All Forum Posts by: Frank S.

Quote from @Henry Lazerow:

I agree real estate is not the get rich quick scheme many think. It still can easily make 3x the total return of index fund investing on simple buy/hold at 25% down. When house hacking and buying 3.5-10% down you can still make you rich off 50%+ total returns counting mortgage paydown, cashflow, even conservative 3% appreciation, tax write offs. That's what most of my clients do is 10% down. I bought my 4 unit just few years ago 2019 at 5% down and had $80k total in it which now has made me roughly $400k of appreciation+cashflow+mortgage paydown 

Index vs RE is comparing apples to oranges. It's like comparing Index Funds with a restaurant or hair cutting franchise or comparing RE with a 350K year salary.  I understand those two are popular and basic investing options, but they are brothers from different mothers. IMO, there are no grounds for comparison between them.  

I love my purchases, I got my ROI back in a few years. On one, I made all my money back by refinancing. However, I am on the hook for lawsuits, audits, capex, etc. It's great, I can deal with that. I don't care about appreciation, they are cash cows. There is absolutely nothing like that in today's market.

House hacking is having college roommates or condo-like life, roommates are for young people, condo life is for apartment living loving people.   If it suits them, good.  It's not that exciting. 

Appreciation is fictitious value unless materialized at a good profit. 3% appreciation with a 2.5% inflation is not much (0.5% return? even banks pay more). Accounting for the cost of selling 12%, realtor fees 5% ish, 25% recapture tax which is not adjusted by inflation (the longer you hold it, the more painful the tax will be), and CAPEX, the profits by selling a buy and hold are low. Sure, 1031 is out there, but it neglects appreciation because the next property will be just as expensive, then add the transaction costs. A number on paper is not the same than cash under the pillow. It's make believe money.

A recession is not a live or die crisis.  Many jobs will be lost, sure.  But it comes with positive factors such cost of living affordability.  Many people complain for the current high cost of living and rents and want a mechanism to address that.  Well, guess what?  A recession will make that happen by lowering prices and rents.  However, when that occurs, people complain about loosing value.  So what gives? The cycle of behavioral economics will be back. 

 I can't wait to look back at this in 5 years.  It can go either way.

Quote from @Henry Lazerow:

@Frank S. “Over the long term, the average appreciation for homes should be 1% above inflation.” 

Interesting analysis but why do you think housing should follow inflation by 1%? Home ownership is not like a basic commodity for everyone that should relatively track inflation. There is not enough supply or even land for the average person to own homes especially in big cities and as populations grow this ratio will only get smaller. In most cities it’s something for the rich minority to own and majority of people to rent. Our society is becoming even more of a renters world with more and more people renting. 

I find our current situation fascinating.
Things are skewed, but the economics gravitational force will always balance offer and demand.  It's a cycle.   I'm not sure when,  but the signs are out.  The index is not a golden rule,  it is a simple way to try to understand where we were and where we may be heading. 

After the Great Recession, REI took off and we are living the hype stage. As an example is this blog's popularity - selling fake dreams to many- although, it has a lot of good info, too. As a behivoral economics study, it would be amazing to cross reference this blog's growth in Google searches, membership standings, book sells, etc., with the current housing market (bubble) price increases. Then, see how it cools down afterwards. But then, it's not a bubble officially until it pops, and it hasn't popped.

Many made  (and will make)  a lot of money  through RE. Most millions are made during recessions, anyway.  Check American Homes 4 Rent, how they engulfed thousands of properties and recently threw the towel cutting back 80%. They got data.   Also,  look at the plunge reported by the National Association of Homebuilders. Months of supply will continue increasing. Look at smaller mortgage brokers merging to survive.  Re and refi layoffs follow.

The Feds may throw another 50 basis points by the end of the year. The cheap money party is over and the hangover will follow.

I was lucky getting a few things a few years back,  but right now it makes absolutely no sense to buy more. It's not worth my time for the RoR at current valuation.  I'm not in a rush. 

I don't think we will ever see cheap 2011 prices, but 2022 is absolutely crazy.  It's insane.  IMO, current Re is like buying a used car and sadly, many people believe their "beaters" with 30 year mortgages will make them rich.  

Quote from @Henry Lazerow:

@Frank S. overvalued? Many of the really hot markets such as parts of FL, CA, etc. have seen a price drop in last month but chicago A/B multiunits have not seen any price drop (we also never saw the crazy appreciation of some areas). It's extreamly unlikely we see prices in A/B areas of chicago fall especially in the 3/4 unit space which cannot be easily or affordably built creating very limited supply that has been falling year over year due to single family conversions/tear downs. Agree that transaction costs are high in real estate and you should only buy if plan to hold 5+ years or do a value add where you create equity.

Over the long term, the average appreciation for homes should be 1% above inflation. Sure, things are out of whack right now, but looking at the S&P/Case-Shiller U.S. National Home Price Index , I highly doubt prices will continue growing indefinitely.  The chart makes 2008 look like a little pop in the megauniverse of bubbles. 

