All Forum Posts by: Marcus Auerbach

My point is you have correlation, but not causality.

You have to look at the total tax burden - not only income tax. All States provide more or less the same services for a very similar cost, so what they are not raising in income tax they have to bring in with other taxes.

Texas for example is famous for no income tax, but they are one of the highest in both sales tax and property tax, so all things considered Texas is pretty average.

Florida's total tax burden is one of the lowest in the country, but the cost of living is not. And it's about to go up quickly because of property insurance. 

Here is a cost of living index, FL is on the higher end.

But that is not the whole story either. 

You also have to consider income. If you make more money you can afford more. Not to pick on FL, but they make a really good example, because while their cost of living is on the high end the average income is one of the lowest.

BTW, I am in Milwaukee. And one of the reasons why Wisconsin is quietly and slowly gaining popularity in every moving statistic is because you have a moderate cost of living, but good income, a moderate climate without extreme weather patterns, heat or stroms and plenty of fresh water from the Great Lakes. And a high quality of living, that's why our number one migration is from Chicago and Illinois. 

Is that impacting real estate prices? Looks like it does, Redfin says Milwaukee was the #1 hottest real estate market in the US in February with a 20% increase in median price. I have to add: February was an outlier, we are realistically at about half of that.

It's hard work to buy a good deal these days. No free lunch in real estate. Where is the cutoff? 

Most new investors are looking at cash on cash return and then compare that with the historic returns of the S&P500 (which are not guaranteed in the future). But that is shortsighted. 

Even a property with zero cash flow pays down the financing at about 2-3% per year and if you are leveraged 4:1 that's about 8-12% right there only for making mortgage payments. Then you have tax benefits. And you have appreciation which at the very least will keep up with inflation. And over time cash flow will increase, as rents go up at least with the rate of inflation. The whole game is rigged in favor of long term property owners. 

You can plant arbs, but a 6' dog ear cedar fence goes up a lot faster. The pre-made panels are not expensive. And in this case I would put the nice side on the inside. 

It's tough to deal with a crazy neighbor, ask me how I know. Useless to engage. Fences help.

There is also a strong correlation between ice cream sales and shark attacks. As soon as people consume less ice cream, the shark attacks go down!

You can invest money, time or energy. And you can substitute one for another.

One of the young guys who does some work for me has a midterm rental. He is 24, single and super motivated. He maked a MTR work and the extra effort did not bother him. 

He got the furniture mostly of FB marketplace for very little money. He wanted to buy in a very good area and otherwise he could not have made the numbers work. 

He did a great job and the property became a launch pad for him. But I can't see anyone managing a portfolio of MTRs.. drive yourself nuts.

The big theme in most markets (outside of FL and TX) is housing shortage, so any way you can bring inventory to the market is going to be rewarded.

But the ideal setup is a business (cash flow) combined with buy & hold (equity and tax shelter).

You can attempt to build a business within RE like flipping homes and then use the cash flow to invest, but think 10-20 flips per year and hire people, otherwise you are just the worker. There are many opportunities in 2025 that are easier to make money with. Figure out how an AI can generate cash flow etc

OOS investors have a bulit-in disadvantage compared to local investors. It's probably somewhere around 10-20%. 

You have both hard expenses and operational inefficiencies and most of the root in your lack of market knowledge and having to pay someone else to do things you would normally do yourself on your way home after work. 

How can you mitigate that disadvantage?

1.) The more you know the better. Pick a market you are already familiar with. Or that is at least easy to get to and you are planning on spending time there, maybe you have family there. YouTube is also helpful. Look for: Living in XYZ.

2.) Buy quality. Every interaction you have will cost you more because you have to pay an intermediary or contractors simply try to charge you more, so reducing the number of interactions has the biggest impact on your expenses.

3.) Ideally you get some deals under your belt in your home market, learn how to work with contractors, manage tenants etc before you increase the difficulty level by going remote. That is not always possible.

Here is how to break that cycle: 

You are stuck because you keep analyzing deals and while some of them may be good, you keep asking if they are good enough. This keeps you in a loop looking for more deals.

Define your deal, some people call it a buy-box, but it is a bit more. You basically want to specify all key aspects of a potential deal: location, type of home, price, condition, an acceptable amount of rehab, rent and maybe you have some other criteria like pool yes/no etc.

Next is a reality check. Go back in time 6 months and see if deals like this have actually closed or if you have designed a unicorn. You may have to go back and tweak your target definition until it is realistic.

Now you have a pass / fail criteria. A deal is either a match or it is not. You also have already run all your numbers, so it cuts down on your decision-making time. And you have mentally already made the decision to buy "this" property - the only thing you did not know was the actual address.

You get to the point where your mind does that automatically. it's basically pattern recognition. When I see a property pop up here in the Milwaukee suburbs I know within 10 seconds if a listing deserves a closer look.

I have been watching FL for a while now as a case study for how a market could crash. The inventory especially in Southeast FL is absurdly high, especially when I compare with my market here:

     Milwaukee County, WI: 1,040 listings
     Broward County, FL: 18,448 listings

That's Fort Lauderdale. They have about twice the population of Milwaukee, but still an unbelievable difference. So far prices in Fort Lauderdale have not come down. Same for Miami. 

Residential real estate prices are "downward sticky" - sellers just don't sell if they don't get their price and just hold on to it until the market catches up over time. This was the big catalyst in 2008: they were forced to sell and that means they had to take the price the market was offering.

What could change the dynamic is the 500,000 Canadians who own a 2nd home in FL and are now questioned intensely at immigration. This could motivate many more to list and some of them to sell for any price.

It is important to understand that FL has had high inventory before Covid and a lot of people argue that is normal. I believe what happened is that OOS buyers sucked up all that inventory rapidly in 2021 and 2022, indicating to developers a huge market demand and I don't think they recognized it as a windfall and trying to meet that "demand" which has evaporated.

So now you have a huge amount of new construction in the pipeline. Plus a huge amount of 2nd homes for sale. So we have seen high inventory before, but the pace at which inventory is rising is new.

There is no universal answer on appreciation vs age. Home values go up with inflation plus any extra demand for an area. 

The importance is square footage is often underestimated. 

That brings you to cost per square foot as a metric - sometimes buying a larger home in a A+ area and remodeling it completely is a very good way to force appreciation.