All Forum Posts by: Dan D.

 This is what I would say.

1. Financial advisors don't make money on your real estate. To them it's a risk for you, with no income from them. Most would suggest you lower your real estate holdings.  It's just good business sense for them.

2. You have $500k in equity, what's the debt tied to that?  Your debt/equity ratio is your biggest measurement for risk on the real estate. and probably the biggest question on if you are over-leveraged.  If properties drop to half the value, are you still positive, if so, you are probably fine.

3. You have good incomes. If you aren't spending much and continuing to put a buffer into savings / other investments every month, that mitigates any potential risk.  Would you be able to survive on just one income?  If you are making $450k a year and your expenses or $150k a year outside of real estate so your putting away an extra 100-200k a year, you're going to be fine no matter what happens to your real estate.

Overall, I think you are fine.

@Account Closed  Key piece of advice is buy your first house whenever you can qualify.  Then don't live in it.  Rent it out.

If you do that you'll be ahead of most who buy their first house and decide to live in it, limiting the rental income you could be gaining.

Also, rehab can be hit or miss if you either A) love having that as your second job or B) have enough work to keep a strong relationship with proven contractors.  

Go buy a brand new house, rent it out for 5 years, then sell it.  Less maintenance. Better rents.

Not based on any scientific theory, but I am of the belief that in 2030, everyone will look at 2020 prices and say "I should have bought a lot more in 2020 when prices were cheap."

People are "overpaying" for properties right now.

They are also "overpaying" for company stocks.

The reason for this is we are currently in a period of time where we haven't hit the realization of the massive weakening of the dollar that is taking place over the next 5-10 years.

We don't have a housing bubble, or a dot-com bubble. We have a dollar bubble.

Best thing to do during a dollar bubble is to borrow it and buy tangible assets. Some are choosing stocks.

Right now price of a Big Mac is $5.71 which could be considered a bubble in itself, but what is happening is the current value of the dollar is over-inflated and will decrease substantially in the next 3-5 years.  

Say the dollar is 25% over-valued right now, people buying a house at $400,000 are really only going to feel like they paid $300,000 for it in a few years.  We'll have $7.25 Big Macs by about 2023.  But those are harder to keep. Better off buying houses or stock.

Take any profession, any job, and you will find 25% off the top just aren't good at their jobs.  Can't show up. Can't communicate. Can't do basic math.  It's everywhere.  The same would apply to real estate.  I 

I would be curious how much real estate is non-owner occupied.  And of that, what percent became "accidental" landlords.  (Where they inherited the home, or had to move out for whatever reason, job change, etc.  Mainly where the original purchase was not a factor in the investment equation).

I know people get hypersensitive and price is important, but again, people have bought houses for decades and never rented them out.  Twenty years later they consider it one of their best investments.

Past history is not an indicator of future results, but with our debt based economy essentially counting on the constant rule of inflation, it's almost hard to fail at real estate.  The only way to do it is to over-purchase where you can't handle a short term down-turn.

It's not rocket science. You almost have to try to fail, or just be in a bad spot in 2008.

I am asking what the yardstick is on pricing.

Then I mentioned the yard stick investors use for measuring cashflow.  They are not the same however.

I'm sure at one point, there were investors who invested in stocks mainly because of their dividend rate.  Then the late 90's came along, and people found "growth stocks" and "tech stocks".

People made far more in "growth stocks" and "tech stocks" than they ever did in dividend stocks.  Even Warren Buffett's traditional investing style lagged greatly behind the " growth stock" market.

Eventually there was a correction and many of those growth stocks disappeared.  

Then after that, some tech stocks still existed, and new ones popped up.  People decided to invest in Apple, Alphabet (Google), Amazon, and it's not because of dividend rates.

When people invest in housing there are multiple reasons.  Cashflow, tax advantages, appreciation, inflation hedge, forced savings through mortgage paydown, or comfort of life.

In 2015 I could have preached all day that Amazon, Alphabet / Google, and Apple stock were all overpriced because their P/E ratio or dividend rate were incorrect.  I might have been right at that point as to not why to not invest for dividends, but it did not mean that the stocks were overpriced in 2015.

Millennials deciding to seek comfort of life so their pets have a stable home might have far more to do with pricing of real estate than a cashflow formula.

A lot of people saying prices are too high and they'll come down, but what is the measurement you are using to support that.

Markets go up and down.  We're riding up the hill right now on that price chart as we ride the economy.

It's like looking at any stock.  There will be a drop, but if you are going to stand back and wait for the drop, you might be on the sidelines for a decade or more watching prices continue to increase.

I know a couple investors who have been waiting for the drop in housing for 3-4 years now and prices have only shot up.

Also seen people waiting for the stock market to drop in half and if you've bought and held you've been fine.

Property is still cheap, it just doesn't cashflow well right now.

Most people buying real estate buy it and don't even try to collect cash flow.  Instead they just live in it.

I would disagree that 1031's are causing this increase.  Sure, it might for someone but the number of properties being purchased right now to complete the second half of a 1031 I would estimate to be less than 1%.

Regarding foreign investment, the reason why people are investing in the U.S. is because our housing prices are cheap by any measure.

https://www.numbeo.com/property-investment/rankings_by_country.jsp

It's getting easier and easier for foreign investment into the U.S. so it's a no brainer for them to invest in the U.S. at our "cheap" prices with great returns.

People who want to invest are going to diversify.

Stock market isn't cheap right now.  PE ratio of 22 is going to correlate to 4.5% return.  Worst part is, you have zero control of stocks other than to buy and sell.

Housing...  buy cash at $200k to get $1500 in rent payments monthly minus some unknown expenses.  That's 9% gross.  

Maybe the house goes up in value in the meantime.  If inflation continues at 2.5% a year, that's an extra $5k on top.

Seems like a no brainer for people jumping in without much knowledge.  Sure beats burying it in your backyard.

Keep in mind, appreciation is different than inflation.

You can "make" money on either.

Predicting appreciation can be difficult.

Predicting inflation is far easier.