation of only 5% which is WAY less then what appreciation has been for years, and very easy to average that over any multi year span REGUARDLESS of what people may THINK is going to happen, let's just work with facts of what HAS happened. So, at JUST 5% appreciation, that is $40k, in 1 year. ONE! And you can utilize 100% of that, Uncle Sam does not scalp 1/3, as long as you 1031. 

The difference is TIME. And time is "THE" factor when working with compounding returns. Your greatly shifting the framework in how often things compound. Vs 3yrs, it is 1. 

This is a simplification to help illustrate the general premise, so please people don't make idiotic replies calling this out as a specific exact detail by detail thing, it's an example. 

This action is called "Pyramiding". It is the most powerful means to grow and scale a portfolio. The equitable returns far outpace cash-flow post tax potential. The only way to have cash flow exceed equitable gains is via someone making a total idiotic sale of the property to you. the general value basis in ever market for properties is of such that a 20 cap, it's just not a thing, right, more or less a 30+. So this is why equitable returns on a 3,5,7yr schedule always outpace cash-flow returns. Only question is at which "off-ramp" is best for tapping and redeploying capital be it yr3, 5 or 7. 

Also, depreciation comes into play. 

To be clear, the above strategy of "Pyramiding" is one from the standard rental market. STR's and the potential performance of such, as mentioned above, is that anomaly where a 30+cap is not only possible, but many do this regularly in STR, and more. That changes the calculus, considerably. The cap rate of the gross rents is an important factor for the premise.

Using you numbers:
1 - Cash at start for DP money = $160k
2 - Buy 4 properties.  PV = $200k/ea;  Total PV = $800k
3 - CF = $600/mo each;Total CF = $7200/yr (this is lower than what I have access to) 
4 - Depreciation washes out CF so Pre-tax = After Tax
5 - Total CF of all 4 properties = $28,800/yr
6 - Time to recovery of cost = 5.5 years
7 - Appreciation at 5%/year
8 - New PV after 5 yrs of appreciation = $1M
9 - New Equity after 5 years = $360k...$40k higher than the needed $320k (2 x original DP's)
10 - Sell and take $320k from sales and buy properties w/total PV of 5 times DP = $1.6M
11 - Repeat above steps

Compare after 5 years:
                Hold                  Sell
PV             $1M             $1.6
Equity       $320k          $320k (new DP)
CF           $7200/yr       $14.4k/yr (twice the original DP means twice the CF)

[Corby Goade]

Quote from @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. 

 I didn't read all of these responses, but I don't remember anyone over the last couple years saying that a correction was impossible. Anyone who has been in real estate for 10 minutes could easily see that the trajectory was unsustainable. 

That being said, a "crash" is a relative term. What is a crash and how is it defined? Whatever a crash is, it's not here, and still very unlikely. I've found that almost everyone predicting a crash is under 35 and did not see what happened in 2008- most of the people on here have no idea how crazy the lending practices were leading up to that, the cause was crystal clear. Just to make the newbies jealous, here are some high level examples of how things were in the good ol' days:

-My salary when I started investing in 2001 was about $23k.

-I bought several properties with stated income loans- I never had to provide any W2s, bank statements, etc- just "stated" to the lenders what I made. 

-I bought many investment properties with $0 down CONVENTIONAL loans. 

-Most of those properties were in terrible shape, they would NEVER qualify for convetional loans now. 

-My lender used to call their favorite appraiser and give them instructions on what the appraisal needed to look like in order to get the deal done. 

-I had friends who bought their first primaries during that time with conventional loans at 125% LTV. FIrst home purchase and they got a house, not only with no money out of their pockets, but they LEFT closing with a check for $25k on a $100k house.

For those of us doing deals back then, in retrospect, it is easy to see why the market crashed. We are so very far away from that world now that it's unfathomable to me. Those types of "crashes" are once a century, not cyclical, normal market variations. The Great Recession and the Great Depression- those are the only two instances in modern history where we saw losses like that. 