The downward pressure of high interest rates will lower property valuations. The cheap money hangover is lurking.  A housing deflation could eventually reflect cheaper rents.  Buying at a peak and then having lower rents over time may not be a good financial strategy. 

I don't know if there is a magic number on how long to hold - 5 years with no cash flow and negative appreciation could  be a waste of time and energy.  My goal is not to sell, recapture tax at 25% flat, is no fun.

I don't have metrics for current Chicago RE. Months supply, YoY. It's all supply and demand.

Quote from @Account Closed:

I’ve been lurking on these forums for a long time and I think we’re ready to begin investing within the next year. 

We are looking to invest in MFR in Chicago and the surrounding burbs. Our criteria is as follows:

A/B class

Minimum triplex

Property will appreciate over time

will easily resell if need arises 

generates some cash flow after all expenses including property management

What areas should we be looking at? We have around 200k to invest. 

Honest comment with good intentions.  You are not ready. 
- Your search is to broad. 
-  Quote: "property will appreciate over time" Really?  With rates going up, it will likely not appreciate. 
- Quote:  "easily resell"  RE is very illiquid and comes with high transaction costs. It's not easy to resell unless you can sell at a huge loss.
I'm sitting on cash rotting away by inflation, but I prefer that than buying current overvalued properties with poor returns. 

Quote from @Michael K.:

So the problem was that the previous tenant wasn't going to be able to move out on time? How was their lease written?

 It was a miscommunication issue. It was my fault. Fortunately, the tenant wanted to leave early, my new tenant moved on time, I got an extra $100 for the unit, and it was rented in one showing. 

Win, win, for everyone. 

The imaginary gods of real estate are on my side!  I solved this with one call. 

I called my current tenant, he said can leave by Sunday. He was going to finish a paint job and clean, I told him to not worry about that.  He wanted to move out early anyway. 

I sent a message indicating that he didn't have to do that, but we appreciated the offer to move by Sunday.  In case, he gets a lawyer involved saying I kicked him out. 

Next tenant moves on Monday. 

Problem solved.

WOW!!!

Howdy, 

I am in a pinch.  The unit rented for 8/1/2022 will not be ready. I messed up a few things.   It will take about two weeks, if I am lucky. I can't deliver possession. 

I have the following clause, 

7. Possession. Landlord shall deliver possession of the Premises to Tenant on the
Beginning Date of the Lease. If Landlord is unable to deliver possession to Tenant on
such date, this Lease shall remain in full force and effect except that the Monthly Rent
shall be abated pro rata until possession is delivered, unless Tenant elects to maintain
an action for possession of the Premises or, upon written notice to Landlord, elects to
terminate this Lease.

Per the above, it seems, I can offer to prorate rent and they can move when ready.  Also, they can cancel if they please with no penalty to either party. 

What would you do in this case?  I haven't called my future tenant.  I think this person has flexibility, but still.  This is bad timing. 

However, according to Google.....

What if I sign a rental agreement and I can’t get the apartment ready for the tenant when agreed?

Answer
If the apartment is not ready for the tenant when you agreed, the tenant may terminate the rental agreement upon written notice to you, or the tenant can file a legal action against you for possession and recover any damages the tenant may have sustained. If a Chicago landlord’s failure to deliver possession to the tenant is willful, the tenant may recover up to the greater of two months’ rent or twice the damages sustained by the tenant.

Can I get in deep waters here even with clause 7 above?

Geez...

F

A few years later.... jump to 2022

I paid 69k and 120k for buildings going now for $215 and $260 thanks to people looking for fictitious appreciation.

This frenzy ruined investment options in Little Village. It's not worth it anymore.  The rents don't justify the purchase price. Not worth my time. 

Thank you for the information.   The last rehab I did was several years ago and I'm definitely getting a sticker shock. Also, my frugal personality is keeping me in check. 

I'm seating on cash waiting to pull the trigger on the rehabs, but they are not urgent.  I would buy a rental building, but the returns are too low to even bother.  The work needs to happen sooner than later - one of them is my home. 

I may have to face the music and do it this fall.  A good old stock market collapse and a recession are welcomed, but it may take time to see the results.

(Oh, and forget about buying a new car...)

Again, thanks for the feedback.

Hi BP Heads,

I have a duplex down, kitchen, bath,  and garage project in mind in the north area ( I had been postponing for a few years) and kitchen/bath, aesthetics renovation in Little Village.

Have the construction costs cooled a bit based on the increased rates or is this still too early to notice?  I recall wood, and everything else, was very pricey last year.  Contractors were super busy - hence, higher rates.    E.g., I had a 30/hr carpenter that is now asking 60/hr. He is not worth 60/hr.

I received a few leads for architects and contractors, and I am open for more leads, but constructions costs are making me scratch my head.  

What does your crystal ball tell you about Chicago costs?

Thanks, 

Frank