All Forum Posts by: Brent Seehusen

I've heard people claim that certain areas didn't budge during the downturn, but I've never seen anybody provide proof of this claim.  Sure, certain areas may have had a milder crash during the recession, but they still went down in value, so I don't agree with the idea that they didn't budge.  Writing off a 10% price decline as insignificant just shows the level of cognitive dissonance that certain investors suffer from.  It's hard to admit you lost money. Combine that multi-year price decline with the massive negative cash flows being taken and those "high demand" areas were losers for investors.

I think the only lesson we can learn from the Zillow data is that buying in "high demand" areas after a market correction is a good strategy for profiting from the rebound.

You could have made that same argument in 2006 just before prices collapsed by 30-40% in LA, so there is more to the picture than just population increase vs lack of new housing supply.  If people lose their jobs or can't get financing it doesn't matter how much "demand" is out there.  They are going to stop buying and any investors betting on future appreciation are going to get wiped out due to the alligator they are feeding every month.

The more unaffordable housing becomes the more dramatic the eventual crash will be as people have less ability to hang on once they've lost their jobs during a recession.  So my issue with the Zillow chart is that it only measures gains from 2009-2014 when nearly all housing markets were in recovery mode.  It's misleading to call that a chart of "where landlords make the most money".  It doesn't even represent a full cycle's worth of data.  If they had measured the same thing from 2006-2011 they would have ended up with a completely different list of top markets.  The cash flowing markets that didn't budge in price would come out on top. Texas did great compared to the rest of the nation in that regard.

My point is that you are using shoddily constructed data to make broad conclusions that are likely to be incorrect.  There's a lot of California Kool-Aid flowing in this thread, meaning people are starting to believe the hype over fundamentals.  I guess that's why real estate cycles happen every 10-12 years, as people have short memories.

@Fay Chen I agree with you there.  I've found a manager for my recent duplex purchases that I've been happy with so far.  I'm going through my first turnover right now, so we'll see how that goes, but so far so good.  I also have a property in OC that is self-managed.

How about you?

What exactly is the point of this thread?  It comes off as a lot of cheer leading and patting each others backs, but there doesn't seem to be any commentary on what actually makes a market worth investing in.  If you had posted this same info in 2008 the reactions would be much different as investors in the Top 5 markets were getting slaughtered because they got caught up in speculation, ignoring all fundamentals.  Now after 5-6 years of a bull market everybody feels like an investing genius, but I wonder if they really are.  I don't see a lot of good information on this thread... some but not a lot.  Mostly it's a cheer leading session that seems eerily similar to the mid-2000's.

All we can really glean from the Zillow data is that since 2009 (the time period of the study), appreciation showed the largest volume gains (not even percentage gains) in the 5 West Coast markets.  It says nothing about current fundamentals or the prospects for future appreciation.  It shouldn't be used as proof of the best market to invest in going forward.

I agree with @Fay Chen.  If you look at multi's in the outlying areas you should have no problem finding something that hits 1%.  You'll have to make a judgement call as to whether you feel comfortable managing in those areas, but they are out there.  I've been able to hit 1.9-2% on my last couple of purchases (both duplexes in the high desert).

If the inland strategy doesn't appeal to you, it's also possible to occasionally hit 1% with town homes or condos in LA, OC, and SD counties. I've found some that looked promising in Long Beach and Oceanside. The 1% properties in OC were in neighborhoods that I didn't feel comfortable with, lacking in pride of ownership. A lot of times the HOA's have deferred exterior maintenance which is a non-starter for me.

I'm not saying it's easy, but I don't think it's as impossible as many BP newbies make it out to be.  Mostly I would advise doing lots of online research on different areas and pretty soon you will have a good feel for what's possible in these different markets.

I don't own anything in Rancho, but you could try calling several property managers in the area to get their take on the market.  This would have the dual benefit of giving you a head start on PM screening if you are looking to outsource that, plus they might have leads on owners that are looking to sell.  At the very least, it would increase your knowledge and education of this market.

Wow... The comments section on that Business Insider article is just sad.

You will lose the Prop 13 savings on the share of the house that you buy from your siblings. So you will retain the lower basis on your 25% share, but the other 75% will be re-assessed at market value when the deed records.  It might be possible to get around this if there are other assets in the estate (like liquid savings) equal to the share you plan on buying from your siblings.  If they will agree to take your share of those assets in lieu of their share of the house, you might be able to retain the lower basis value on 100% of the property.  In the end, everybody's share of the inheritance needs to be equal or this won't work. 

 I think calling the 2% rule stupid is going overboard.  It works for some including myself. (Yes, I buy multi-families in California that meet the 2% rule.)  The difference is these properties are found in the inland empire and not necessarily right next to the coast. Coastal markets require either playing the market cycles and buying when real estate is on sale, or pursuing a value-add / rehab strategy.  

Any strategy can be misleading and dangerous in the wrong hands.  Lots of appreciation speculators thought they were investing geniuses from 2003-2007, but they soon learned otherwise.  The main safeguard no matter what strategy you pursue is to avoid overpaying for property and to look for deals that are below market.

Looking for 2% in coastal San Diego isn't going to be successful, but I agree with one of the other posters that 1% can be found if you put in the work.  The 2% rule is a rule of thumb that needs to be adjusted to the market.  If you can find a 1% deal in coastal California that meets your other criteria, it's likely to be a successful investment.

 Can you please elaborate why that is?  It seems like those that don't invest for cash flow are the only ones criticizing it.  Well, if you are investing for appreciation or value add, then of course 2% isn't going to be applicable.  Those are completely different business models.  (You can attempt to invest for both, but usually one takes precedence, either cash flow or appreciation.)

But specifically as it relates to cash flow investing, why does the 2% rule belong in the ash heap of history?  It seems like a good rule of thumb as a starting place for evaluating properties.  Sure you can adjust the percentage up or down depending on your market, but if your goal is to invest for cash flow, then it seems like you need to meet a certain baseline rent ratio before an investment will warrant further consideration.

If that rule is met as a screening criteria, then you dig in and start running the more detailed numbers to determine if the returns are actually there to make the investment worthwhile.