If you are watiing for another crash like that and you are relatively new to real estate, you better get yourself comfortable. Besides, IF we saw those types of losses, you won't be able to get a loan anyhow. Action and time in the market, those are the two things YOU can control, so control them. Everything else is noise. 

[Michael Wooldridge]

Quote from @Joe Villeneuve:

Using you numbers:
1 - Cash at start for DP money = $160k
2 - Buy 4 properties.  PV = $200k/ea;  Total PV = $800k
3 - CF = $600/mo each;Total CF = $7200/yr (this is lower than what I have access to) 
4 - Depreciation washes out CF so Pre-tax = After Tax
5 - Total CF of all 4 properties = $28,800/yr
6 - Time to recovery of cost = 5.5 years
7 - Appreciation at 5%/year
8 - New PV after 5 yrs of appreciation = $1M
9 - New Equity after 5 years = $360k...$40k higher than the needed $320k (2 x original DP's)
10 - Sell and take $320k from sales and buy properties w/total PV of 5 times DP = $1.6M
11 - Repeat above steps

Compare after 5 years:
                Hold                  Sell
PV             $1M             $1.6
Equity       $320k          $320k (new DP)
CF           $7200/yr       $14.4k/yr (twice the original DP means twice the CF)

Thanks Joe was never questioning it just wanted to look at the math. with STR you have approx. $25k to furnish (for the size I'm doing). But the bigger thing is while I'm sure selling "could" go faster I'm just not sure the numbers work unless I change class of STR. For example the scenarios I'm looking at are:

1) 200k downpayment

2) 25k furnishing

3) Cash Flow starting out $40k a year is the high but frankly I go with closer to $30k for budgeting

4) in addition to the rent cash flow, I'm looking at 250k every two years in new capital. 

I see a boost in a refi with that number of properties going on. But I'd have to have a very specific jump in STR level to make the switch and even then I'm tossing the furniture. Given the capital and cash flow I'm building it seems easier to just move to another and then switch to that moving forward - but refi some of the original properties to pull out to buy faster also.

Anyway it's helpful to think about it that way. Little bit different angle. 

[Brady Richard]

Quote from @Joe Villeneuve:

Quote from @John Carbone:

Quote from @Joe Villeneuve:

Quote from @John Carbone:

Quote from @James Hamling:

Quote from @Michael Wooldridge:

Quote from @John Carbone:

The problem with equity is you can’t force overall markets to go higher. You can somewhat control cash flow. For example, someone with a 350k investment that nets them 75k a year. After 10 years even if real estate is flat at 350k, they still have earned 750k over the 10 year period. Equity is just gravy, but should not be factored in when purchasing properties, especially at these prices. 

 Well technically the renter is paying down your principal which means you shouldn't' be flat - ever really. 

And realistically most houses/properties always appreciate over a 10-15 year margin. But I do think it's tough to chase equity (i.e. hard to truly predict the big growth otherwise would have had a lot more boomers who held on to shore houses in the northeast) but it's probably fair to say it should be factored in.

 Talk to a home flipper, all we do is not only build equity, but build it at net positive rates of return. We have to build equity to cover our costs of building that equity AND additional equity to cover all transactional, operational and profits. 

Or, how about any syndicator out there doing value-add deals? That is also creating equity. 

Or, or, or.... Equity creating is a component of many strategies, many. It is not only possible but common. Not easy, and results will vary wildly, not all have equal talent for certain results. 

@Joe Villeneuve is spot-on in sharing the relationship of CF and equitable returns, and that equity is what makes wealth. 

Any asking how to start, how to best get from start too financial freedom, how to build a portfolio, the #1 importance to learn is this fundamental and how Pyramiding works.

