All Forum Posts by: Kevin Maher

What is missing from all this discussion is actual data.  What has happened in the past 90 days in SF or Colorado.  In my market NW Fl inventory went from less than a month to 6 months of inventory over the past 180 days.  With about 3 months showing up in the past 90 days with a 50% decline in sales.  So with fewer buyers and more choices only the best deals close.  Lowest price for the best house.  The price is declining.  Ask a local realtor for some real stats broke down by the month over the past year.  More inventory the lower the price.  You were all screaming a year ago no inventory higher price and now you can't see the opposite in front of you.   Where is the data showing a increase in the median price in the past 90 days in your market.

In every recession in my market of NW Florida the 2nd home market crashes.  And as a wise old appraiser explained was drop tourism and a drop finical stability of owners results in getting rid of the most risky asset there 2nd home.  And they are mostly financed on Arm loans.  As they have to refi and lower rental incomes will make that difficult to cash flow.  They put it on the market.  Also these people typically are higher earning individuals with better awareness of the general economy and stock market.  Inventory has increased in this market to 6 months in the past 6 months when it was at less than a month.  Sales declined 60%.  So no buyers and the developer still has them going up.  Equals a foreclosure coming.  This is just like the stock market.  People know we are at the peak and are putting more inventory on the market.  This will result in laid off construction workers.  Supply chain in construction will self correct. This will take another 1 to 2 years.  Interest rates are going up and will stay up.  I lived thru the 70 and 80's.  It was nasty.  You are betting a lot on a govt that caused this and said it wasn't going to happen that they will get the correcting part right.  I sold my house bought a rv and taking the next 2 years off.  I made  1mil off a 450k house after 4 years.  Thats nuts and can't keep going. Common sense.  The 2nd home market will crash.  And if rates stay at 5% the price will have to drop 50% for the same buyer to be able to buy.  And that will happen over the next two years or higher.  Layoffs are starting.  UPS is laying off, Amazon.  These people see the writing on the wall.

you need to take into consideration financing cost over the next several years.  If you don't have your properties on 30 year notes your payments are going to sky rocket.  Better hope the rent keeps up with the new numbers.  A recession means the average joe has less money to spend.  So don't you think rents will come down they did in 2008- 2013.  So higher payments lower rent does not equal success.  It is not a good time to buy a house at the top of the market anytime unless you going to live in it and stay in it for years and the average person does not do this.  Average ownership a few years ago was 3-5 years.  

I told people in 2006 the market was turning and would crash.  The realtors laughed at me.  The housing market has collapsed multiple times in my life time.   It is not just the interest rates the feds are raising.  The real rate to mortgages is decided by the bond market.  And there they are doing Quantitative Tightening which is driving up the interest rate.  This they are just started last month with liquidating 45 million of bonds and going to 90 this month to reach a goal of taking around a trillion out of the economy by 2023.   This is how they put 6 tril in the market issuing the bonds.  Now they are taking that money back.  This is what propelled the high stock prices, bit coin, and real estate.  Now they want the money back.  What will 9% interest rate do to the economy you think.  I am not saying don't ever buy RE what I am saying is now is not the day to buy.  If you are patient and only buy good deals then you are letting money sit on the sideline until the right deal.  You need sit longer now due to inordinate amount of downward risk on prices.   

The market has to come down. The writing is on the wall. By the time most figure out it is declining it's to late to get out in some market, specifically second homes. We are in a recession with high inflation with more coming. They giving out half to a trillion dollars in loan repayment. This will push inflation higher. Look at the 70-90's it is a repeat for the most part. Powell has commited to continued increases in rates. Saw a graph yesterday showing rates going from 5 to 18% in little over a year. Buyers in the second home market in NW Fl have left and gone home. No buyers inventory has tripled in past 90 days. In a recession the last thing you need is a second home. Second car for the kid turning 16 more so. Business has cycles and you need to learn to see them and the indications. Also many say follow your gut. Well my gut said sell the house, buy a rv and travel the country for the next 2 years. Took all my money and putting in short term treasures. I bought a house for 500k and sold 4 years later for 1.5 mil. That opportunity does not hit but a few times in life. Seize the day doesn't means always buy. Most people on here are so leveraged that there is no equity. And that is where the problem lies. Many are not but they have been doing this for many years and can hold out. The ones that can't will collapse like a deck of cards. Big investors have stopped buying with many selling portfolios currently. The housing down turn wills first hit 2nd homes, then as prices decline along with the coming REO's due to high credit cost, ie credit cards, car loans, on the common man. Then banks discount typically 15 to 20% for a quick sale and bam you have a full blown crisis. NON QM loans are drying up. How are you going to refi if interest goes to 9% and you can't find a lender? REO's There was no repercussions from the short sells and reo's in last down turn. So what will stop the guy from paying a mtg on a 500k house when it is worth only 400k and going down. They walked last time and I believe they will run this time sooner. I was shocked went to a little birthday party in 2010 for my granddaughter in Orlando. Variety of neighbors and relatives. Many were talking about the housing along with my son about just giving there 500k houses back to the bank because they were down to 250k. These people made 150to 250k a year in salary's. They could walk across the street and rent a house for less than there pymts. I was saying it will ruin your credit. Over half walked from those houses. I convinced my son to hold on to his house, rent it, and go buy a much bigger house for a bargin. 6 years later he sold both and made a handsome return. Prices are going down in most major markets now. We are at the peak. IF YOU WANT OUT AT THE TOP OF THE MARKET YESTERDAY WAS THE DAY. It is either going up or down and never stays the same for long. It went up, has leveled off and now starting to go down. Housing has become the stock market now. It used to be a investment for the rich, but now everybody sees it as a investment. If you are a investor you need to be following the feds, stock market, bond market and all the financial news you can swallow. Typical middle class neighborhoods hold up the best in downturns. Low end will really crash as well as 2nd homes. My 67 years of age and life experience tells me now is the time to sale not buy.

