All Forum Posts by: Daniel Netzer

Yes, I'm part of several groups here in Michigan, and I've noticed that many property owners are selling their properties or not re-leasing properties arbitraged because increase in leasing prices. The market is currently over saturated, driving prices down, not leaving much profit.

Unregulated STR markets are in the midst of taking a big haircut, IMO. Others with a higher barrier for entry will continue to be just fine.

0 Votes

Fairfax, Virginia

It depends on the market. It appears that average listings in over-saturated STR markets are taking a dip. i.e. Arizona, Texas, Tennessee, and Florida. I'm in a highly regulated STR market, so its up and to the right only.

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Fairfax, Virginia

Good news, guys: housing affordability is the same as 40 years ago. If this is true, it appears that our expectations have mooned, not prices: https://twitter.com/dvassallo/status/1698740626324635707?s=1... LOL

"What got inflated was people's desire for bigger and more luxurious homes. The median new house today is almost 1000 sqft bigger than 40 years ago."

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Quote from @Collin Hays:

Quote from @John Carbone:

Quote from @Kyser Montalvo:

@John Carbone I like your breakdown. I just have one question. Why would rates go higher if rents go higher? I feel like that's a self-defeating situation for the fed.

If rates go higher more people are gonna be priced out of the housing market and forced to rent. Therefore pushing rents higher. Thus rent inflation increasing. Tell me if I'm missing something, but with real estate being ultra rate-sensitive I don't see how the fed can stop this self-eating snake if they are looking to stop shelter inflation.

Yeah it’s not an easy thing to accomplish from the fed since they left interest rates too low for too long to finance the covid giveaway money for sitting at home.

Higher rates will slowly lead to more job loses/higher unemployment. Just Friday we finally saw the number tick up from 3.5 to 3.8 percent. It’s a slow process, but each month that passes with elevated interest rates like we have the economy gets squeezed harder. With higher unemployment, you get the pullback in rents due to demand softening. Humans are adaptable if need be, it’s not their choice to live with parents or roomates but it happens when economic conditions require it. This happened during 2008-2012 the college graduates then were the butt of jokes for still living with their parents. We have a housing shortage based on convenience and it’s essentially a first world problem.

also, there are many developments going on across the country to bring more rentals onto the market. Vacant high rise office buildings are being converted to apartments at a very cheap entry point for developers and many people are living in RVs right now across the country and that number is constantly going up. all of this puts downward pressure on housing rentals at the entry level point.

home builders are also building at record levels right now to meet the demand that’s out there with 2 year teaser rates to keep the payments low. They are building these as cheap as possible to keep costs low to get sales.

on the single family home front, investors are pulling back drastically on home purchases to rent out.

https://www.redfin.com/news/investor-home-purchases-drop-q2-...

we essentially have a “have” and the “have nots” economy now. Those who bought with sub 4 percent mortgages are in the “have” camp and those who do not have those favorable terms are the “have nots” life isn’t fair sometimes but it is what it is. Essentially if you listened to Dave Ramseys advice you have shot yourself in the foot twice and you are probably set back a decade or more in wealth.

Trying to fight the math won’t change the outcome. Either wages need to rise astronomically, which data suggests it’s falling ….or asset prices need to fall….or the fed needs to go back to rate cuts and risk inflation spiraling out of control to keep asset prices elevated long term.

https://fortune.com/2023/08/29/salaries-raises-new-hires-dec...

I’m not selling my holdings because my interest rates average mid 3s.

Really good analysis.

"Home developers are building at record high levels." Are you sure about that? I'm seeing the opposite as carrying cost is taking a toll on many.

1 Vote

Quote from @Dave Kush:

I'm interested your recommendations for a wifi door lock. Is there a certain one you really like for STRs, and what do you like about it? Thank you!!

I use Yale, and it works well with my Guesty and Airbnb property management integrations. Battery life isn't the best. Probably about 2-3 months.

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Quote from @Shekhar Ramaswamy:

I have a rental property that has approximately $520K in equity. Currently the cash on cash is almost 30%, but that is also because the purchase price was only $240K in 2004, with 20% down. If I cash out refinance and go back to 50% LTV the cash flow goes to almost zero. If I then use the cash as 20% down for a second property, I will most likely be cash flow negative (in Phoenix) due to the high interest rates. This feels like going backward. What am I missing? Is there a better way to evaluate if taking out the cash and reinvesting will actually give me a better ROI than where I am today?