Obviously adding value to a property can increase the “value”, but speaking from a turn key pov, once you max out the usefulness of the property you are letting interest rates dictate the value. I don’t calculate my property value based off of what an appraiser will give it, I base it off of what my asset returns to me. This is a wildly different number than what a bank will say it is worth. CASH FLOW allows me to not care about interest rates and the negative impact on the “home equity”. 

This is very true, but CF returns will always be far less than equity returns (I'm assuming a property that is actually getting equity returns).  You should never have one without the other.  If you look at the math, the most important formula is how long it takes the REI to recover their cost...the DP,...in CASH, from the CF. 

Let's say it takes 8 years for this to happen, and the DP was $40k.  That's a $200k PV at the start.  If the property appreciated 4% over the that same 8 year period, the PV would then be $273k plus.  That's an increase of $73k in Equity/PV, where as the cumulative CF over that same 8 years = only $50k.

Now, if you have both in that property, the once the cumulative CF = the DP, the property is now free to the REI, and when sold, the total equity is all profit (since the DP bought the initial equity, but the CF recovered it).  This is also when the property is at its maximum value, and should be sold, or the REI will start losing money exponentially.  The greater the appreciation, the more money is lost...if not sold.

I agree that the time to recover the cost is the most important component to the formula. I don’t follow on selling though. Maybe the way I look at it is a little different than you. So I’m into a rehabbed property for 350k (200k cash down) and it returns me a net profit of 70k a year. Break even is sub 3 years, and 5 years free and clear, with an annual dividend thereafter of 70k once paid off. If I get an appraisal at 400k why would I sell when I’m getting 70k a year. This is a 20 percent return on a 350k investment. The “equity” component is meaningless to me since most of my formula comes from cash flow, not equity. Maybe the smart thing is to cash out refi up to 80 percent at that point, if there is a need/to create interest expense for tax deductions, but I don’t understand why I would sell. My whole philosophy is to buy and never sell. What am I missing?

What are you missing?  Mega bucks.  Here's why:
1 - You don't own the equity...the property does, and you own the property.  Not the same thing.  The equity is actually what you are paying for this property.  The fact that equity gained from appreciation is free to you just means you have a partner (the economy) as a form of a cash partner.
2 - The value of your equity isn't the face value of the equity...it's what that number is buying you in the form of property value...AND cash flow.
3 - The true asset you own is NOT the property...it's the cash in the property.
4 - Cash flow and equity are both forms of cash.  One is liquid and real, and the other is frozen and virtual.  Until you can "melt" the frozen asset (equity) is has no actual use/value to you.  It's a trophy.  The only/best way to "melt" it, is to sell the vehicle your equity is riding...the property.

...Now here comes the fun part,...the math...

5 - When you buy the property, that DP is actually the initial equity that you are paying for.  If it's a 20% DP, that means you are getting a PV of 5 times what you're paying for the property.  Also, as long as you have positive CF, that is ALL you are paying for the property.
6 - As your property appreciates, thank-you economy, the equity increases equally...dollar for dollar.  This means, if your $100k property (that you paid $20k for) gains $20k in value, the PV now equals $120k...and the equity jumps up to $40k.  Sounds great, and it is,...but you lost money.  Here's why.
7 - When you buy the property (see #5 above), you are getting a PV of 5 times what you paid for it.  When that property went up to $120k (see #6 above), that now $40k in equity is only buying a $120k property.  Only you say?  Yes, the equity is now only buying a property 3 times it's face value...cost.
8 - Now, if you sell the property, and move that equity forward, it once again has a buying power of 5 to 1, which translates to a new PV of $200k...not just $120k.  Oooops?!
9 - Also, since that $40k in equity represents twice the $20k you paid for original property, could you not buy 2 of that same property, and thus double the CF as well?
10 - Buy and Hold, in my book, doesn't mean hold the property...it means hold the equity,...just keep it moving forward from one property to another (or more).  Same equity, just living in a different location as it moves.

The power of the growth in equity (from appreciation) isn't in it's face value, its face value, its in the power it has to to buy...not sit and die.

