All Forum Posts by: Alexander Stephenson

I studied economics, which means 0, but I think the Austrian school of thought is just a bunch of angry classicalists. I do believe a recession is coming. I wouldn’t be surprised if we had a so-called “currency bubble” due to the QE that occurred under Bernanke, but if Powell keeps increasing the prime rate he’ll be resented and probably save us from a much larger recession at the same time. It’s an interesting time that we live in with globalization, inflation that hasn’t hit yet, and America’s isolationism. We’ll all have to stay tuned.

Alexey, you make great points and yes I was leaving all of this open to discussion so I did not put my own time frame estimate on a potential crash, I like to stir the pot.

Germany was beaten, and needed to rebuild.  Where there are things that need to be rebuilt there are jobs, no?  So why was the economy not able to regrow?  They had some great resources and german ingenuity dates back that far.  Surely it was possible to decrease poverty.  Yes, the currency was made easily accessible to the people, but ours is accessible via banks as well.  They seem to be scared to loan out as much as they are allowed per regulation, but what if they felt comfortable enough to loan more and our money flowed freely to the entire population?

Japan has had the ability to grow much more than they have in the past few decades since the inception of their QE programs.  It would appear that there is a correlation between the economic affects of the QE programs and the young, declining population in Japan.  

As for Zimbabwe, I'll give you that one as it was a cheap shot, but in every great science experiment you test first with a micro-experiment so as to not ruin things.

Unofficial agreements are just that, unofficial.  The governments of the world have done some shoddy things and I'm not first in line to believe they know what they're doing about monetary policy.

@Amy Kendall great point and I'm sure you can make a case that your real estate investment won't just disappear, but if there are no jobs and income then you may struggle to fill your rentals without a keen competitive advantage. Just playing the devil's advocate. @Billy Khaliidi yes, I agree. Maybe we need a government to take their foot off the monetary and fiscal tools for awhile. @Dan Schwartz I realize our M1 is not the strongest indicator of inflation, but do you know where that money is? The banks are holding it in their reserves. They're holding a significantly higher amount than their required reserves so the money is not moving. What if banks start to loan out that money? Someone purchases a home then the realtor spends money they earn and the places the realtor spent money now have money to spend and so on and so on. $1 leaving those reserves devalues the USD more than $1 dollar should due to the velocity of money, it is overvalued I'll give you that, but what if banks felt comfortable all at once and released their reserves, what happens then. I don't think it's as simple as your tree analogy, especially seeing that most currency is digital at this point. https://fred.stlouisfed.org/series/EXCSRESNS Sent from my mobile device.

Have you ever heard of a currency bubble?  

One could liken it to what happened to Germany after World War 1.  The government printed money at an exorbitant rate in an attempt to stimulate the country's economy.  Did it work?  Loaves of bread costing 80 Billions German Marks and no jobs would say no (1).  

One could also liken it to Japan (not sure why countries in WW2 make such great examples, but they do).  Now this article does not blame Quantitative Easing (the printing of money to buy bonds) solely, but here's another example of a country that has devalued its currency in the name of stimulus.  Yet, Japan has been one of the weakest developed markets for decades now.  The economy there is not great.  People can't find jobs, and therefore can't afford to make children.  I don't have any of those things (children), but I hear they are quite expensive (2 & 3).

As a final example (I feel like I'm still in college), I'll refer you to an Amazon offering where you can buy a Zimbabwean 100 Trillion Dollar Note (Yes, with a T: TRILLION) for about 93 USD.  Keep in mind Amazon is not a currency exchange so this bill is likely marked up for convenience.  Also, fun fact, I found this link in the toys & games section, same place you'd find monopoly cash (4).

Why is all of this important?  The Great Recession, about 1/3 of my life ago, the United States of America copied this model with our quantitative easing programs led by Ben Bernanke of the Federal Reserve.  We went from about 1,400 Billion USD in the Money Supply to 3,528 Billion from the start of the recession to today.  That's 2 and 1/2 times where we started.  When you print more money, you expect prices to go up.  Not necessarily proportionally, but at least up in a semi-quasi-relative fashion AKA inflation.  The reason we can't reasonably expect a proportional increase is because economics is a fickle beast and the first person that tells you they understand it fully is a liar.  I may have been running around trying to figure out how high school works at the time, but I'm sure I didn't miss 2 to 3 times inflation of our prices during that period.  So, where did all of that inflation go?  (5) (This is the most credible source here because it comes from the horse's mouth, if you don't believe in anything I have to say here that's fine, but I didn't lie about those numbers and there's something to be said about them).