Let me explain something here in regard to the value. It must be legally permissible. So can you in Calif rent to the general public the DAU or is it restricted to family members. In my area of Florida for the most part you can not. Unless it is in a resort area. This is not about the appraisers. We work under guidelines set by a variety of Govt and Bank instructions. They dictate what is and what is not GLA and valuation methods for Govt backed loans. If you use a hard lender they can use anything they want. It is there money hence a higher interest rate (more risk). A investor does not set the market typically as the predominant buyer is owner occupied. So they are the market and make the market. The general buyer doesn't value these units like you do regardless of how you feel about it. This will never change. They are the big dogs in the market so to speak. So you will never get the valuations you think they should be. The general market, by listening to all the complaints here, is telling you they don't think there is much intrinsic value in a mother in law suite. Who on here wants there mother/father in law in the back yard. You will put up with it until she drops dead which is what the Dr. keep saying is any day now and to only reason you let her move in. It's humor. But it is reality. Most of these structures today outside of the investors are built to house a family member for a temporary time period not 30 years. Once they are gone its storage. And how do I know. I appraise them, see all the time. This is the same as back in the 40-60's a detached workshop garage was the thing. Who wants one now. People don't even want yards anymore because they don't want to take care of them. Look at new subdivisions. Now quit belly aching about the value and start hunting every house in town that has one and buy it. You get your second rental for pennies on the dollar. No it will not ever go up any more in relation to a similar house without one. If it is weird and cheap when you buy it it will be weird and cheap when you sell it unless you can miraculously transform it. These are killer buys for you not just good for loans. These apparently are gold mines for the investor because where can you get a discount like this on a rental. I would not be building these. You want to buy existing to get the discount. Spend 150 to build it and you can buy it for 25k. I would never build one as you are not going to be able to pull any of your equity out. Go to property appraisers web sites and bring up aerials of areas of town with properties built in the 30-60's and you will find them. But back in WWII around military towns there tons of these properties because they rented to military cadets there for training. Also I would think this would reduce the rents from the main house. If I rent a house and have to put up with strangers in my back yard while I BBQ I am not paying as much as I would for a typical detached SFR. Just saying. But this is Florida and not California. Rental are going to sky rocket there I would think with the new immigration plans. You are 1st stop and they are going to need a place to stay.

My two cents.  I work in a very heavy short term rental market.  Here is the problem with using this data.  Where do you get it.  If you are going to compare the value based on str income you need to some like kind comps.  Lets think condos.  So these are handle primarily thru small rental mgmt companies.  Then there is the Airbnb people or FRBO folks.  No mgmt company will release the data because it is private and they aren't going to the trouble of even asking the owners.  You can't go on line and get historical info for the past 12 months.  So when I have to do a investment property for the bank and they want a rental analysis the only data available in mls is long term rentals and it can be a third of what short term brings easily.  I work in a resort area.  Most local bankers understand this and don't order the appraisal with considering the rental analysis.  And then again a property is only worth what someone will pay you for it.  So the sales comparison approach is the most valid just about always unless there are no sales.  Also be very wary of what you get from a seller or his agent.  You can't verify it generally.  The rental mgmt companies will paint a very rosy picture to get your business.  Then there fees very from 15-30% affecting your net income.  The mgmt companies marketing ability plays a big roll in occupancy and your bottom line.  As well as a FRBO or Airbnb.  What if previous owner just not good at marketing the property.  Or he is exceptionally good and you will need to match that effort for you to get the same return.  There are some many variables in the short term.  Quality of property, size, age, design, amenities, distance to attractions, and reviews all play a part.  I have seen in a older project that units with a old style tv would rent for less than one with flat panel tv.  These are one bedroom one bath condo's in a resort at the beach.  Once again data is your friend.  One last thing for the person that has a appraiser doing a inexpensive cost approach only for value, find a different appraiser.  Cost does not equal value.  Buyers don't shop based on cost unless they are hiring the builder.  

I am a appraiser in Florida.  The best metric to watch is local sales and listings.  If sales are increasing and listing decreasing not hard to see.  But watch for when either or both happen.  Sales start to slow and/or inventory is increasing.  Sort or research based on the property type you invest in.  Every month call your realtor and get updates on different areas of town the whole town.  You need to see the data.  I could tell the market had started turning in the end of 05 in my market.  Couldn't believe I was the only one seeing this but I was fixing to buy a large package of lots and start a development.  Best thing I ever did was nothing.  To this day I see most appraiser don't even considered this data. 

Have you considered a appraisal?  The railroad tracts influence the value.  So by how much is the question.  Ask the realtor or broker how much does those tracts hurt my property and they do despite what you are hearing.  This is what a appraiser calls incurable functional obsolescence.  How many buyers stand there and look at the tracts and tell themselves little Johnny will love play dodging the train.   It's a problem.  So what is the discount, because it is something.  People don't like power lines, trains, busy streets, crack houses, commercial business's next door.  These are things you need to considered when you buy the property.  You better be getting a big discount when you buy so you can discount when you sell.  Every broker knows there is a train track on that street and won't show to a family with kids because they know it's a problem.  It will be a young couple or single person that buys this house I bet.   So look for a house that is similar to yours that has SOLD that is next to train tracks and you have your answer.  When a appraisal is done for a loan this will come up and the appraiser will have to address it.  This is why lenders want a aerial of the property in the appraisal.  They want to see if there is anything across the street that is a problem.   Lender will want to see how the appraiser addresses this issue and what impact there is on the house it's marketability and value.  As you can tell there is a marketability and value problem.  

It's not financeable without clear title.  Few lenders doing short sells I would imagine.