 If the two new properties where the equity is going to be moved to appreciated over time at the same rate as the original property, then would that not make the new "vehicle" property (of the same class) value now $240k, not $200k? In that hypothetical scenario the $40k equity from the original propety is insufficient to cover the 20% down payment on the new property/ies, thus requiring an infusion of an additional $8k from the borrowing investor.

[Joe Villeneuve]

Quote from @Brady Richard:

Quote from @Joe Villeneuve:

Quote from @John Carbone:

Quote from @Joe Villeneuve:

Quote from @John Carbone:

Quote from @James Hamling:

Quote from @Michael Wooldridge:

Quote from @John Carbone:

The problem with equity is you can’t force overall markets to go higher. You can somewhat control cash flow. For example, someone with a 350k investment that nets them 75k a year. After 10 years even if real estate is flat at 350k, they still have earned 750k over the 10 year period. Equity is just gravy, but should not be factored in when purchasing properties, especially at these prices. 

 Well technically the renter is paying down your principal which means you shouldn't' be flat - ever really. 

And realistically most houses/properties always appreciate over a 10-15 year margin. But I do think it's tough to chase equity (i.e. hard to truly predict the big growth otherwise would have had a lot more boomers who held on to shore houses in the northeast) but it's probably fair to say it should be factored in.

 Talk to a home flipper, all we do is not only build equity, but build it at net positive rates of return. We have to build equity to cover our costs of building that equity AND additional equity to cover all transactional, operational and profits. 

Or, how about any syndicator out there doing value-add deals? That is also creating equity. 

Or, or, or.... Equity creating is a component of many strategies, many. It is not only possible but common. Not easy, and results will vary wildly, not all have equal talent for certain results. 

@Joe Villeneuve is spot-on in sharing the relationship of CF and equitable returns, and that equity is what makes wealth. 

Any asking how to start, how to best get from start too financial freedom, how to build a portfolio, the #1 importance to learn is this fundamental and how Pyramiding works.

Obviously adding value to a property can increase the “value”, but speaking from a turn key pov, once you max out the usefulness of the property you are letting interest rates dictate the value. I don’t calculate my property value based off of what an appraiser will give it, I base it off of what my asset returns to me. This is a wildly different number than what a bank will say it is worth. CASH FLOW allows me to not care about interest rates and the negative impact on the “home equity”. 

This is very true, but CF returns will always be far less than equity returns (I'm assuming a property that is actually getting equity returns).  You should never have one without the other.  If you look at the math, the most important formula is how long it takes the REI to recover their cost...the DP,...in CASH, from the CF. 

Let's say it takes 8 years for this to happen, and the DP was $40k.  That's a $200k PV at the start.  If the property appreciated 4% over the that same 8 year period, the PV would then be $273k plus.  That's an increase of $73k in Equity/PV, where as the cumulative CF over that same 8 years = only $50k.

Now, if you have both in that property, the once the cumulative CF = the DP, the property is now free to the REI, and when sold, the total equity is all profit (since the DP bought the initial equity, but the CF recovered it).  This is also when the property is at its maximum value, and should be sold, or the REI will start losing money exponentially.  The greater the appreciation, the more money is lost...if not sold.

I agree that the time to recover the cost is the most important component to the formula. I don’t follow on selling though. Maybe the way I look at it is a little different than you. So I’m into a rehabbed property for 350k (200k cash down) and it returns me a net profit of 70k a year. Break even is sub 3 years, and 5 years free and clear, with an annual dividend thereafter of 70k once paid off. If I get an appraisal at 400k why would I sell when I’m getting 70k a year. This is a 20 percent return on a 350k investment. The “equity” component is meaningless to me since most of my formula comes from cash flow, not equity. Maybe the smart thing is to cash out refi up to 80 percent at that point, if there is a need/to create interest expense for tax deductions, but I don’t understand why I would sell. My whole philosophy is to buy and never sell. What am I missing?

