All Forum Posts by: Grant Tyler Short

All good questions from other posters.

1) Is this a primary residence or secondary investment?

2) If secondary, do you have a contingency plan to fund this asset's negative carry? I.E. if reliant on a W2, what do you plan to do if you lose that W2 salary position?

3) Are you counting on appreciation? In general, RE realized the largest appreciation rate post pandemic due to easy money spurring investor demand, and depending on the market, the mass wave of demand entering into the STR market. Many STR bull markets are now equilibrating however the run up in home prices with valuations based on old STR projections/interest rates yet to wash out. Is your property impacted by this market dynamic?

4) Are you in a negative rental appreciation market? For example, in AZ per flexMLS data, the rise in the number of rentals has increased from 2,000 units on 1/1/24 to nearly 4,300 listings, not counting the explosion in supply FS on the MLS. This has caused an 18% decrease in "asking" rental rates since March of this year. That is significant. Is your market vulnerable to this? Or better yet, are you prepared to buy with a negative carry where that negative carry can grow in magnitude?

So you think it's wise to advise someone to enter into an agreement where they have $606 after tax dollars to spend on the rest of their living expenses?

I suppose if your plan is to scoop up his foreclosed property later on. In that case, I see the angle. 

 Hmm, I am so glad that you brought this up. I am a pharmacist by trade but have an ecommerce S-corp side business doing ~$500K gross sales per year, along with a YT channel. The e-commerce platform gives me ~45,000 views (over 1M impressions per month), the YT channel is smaller, ~20,000-30,000 views depending on how much content I push, but the thought of turning that into a blog has always been in the back of my mind. Lots of views that likely would carry over to a blog. Seeing these traffic numbers is motivating. Thank you for sharing!

I almost wonder if this question is a plant of some sort just to gauge the types of responses it would generate, so I'll take the bait in the even that this is a bot or troll (full disclosure, my career is not in any way related to the success or failure of the RE market). The math on this is simple as others have alluded to. I'll break it out for you.

Gross Salary: $80,000/year

Gross Salary per month: $6,667/month

After Tax Salary per month (not including 401k investing (which you should be doing, but I get this is a real estate message board and this concept is not popular): $5,434

Purchase Price: $600,000

Interest Rate per Calculator: 6.941%

Downpayment: 5% or $30,000

Financed Amount: $570,000

Mortgage: $3,769.67

Property Tax: $600

Insurance: $125

Other Costs (per calculator): $333.33

Total Monthly Payment: $4,828/month

After Tax Salary - Your New Homes Cost = $5,434 - $4,828 = $606

CONGRATULATIONS, you are what is referred to as "house poor." You have $606 after tax dollars to spend on the rest of life's expenses, including investing, buying flowers for your significant other, cell phone bill, water/electric/vehicle expense/food/childcare/hair cuts/vacation. But don't worry, in 15-20 years salary appreciation at a modest rate of 2-3% will give you an extra grand give or take while you get to look at all that property appreciation taking place as more $80K salaried workers like yourself who are told to "buy now" driving up prices from $600K to $700K to $800K, maybe even a million! Eroding ALL of their marginal income after housing costs, all for the sake of being told to "get in now." A couple of points:

1) Do not listen to a commission based RE agent or mortgage broker who recommends that you spend more of your income on housing compared to what is financially responsible for you to do. What "is" financially responsible is easily accessible to find, as is the simple math performed above. We are seeing more and more horror stories pop up from folks losing their investments after pooring them into trash syndicate deals, or buying in C/D grade areas out of state because a YT video or message board post gave them FOMO. This will correct over time as more get burned, but until then, spend responsibly. 

