All Forum Posts by: Account Closed

Markets provide price signals and an inability, or failure, to respond to those signals lead to poor outcomes.  Cost of housing is a true problem for most of the country and we all suffer in the long run if a very high percentage of earnings go towards housing for a majority of Americans.  That leaves less money for savings, healthcare, education and general consumption.  Local governments should relax rules on apartment construction and local communities should reject NIMBYism of these properties.  If there is a true market failure, state and federal governments have an important role to play in the form of incentives (subsidies, tax credits) or safety nets (vouchers).  Any long term "take over" of rental housing will not be top down by government edict.  It will be bottom up in the form of ballot measures that citizen groups (whether misinformed or not) will propose and it will vary widely by region.   

Matt, how the previous owner maintained the building is usually more important than the age of of the building.  I own several from the 1800s and it's often the case that very little remains from the original construction other than some of the bricks.  Several others have pointed out the key issues to be concerned with but overall I would not be scared of an older building, especially if you know what the issues are when you make a bid.  The key is to reduce information asymmetries and you can really only do that with quality inspections and baking in a decent annual maintenance budget.  Don't expect to have much cash flow in the first couple of years.  

Deryck, is maximizing return on equity one of your real estate goals?  Divide your annual income from the property by the equity in the property.   Sensitize that based on how much equity you will have after you pay down a certain amount of debt.  ROE falls as leverage falls.  With your super low interest rates, paying down debt faster than the amortization schedule calls for is illogical from a return on equity perspective.  If debt makes you anxious and unhappy, then of course pay it off as fast as you can, but don't do it because it's a wise investment decision.

There is increasingly frequent chatter about a real estate bubble and impending crash.  I think projections like this are often misguided and counterproductive.  Here are a few thoughts and I would love to hear what others think.

Real estate is cyclical and there will be ups and downs caused by interest rate movements, mismatch of supply and demand and general economic conditions related to expansion and recession.  This does NOT mean that asset appreciation is always a bubble.  I fear that too many people are succumbing to recency bias (availability heuristic) owing to the memory of the last housing-led meltdown.  Nationwide housing bubbles and crashes are extremely rare so why are many people predicting one as if they come around every X number of years or so?  Let's distinguish between bubbles in items with little and fickle real demand (like tulips, speculative land, dot.com start-ups, crypto) and real estate.

Have single family home prices far exceeded gains in incomes?  Are buyers not bringing equity to the table like during the years preceding the last crash?  Are many buyers expecting and relying on appreciation as their only path to profit?  Is construction far outweighing real demand?  Can we have a crash while interest rates remain low?  If there is a recession and interest rates remain low, would cap rates on multi-families increase more than 100-200 bps?  Are buyers of positive cash flow properties being irrational if those dividends exceed dividends of other asset classes today?

To be clear, a recession could occur, home prices could fall, cap rates could increase (and multi-family prices fall), banks could tighten lending standards, etc, but right now, market participants are making rational decisions based on the information they have and cash flow can service debt without relying on rent appreciation.  Markets that are richly valued predict low returns in the years to come--they do not predict the timing of a crash.  There are many scenarios regarding returns over the next decade and I don't see why a near-term, nationwide crash would even be the 4th or 5th most likely scenario.      
   

Hi Charles, sorry I missed this. Do you do an event every month? I would love to attend the next one.  Thanks.

Colin