What are you missing?  Mega bucks.  Here's why:
1 - You don't own the equity...the property does, and you own the property.  Not the same thing.  The equity is actually what you are paying for this property.  The fact that equity gained from appreciation is free to you just means you have a partner (the economy) as a form of a cash partner.
2 - The value of your equity isn't the face value of the equity...it's what that number is buying you in the form of property value...AND cash flow.
3 - The true asset you own is NOT the property...it's the cash in the property.
4 - Cash flow and equity are both forms of cash.  One is liquid and real, and the other is frozen and virtual.  Until you can "melt" the frozen asset (equity) is has no actual use/value to you.  It's a trophy.  The only/best way to "melt" it, is to sell the vehicle your equity is riding...the property.

...Now here comes the fun part,...the math...

5 - When you buy the property, that DP is actually the initial equity that you are paying for.  If it's a 20% DP, that means you are getting a PV of 5 times what you're paying for the property.  Also, as long as you have positive CF, that is ALL you are paying for the property.
6 - As your property appreciates, thank-you economy, the equity increases equally...dollar for dollar.  This means, if your $100k property (that you paid $20k for) gains $20k in value, the PV now equals $120k...and the equity jumps up to $40k.  Sounds great, and it is,...but you lost money.  Here's why.
7 - When you buy the property (see #5 above), you are getting a PV of 5 times what you paid for it.  When that property went up to $120k (see #6 above), that now $40k in equity is only buying a $120k property.  Only you say?  Yes, the equity is now only buying a property 3 times it's face value...cost.
8 - Now, if you sell the property, and move that equity forward, it once again has a buying power of 5 to 1, which translates to a new PV of $200k...not just $120k.  Oooops?!
9 - Also, since that $40k in equity represents twice the $20k you paid for original property, could you not buy 2 of that same property, and thus double the CF as well?
10 - Buy and Hold, in my book, doesn't mean hold the property...it means hold the equity,...just keep it moving forward from one property to another (or more).  Same equity, just living in a different location as it moves.

The power of the growth in equity (from appreciation) isn't in it's face value, its face value, its in the power it has to to buy...not sit and die.

 If the two new properties where the equity is going to be moved to appreciated over time at the same rate as the original property, then would that not make the new "vehicle" property (of the same class) value now $240k, not $200k? In that hypothetical scenario the $40k equity from the original propety is insufficient to cover the 20% down payment on the new property/ies, thus requiring an infusion of an additional $8k from the borrowing investor.

You lost me

[Carlos Ptriawan]

Quote from @Michael Wooldridge:

Quote from @John Carbone:

Quote from @Carlos Ptriawan:

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

I found this part really interesting.
I can't paste three charts here so I uploaded it to Imgur. Please read the 3 charts I post carefully before replying.

Please take a look here :
https://imgur.com/a/VNel75J 

On the first and second charts, you see PPI started to spike up in Q1-2021.
That happened because of chart #3 (The shipping freight cost between US and China) which started to raise exponentially in Q1-2021 as well.

The peak of PPI is Q2-2022 (and it started going lower) ; but the peak of shipping freight cost is Q4-2022. 

Currently, the freight cost is almost normalized and maybe reach pre-covid price soon. So there's almost no shipping cost issue in the near future.


*************So the BIG question is why in the world  food/item price doesn't go down?*******************

My first speculation is the producer just wants to catch more margin while they are actually able to * lower the price* TODAY. 

Second is because there's an expected wage increase of everyone in US by 6 percent this Q4-2022 ( I have another chart showing this).

And this is why the Fed is attacking the labor market hahahaha LOL  while the initial food inflation is shaped by the shipping cost, PPI doesn't go down because the employer NOW has to adjust employee salary ... so catch 22.

What the Fed wants is by disturbing the strong labor market, as a reaction they expect PPI/Core CPI/CPI to be lower as well since without jobs people will have less demand. LOL it's so messy.

Btw the region's unemployment here is so strong it's almost below 2%.