It certainly gets harder to pencil out profitable leveraged deals with these rates, but it's doable. You have to be more aggressive while also having the mindset that you can front-run a future rate cut, helping you get in on a deal that will be too expensive after the fact. I'm doing this for a sale that includes a short-term rental permit in an area where they are tough to get while the STR pool is decreasing and the STR market continues to increase. This mitigates the risk quite a bit.

0 Votes

Phoenix, Arizona

Quote from @Collin Hays:

In the Smokies, the average sales price has declined 25 percent YOY. That’s a chunk, particularly for the 2021 and 2022 buyers. I look for another 25% decline in the next 12 months.

This really isn't that difficult: Prices will continue to decline until new buyers decide it makes economic sense to buy with a 10% APR loan. That means we've got a lot more downside in prices.

This seems like one of the less regulated FOMO STR markets that spiked over the last few years. Makes sense that it's going to tumble down a bit.

1 Vote

I like the gamble because it's hard to imagine rates not dropping over the next few years, at which point we'll see 5 million qualified home buyers per point, driving up demand and prices while you're able to reduce your carrying cost.

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Quote from @John Underwood:

Quote from @John Carbone:

Quote from @Daniel Netzer:

What's a reasonable cash-on-cash Short Term Rental return with 7.5% rates nowadays? Feels like 12-15% is solid, while we expect to refinance in the years ahead at a point or two lower. Any strong opinions?

the days of the 10 percent down 2nd home/STR loophole are closed. Fannie Freddie added several origination points to these loans to make them more expensive and rates are obviously higher. If you put 10 percent down now, you very likely will be negative each month. There will be exceptions, but very few.

also For every dollar you invest now in a rental you have a 4-5 percent opportunity cost with bonds to factor in your equation.

Great point about the opportunity costs. There are also high yield money market accounts paying 4.5 and 5%.

Yeah, but you have to factor in the opportunity cost of lost appreciation/yield of a real estate asset acquired today at tomorrow's reduced interest rates. Nobody has a crystal ball, so that's the gamble.

1 Vote

Quote from @John Carbone:

Quote from @Luke Carl:

When my parents bought their first house their rate was 22%

These rates aren’t high. It just happened quickly.

I hear this argument all the time from people but it is a loaded answer. What was the asset price of your parents home when they bought and what was their household salary? The old timers I talk to usually have a story of “I made 20k a year and my house was 60k”, now you talk to younger kids who don’t already own a house and they are making 60-70k in a decent job but they are needing to pay 500k+ and they are spending half of household income on shelter. I’m sure you know what needs to happen in the long run to get things to equilibrium.

ever since the fed started raising rates the market has been predicting a stop and rate cuts since we were at a 3-4 percent fed funds, now we are nearing 6 percent and no guidance on cuts, but the “market” still doesn’t believe it. It’s the belief that rates will go back lower that is keeping asset prices higher. If we had 22 percent mortgages like your parents did (even 6-8 percent) and the duration was known to be several years of it, asset prices would collapse 50 percent in both stocks and real estate.

Not sure I follow you. Are you saying that if we ( the market ) knew we were staying in the 6-8% rates range for several years, the market would drop 50%? It doesn't work that way... Unless we have a sharp recession or a huge influx of inventory. Prices are staying here and will continue to creep upward, even at 7%+. Assuming all else being equal.

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All Forum Posts by: Daniel Netzer

Daniel Netzer has started 6 posts and replied 62 times.

Post: STR Rental Prices Falling and Inventory Opening Up, Anyone else noticing the same?

Post: STR Rental Prices Falling and Inventory Opening Up, Anyone else noticing the same?

Post: CoC returns in todays high rate environment?

Post: CoC returns in todays high rate environment?

Post: Wifi door lock recommendations

Post: Impact of Cash out refinance to reinvest in a second property

Post: CoC returns in todays high rate environment?

Post: Thoughts on New builds for Investment properties?

Post: CoC returns in todays high rate environment?

Post: CoC returns in todays high rate environment?