All Forum Posts by: Chris John

@Greg R.

Oh, come on.  It's not like he invoked Godwin's Law.  haha.

@John Carbone

Beat me to the punch!  haha

@Tony Kim

"And I don't understand why BlackRock was singled out in those semi-recent articles."

I only used them as an example because I have a right wing conspiracy buddy that won't shut up about how only corporations will own houses from now on. I've actually defended BlackRock in my conversations with him.

@James Hamling

"Why? Why would they "have to sell". Do you understand at all how funds
work? They are the most liquid holders of real estate bar-none. They
would be "the" ones to just hold. They have the least leverage of all."

Welp, James, it's a pretty self-explanatory question, no?  I give money to a financial advisor, it doesn't make as much as I wanted, so I ask for it back and move on to the next investment?

Are you under the impression that they take my money and buy a house with it, but still have my money to pay me back if I decide to liquidate? 

Also, please understand that this is apparently enough of a concern that  BlackRock is currently limiting withdrawals as we speak in the UK:

https://www.bloomberg.com/news...

I literally had no idea that this was actually happening.  It must have been God's gift to me to help counter an "armchair quarterback".  LOL. 

And finally, I think you think that teacher left you in charge of the class.  Didn't happen and we're fine...

@James Hamling

Makes a lot of sense as long as an institution somewhere has the money to liquidate.  I couldn't agree more about them not wanting to flood the market if they could avoid it though.  I remember banks sitting on houses for months, even years, out here in the central valley of CA to try to mitigate the supply.  

@Carlos Ptriawan

That ratio is crazy!  Wouldn't they have to sell though?  I mean if everyone pulled their money and walked?  They'd have to get cash to liquidate the selling positions somehow, no?

Wow.  Lot of interesting points and passion on both sides.  Very good stuff.

For me, it could go either way.  On one hand, all that really matters is payments.  I'll pay you $100,000,000 for a house if you let me pay $100/mo for a million months.  Shoot, I'll pay you $100/mo for eternity - I'm just that kind of guy.  The incentive to walk away from an upside down house in 2009 was great.  "I can get the same house for $1,000 cheaper and I won't owe an extra half million dollars?  See ya!"  The incentive to walk away from an upside down house in 2022 probably won't be as great if you're locked in at 2.25% on a 30 year fixed. Who cares if they're upside down? They're not going to eat $1,000 a month to make their balance sheet look better.  For that reason, no inventory and prices don't drop.

On the other hand, what happens when BlackRock type institutional investors decide their returns are too low and want to liquidate their accounts and move into equities?  Will they be the ones forcing sales and flooding the market with properties?  A few months ago, everyone was complaining about institutional investors buying everything up.  Well, those evil institutional investors are just "Joe the plumber" making retirement investments.  If his money isn't making money, he may up and move it.  For that reason, tons of inventory and prices drop.  Honestly, I'm not sure how much inventory institutional investors are holding right now...

@Everett Stephens

In that case, your only choice of action is to get on BP and humble brag.  haha.  Just kidding.  Congrats!  That's awesome!

@Nathanael Tinaya

Obviously, everyone has different numbers that work for them.  I'm lazy, but this is how I do it:

Step 1- I calculate how much money I'll have in the deal (down payment, renovation costs (we try to get durable finishes like tile, semigloss paint, etc.), etc.).

Step 2 - I'll calculate my expected yearly income (based on 100% occupancy) once the units are turned (meaning they're shiny and fresh with tenants paying market rents).

Step 3 - I'll calculate my known yearly expenses (mortgage costs, insurance, taxes, management fees, etc. - I actually ignore CAPEX, vacancies, maintenance, etc. as I've never been good at guessing these. I'd rather just make enough money to reasonably pay for them regardless of what happens).

Step 4 - I subtract Step 3 from Step 2 to get my expected yearly net income.

Step 5 - I divide Step 4 by Step 1 to get a rough idea of my best case scenario of my return on the cash I'm actually out.  

I want this to be 15+%.  If it is, I'm good to go.  If it's not, I either try to negotiate a lower price or find something else.

For me, I've found that 15+% provides enough cashflow to pay for vacancies, CAPEX, maintenance, etc. and still leaves a little left over for profit. I will say that when we get a new unit, we try to make it durable and "bullet proof" with finishes that will stand the test of time to tenants (tile, semi-gloss paint, etc.) to save future monies.

Please note that for me, cashflow is nice to grease the wheels, but we've made more money in appreciation.  If I were trying to buy in more of a cashflow market where I figured that's where most of my profit would come from, I'd probably insist on more than 15%.

I hope this helps and please note that I'm definitely an amateur.  I like real estate and what it's done for me, but I'm a very low effort investor.

Best wishes

@Nathanael Tinaya

This is a total guess based on the numbers presented, but I think you'd be pretty exposed if you purchased a million dollar property that generated 8k a month with 100% financing (between the first and the HELOC). Rates are pretty high right now (based on the past couple of years, not historically) and I don't think you'd have a ton left over each month to cover the BS that occasionally arises with being a landlord.

Also, arguably, prices might be dropping and interest rates might continue increasing, so you might find yourself in a worse financial position in a year or two with being upside with higher payments.  A tenant or two skips a couple of months payment and the wheels might come off if you don't have proper liquidity.

Again, this is just a guess and I'd definitely kick the tires on it to satiate my curiosity if I were you.  If the numbers aren't good enough, don't be afraid to keep looking though.

Good luck and best wishes

@Austin Smith

Commiserations from CA.  I could've written a nearly identical story out here.  Lesson learned and my new money is going to Florida.  To heck with these states making the owner financially responsible for themselves and the tenants while the tenants don't even have to be responsible for themselves.

Good luck and best wishes