[Carlos Ptriawan]

Quote from @Corby Goade:

Quote from @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. 

What we are worrying about now is not the real estate market crash.

But the world worries about the Bond market crash,  Bank crash, UK/Spain/Europe crash, Credit Suisse/Deutsche Bank/UBS/Standard Chartered crash. The CDS pricing (bankruptcy protection) for those nation/banks are now higher than during GFC 2008. 

We already knew just last week alone almost all pension-fund in UK is in bankruptcy.

The question remaining is what would happen if the world experienced another Lehman moment, even if the new Lehman is in Europe. 
What would be the impact to us?

[Michael Wooldridge]

Quote from @Carlos Ptriawan:

Quote from @Michael Wooldridge:

Quote from @John Carbone:

Quote from @Carlos Ptriawan:

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

I found this part really interesting.
I can't paste three charts here so I uploaded it to Imgur. Please read the 3 charts I post carefully before replying.

Please take a look here :
https://imgur.com/a/VNel75J 

On the first and second charts, you see PPI started to spike up in Q1-2021.
That happened because of chart #3 (The shipping freight cost between US and China) which started to raise exponentially in Q1-2021 as well.

The peak of PPI is Q2-2022 (and it started going lower) ; but the peak of shipping freight cost is Q4-2022. 

Currently, the freight cost is almost normalized and maybe reach pre-covid price soon. So there's almost no shipping cost issue in the near future.


*************So the BIG question is why in the world does food/item price doesn't go down?*******************

My first speculation is the producer just wants to catch more margin while they are actually able to * lower the price* TODAY. 

Second is because there's an expected wage increase of everyone in US by 6 percent this Q4-2022 ( I have another chart showing this).

And this is why the Fed is attacking the labor market hahahaha LOL  while the initial food inflation is shaped by the shipping cost, PPI doesn't go down because the employer NOW has to adjust employee salary ... so catch 22.

What the Fed wants is by disturbing the strong labor market, as a reaction they expect PPI/Core CPI/CPI to be lower as well since without jobs people will have less demand. LOL it's so messy.

Btw the region's unemployment here is so strong it's almost below 2%.

 Shipping by container ship has absolutely normalized in fact it's looking like it could be in a downword spiral. Food prices have actually outpaced inflation rates since the beginning. Some of it is absolutely margin gain some of it is shortage in key items. It's complex decent article that I could find on hand but I know I've seen better: https://www.forbes.com/advisor....

Two major items don't look like they are going to drop which is food and car costs (which is concerning because I don't think car costs is sustainable and I've now seen banks offering 96 month car loans regularly. SO they should keep inflation up. The car one really pisses me off because of the mark-ups on top of car prices. The average new car is now $49k. Even 5 years of go that would have been unheard of and 10 years ago hell I bought an Audi S4 for now much more than that. 

Also, I'm not convinced rent is going to fall out. not sure it will continue to rise, or at least extreme jumps, but it seems unlikely to reduce with the wage increases people will get + the fact that low end jobs are now starting to regulalry make 35k a year (fast food).

It's a complex market. It's also why the fed wants to hut jobs. Like you pointed out it will cause a firewall like break in the chain. It's not a real solution but it amost seems like they have no other idea how to slow because even they know rates alone won't stop it unless the use rates to destroy the economy. 

[Michael Wooldridge]

Quote from @Carlos Ptriawan:

Quote from @Corby Goade:

Quote from @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. 

What we are worrying about now is not the real estate market crash.

But the world worries about the Bond market crash,  Bank crash, UK/Spain/Europe crash, Credit Suisse/Deutsche Bank/UBS/Standard Chartered crash. The CDS pricing (bankruptcy protection) for those nation/banks are now higher than during GFC 2008. 

We already knew just last week alone almost all pension-fund in UK is in bankruptcy.

The question remaining is what would happen if the world experienced another Lehman moment, even if the new Lehman is in Europe. 
What would be the impact to us?