I'd guess that Zimbabwe and some other countries have given us a little bit of help by switching to our currency as their national currency and siphoning away some of that money supply in the meantime, but that's not likely to fix the whole problem.  Our economy surely hasn't grown into this money supply because there are still plenty of underemployed and unemployed people out there.  The Fed is even looking at reversing Quantitative Easing in the future by buying selling away their treasuries for our money and pressing delete on the computer with the digitally-created dollars.  Is this a good idea? I don't know, I'm 22 and I don't know what I'm talking about some 99% of the time.  Does it sound like one?  Not really.  People are getting smarter and wising up to the way the Federal Reserve operates.  Who's to say that cutting the money supply back down won't spook investors and lead to a crash?  I haven't heard of a healthy economy deflating recently, not that it's impossible it's just that our world governments don't like the prefix de- so they don't let it happen.  (6)

So what if we do nothing?  Well then there's 2 to 3 times inflation that we are just missing, what if it hit tomorrow?  Now, don't think of this as appreciation where your home's value is now 2 to 3 times higher.  The value is still proportionally the same because all other prices have gone up too (think 80 Billion dollar loaf of bread), but now our trips to Europe, Asia, South America, and even Africa have gotten a lot more expensive.  Imports are no longer affordable and that amount of inflation kills cash reserves (think Apple with it's Scrooge McDuck-esque vaults of cash).  I don't think those of us with W-2s will mind the sound of our COLA percentage increases come raise time, though.

So what do you think?  Is this the next crash that is heard of for a century or am I way off base?  

I will disclose that I have a Bachelor's in Business Economics, which likely makes me less qualified to have an opinion on this.  These opinions are not just my own, but of others I've spoken with on the topic and one extremely influential professor who once worked at the Fed despite his animosity towards the institution (fix it from the inside kind of guy).

1. http://www.joelscoins.com/exhibger2.htm

2. https://www.weforum.org/agenda/2016/02/why-is-japa...

3. https://www.theatlantic.com/business/archive/2017/...

4. https://www.amazon.com/Zimbabwe-100-Trillion-Dolla...

5. https://fred.stlouisfed.org/series/M1SL

6. https://qz.com/260980/meet-the-countries-that-dont...

You should both read Dave Lindahl's Multifamily Millions. You'll find that it truly is the best of both worlds. You essentially flip multifamily properties with forced value-add opportunities. You'll have higher income stability with large growth of equity. If you can make this work well, you would definitely be able to prove to investors that their money is in good hands and that you can offer a return. With only 100k you'll need to figure out how you can purchase a property and make necessary renovations, but if you're strong-willed I'm sure you can figure it out.

Hello Raheem, I'm still in the learning phase too so take what I say with a grain of salt. FHA loans are finicky in that you are only ever allowed to possess one at a time. So moving out after one year and doing it again is viable, however, you'll need to either refi your current plex into a conventional loan in order to do another FHA, or you can just go get another conventional. I would argue that a great option for you would be to find an undervalued pled that needs a little bit of work. FHA loan this plex (or 203k if you need repair money) and put some sweat equity in to the place. This will allow you to refi and hopefully get your cash out of your first place to put into your second. You're also going to have trouble getting past 16 units with this plan because a lot of banks stop handing out mortgages at 4. This means you should find another option, such as a small community bank that allows more than 4 mortgages, to fund later deals. Start building that relationship early. A final thing to consider that goes along with the aforementioned point is that paying off your mortgages is inefficient when you are as young as we are. If you can leverage 10 properties for the same amount of money as owning 2 you'll be paying more into your equity, you should have more cash flow although it will be lower per unit due to mortgage, and if one property turns out vacant you have 9 others versus one other. Let me know if this was helpful with an upvote!

Could you possibly scale up towards 3-4 units instead and rent out the extras? Possibly higher cash flow, might not appreciate as much due to demand, but you can still force some appreciation. Also, I believe, and correct me if I'm wrong, you can only have one FHA loan at any given time so you really need to force appreciation in order to refi into a conventional mortgage and then be able to get another FHA. Plus side is conventional won't include PMI so you can possible increase cash flow.

Hello, 

My girlfriend has a lease that started 8/1/2016 and ends on 7/31/2017.  The lease shows that her RUBS (utilities) are $20 a month and the management company is trying to increase it by $35 a month to $55 mid-lease. They are planning on making the changes by 11/1/2016 and need every resident to come in and re-sign the first part of the lease that outlines how much is owed.  Sounds to me like they messed up their expenses and are now trying to cover their mistakes in an illegal way.  Any advice would be much appreciated!  This company is MEB in Flagstaff, Arizona, they're pretty awful as far as my experiences with them as a renter have been.

Alex

You're going to give us a little bit of information about this deal. If you're house hacking you can get an FHA loan for 3.5% down and low interest rates. You can try to pitch your deal to family, friends, and other real estate investors for funding. You just have to get creative.

Not words of wisdom, but I'm about your age and going a similar path. I don't think we're too young to start our real estate careers. We have an opportunity to get cash flow, appreciation, and tax advantages as one of our earliest investments so I don't think that you or I are headed the wrong way. I plan on house hacking a fourplex as my first investment, we'll have empires in no time!