All Forum Posts by: Alex Hochberger

Save up a downpayment. 5%, whatever.

Leave the FHA alone because of rates. I don't think you have to continue to occupy it, as long as it was true when you got it.

Acquire a second Duplex with a Conventional loan (can do 5% down), move into the Duplex. Rent out the unit you vacate. Now you have 3 Tenants + you. You should be able to count on a decent percentage of the rent as your income to qualify. Once you have the two of them going, your numbers should make more sense.

BRRRR is going to be challenging in the current market without more established of an asset base.

But if you can Hack your way to the two duplexes, you can save up for a downpayment on a SFH at that point and move there, while having two duplexes. At that points, you should have options and a track record.

I'm in Miami...

Cagey, lying about seemingly inconsequential things, weird things with water... it drugs...

Also, he's lying about doing things for you to test because he's not there. He doesn't live there, his plants do.

It's a grow house. They were not in Europe.

Fixed rate debt (like mortgages) also behave a little weirdly when inflation gets high. Remember, economic theory all hinges on "real" (inflation adjusted) dollars. In "normal" times of 2% inflation, this doesn't matter much. But in inflationary environments it does.

Also the "wealth effect" of people spending money because their assets have appreciated is also observed. Plenty of people will refinance their home, take cash out, keep their payment the same, and spend the money (cars, vacations, etc). Higher rates kill that option. That reduces consumer spending.

Prices are down about 5% (nominal dollars) from peak, that's about 13% (real dollars) because 8% inflation, that's a correction.

Higher rates contribute to higher "cost of housing" because prices are downward sticky. People resist selling at a loss. Inflation is a way to combat that. Landlords stop "raising rents" for a year or two (fear of vacancies) and inflation brings things down a bit.

My main point is with inflation running at 8%, things can stay nominally flat instead of nominally declining. In 2009 we had -0.39 inflation (deflation), so nominal prices came down. With inflation, nominal rates don't have to come down to bring down real rates.

If you sit in I-bonds and real estate prices drop, you are better off buying in 2023 than now.

If you sit in I-bonds and real estate prices increase slightly, and inflation comes under control, you're worse off.

This housing run-up was by actual demand, people buying. That was juiced by rebate checks. The pre-crash bubble was funded by a lot of straw buyers. Plenty of people we saw used Liar Loans to buy property from family members at inflated prices. It was fine until the music stopped. In 2007 a nationwide housing crash was unprecedented. We've had one. The suggestion that we are due for one 14 years later seems unreasonable.

Okay, I work in VC, tech focused. I've worked extensively with the PE guys. A bunch of friends from B-School work in IBanking.

They don't make massive bets. They are more aggressive than mutual funds, but they aren't 100% all in.

Look at what the family office guys are doing. They remain heavily in real estate.

They do NOT make massive moves on predictions like this. Their track record is no where near 90%. Most public VC track records are actually about the same and the S&P 500 for the LPs. If you look at some of the best managed groups, you outperform the market by a few points.

In terms of random / non-random. The price tomorrow of an asset is today's price plus a random walk. The long term value tracks the fundamentals.

So you tweak your portfolio based on your expectations to try to move things a few points. If you go all-in on your predictions, you are gambling. And even if you have an edge with your prediction, you're going to get wiped out the one time you're wrong. Even if your predictions are 90-10, your likelihood of getting them all right drops below 50% after 7 predictions.

So I'm not sure what you're tracking and reading, but you are overstating how much confidence anyone has in their prediction units.

 Have you looked at the actual track record of the investment firms?

And if inflation comes under control, you'll lose that pretty quickly - the fixed rate of the bond is currently 0.00%

Presumably the November 1st rate set will work well, no guarantee what happens in May.

Saying 1:

Bulls make money.

Bears make money.

Hogs get slaughtered.

Trying to time Ibonds exactly and teh housing market exactly is being a hog.

Move your capital to the asset class you think will give you the best return right now. Distribute your capital in a way that gives you the portfolio you desire.

Gaming out scenarios makes sense, but nobody KNOWS what the market is going to do, we're all predicting/guessing.

Saying 2:

Never fight the Fed.

The Fed is open that they are aiming for a housing correction. A correction is a 10% - 19.9% reduction. Nominal prices appear to be down 6% from peak. Inflation is up 8% in that time. That's a 14% correction. Expecting another 15%-30% from here "a crash" is NOT what the Fed is aiming for. That means the Fed will likely reverse course if that is happening.

Could prices drop another 15%? Of course. Could they stay flat? Also of course. Allocate your capital appropriately. But assuming you're going to time a market perfectly is crazy. Assuming you are going to time two markets perfectly is insane.

Yes. If one person times the bond market fantastically and then the housing market by 15%, they will start out about 25% ahead and do well.

That said, attempting to catch a falling knife and time the market is seen as generally foolhardy.

Alternative scenarios: inflation has largely peaked and is now running at 3%-4% (YoY will show high another 8 months because prior inflation is baked in). Rents and housing prices stay flat in nominal terms.

Also, if prices stay nominally flat for two years (which is effectively a 10%-15% correction given inflation rates), but interest rates are higher, then Ying is much better off with his lower mortgage rate, 2 years of PITI paid, and a good rate.

Yes you are better off timing the market perfectly. Waiting for prices to "only drop 15%" and calling that not timing the bottom is a little silly. A 15% nominal correction is certainly plausible, but making that the conservative case in an 8% inflation environment is absurd.

 There is a HUGE gap between "the market is crashing for the 3rd time ever" and "there is a housing correction going on, with some markets entering bear territory)"