 Credit Suisse is a game changer. It is impossible to imagine they wouldn't have a systematic impact. Frankly though, I can't see how those govts don't lean in and force a BOA or Merrill Lynch like scenario if they are at that much risk. The one major difference should be is that they are not in a lehman like scenario and so the assets could work for an acquisition. BOA actually made a lot of money with ML so it could work out ok for sure. 

That said Swiss banks are pretty conservative. And they have good capitalization It will be interesting to understand what really got them into this scenario because it's not that clear yet. 

[Michael Wooldridge]

https://www.cnbc.com/2022/10/0...

Unemployment down and wages up. Can’t see fed backing off rate increase now.

[Carlos Ptriawan]

Quote from @Michael Wooldridge:

Quote from @Carlos Ptriawan:

Quote from @Michael Wooldridge:

Quote from @John Carbone:

Quote from @Carlos Ptriawan:

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

I found this part really interesting.
I can't paste three charts here so I uploaded it to Imgur. Please read the 3 charts I post carefully before replying.

Please take a look here :
https://imgur.com/a/VNel75J 

On the first and second charts, you see PPI started to spike up in Q1-2021.
That happened because of chart #3 (The shipping freight cost between US and China) which started to raise exponentially in Q1-2021 as well.

The peak of PPI is Q2-2022 (and it started going lower) ; but the peak of shipping freight cost is Q4-2022. 

Currently, the freight cost is almost normalized and maybe reach pre-covid price soon. So there's almost no shipping cost issue in the near future.


*************So the BIG question is why in the world does food/item price doesn't go down?*******************

My first speculation is the producer just wants to catch more margin while they are actually able to * lower the price* TODAY. 

Second is because there's an expected wage increase of everyone in US by 6 percent this Q4-2022 ( I have another chart showing this).

And this is why the Fed is attacking the labor market hahahaha LOL  while the initial food inflation is shaped by the shipping cost, PPI doesn't go down because the employer NOW has to adjust employee salary ... so catch 22.

What the Fed wants is by disturbing the strong labor market, as a reaction they expect PPI/Core CPI/CPI to be lower as well since without jobs people will have less demand. LOL it's so messy.

Btw the region's unemployment here is so strong it's almost below 2%.

 Shipping by container ship has absolutely normalized in fact it's looking like it could be in a downword spiral. Food prices have actually outpaced inflation rates since the beginning. Some of it is absolutely margin gain some of it is shortage in key items. It's complex decent article that I could find on hand but I know I've seen better: https://www.forbes.com/advisor....

Two major items don't look like they are going to drop which is food and car costs (which is concerning because I don't think car costs is sustainable and I've now seen banks offering 96 month car loans regularly. SO they should keep inflation up. The car one really pisses me off because of the mark-ups on top of car prices. The average new car is now $49k. Even 5 years of go that would have been unheard of and 10 years ago hell I bought an Audi S4 for now much more than that. 

Also, I'm not convinced rent is going to fall out. not sure it will continue to rise, or at least extreme jumps, but it seems unlikely to reduce with the wage increases people will get + the fact that low end jobs are now starting to regulalry make 35k a year (fast food).

It's a complex market. It's also why the fed wants to hut jobs. Like you pointed out it will cause a firewall like break in the chain. It's not a real solution but it amost seems like they have no other idea how to slow because even they know rates alone won't stop it unless the use rates to destroy the economy. 

 Thanks for the link.  Rent started to dipping in the last two months. You can see this from Corelogic research:
https://www.corelogic.com/inte...

About the new car, well what can I say, even without inflation, new German car always make the household financial to have a surprise. Their price is too high with fewer features, the car can't last more than 100k and maintenance cost is too high.

But if we use a Japanese car 8 years or older which is less than 10k, the car could last for 300k miles LOL LOL You save money.

I guess folks that keep buying brand-new German/European car  is causing inflation as well hahaha