2) Do not listen to any advice recommending that you enter into a THIRTY YEAR agreement with a bank where you pay them a monthly payment in exchange for primary residence shelter where the only way you can meet the obligations for such a contract over the lifetime of such contract is that you househack, renting out your bedrooms to likely...strangers...until you are dang near Medicare eligible. That sounds like a prison sentence, not a financial freedom plan. Many, including Scott Trench believe rent vs mortgage payments won't rebalance out for another 12-15 years (based on the last podcast they did...so agents and broker amigos and amigas, don't yell at me, I"m not the only one saying this), so let me ask you this, do you want to live in a house hacking prison for the next 15 years in order to boost your equity position on your way to financial freedom? I think not. And that didn't seem to be the original intent of this platform's messaging 6-7-8 years go. Any RE agent advising to you that this is an option that you should exercise in order to better afford a home should have their RE license revoked for violating their fiduciary responsibility to you as a client. Please report them as it benefits society at large.

I think folks who disagree with me are missing my point.

Nobody is arguing a +$2400/yr margin from a +$200/month cash flowing property is a mechanism to "get rich." They (me) are arguing that that +$200 per month is what keeps the musical chairs game going and ensures you have a seat when the music stops. If suddenly, you lose your job, rents decline in your area due to X/Y/Z (I know many in AZ whose STRs have plummeted, so if you underwrote your purchases on razor thin margins in the past 4 year bubble..."oops"), unemployment increases, you get a crap diagnosis, if life "happens" to you, and all of the sudden you are unable to keep afloat all of your negative cash flowing properties, do you really want to be in a forced liquidation position in perhaps what could be a buyers market in the future? Ideally you want to liquidate when you think it's best to liquidate on your own terms, not when you are unable to service your mortgage payments. That's the entire point of this conversation, risk mitigation, not wealth generation. The fact that people are willing to walk the edge of the cliff in 2024 tells me all I need to know about how this community has morphed over the past 7 years since I began listening. It seems as though many have a risk tolerance far higher than I, and that's A-okay.

Reading about actual humans in this thread, accepting and justifying negative cash flow as a mechanism to invest in real estate, tells me everything I need to know about the current state of the rental real estate market.

It's almost as if every single podcast full of veteran investors for decades, all of those golden rules of thumb/pearls of wisdom/rules to mitigate risk, are tossed out the window all for the sake of chasing a yield.

I feel like I need to take a shower after reading this nonsense. So many of you are going to get wacked as inventory keeps growing MoM / YoY while the fed keeps their rates higher for longer. God speed.

Lovely and entertaining discussion. These types of conversations appear to be occurring in every asset classes discussion boards. Interesting what declining values and prospects will do to those involved in a particular industry and how those individuals interact. But, also a sign of the times. 

I for one will be looking forward to declining real estate values. $2K a month rent for a 1 bedroom is ridiculous. If outlook doesn't improve in 6-12 months (which I don't believe that it will despite rising interest rates. Prices aren't falling at a rate fast enough to improve all time record home affordability), I will be migrating to a more cost effective area.

 I do not wish any specific individual failure as it relates to financial investments, however ( :) ) I have zero sympathy for the hogs that continued to feast, overleveraged their hands, and now are getting their jugular snipped.

Great insite Henry. I also wanted to touch on many larger investors being somewhat immune to problems ahead given that they are cash rich, but one of the main attractions that drew me to this podcast and forum is listening to the countless number of individuals tell their personal stories about how they were able to use RE as a vehicle to accumulate wealth and escape their somewhat miserable employment situations and build freedom for themselves. And trust me, there have been numerous motivators in the last 5 years giving me several strong enough WHYS to keep me wanting to make RE work. I believe you are correct (and again, I'm not the person whose opinion anyone should listen to as I'm the type that the hosts of the show would say is not an expert as I haven't accomplished anything in this industry), but my $0.02 is that opportunities will shrink until a nadir point is reached. Buying today just seems to draw parallels to buying a home in the spring of 2007 before the market decline. Maybe not to that extent, and yes, every geographic region is different, but assets today are generally overinflated including RE values and the effect of interest rate hikes on demand is going to take several months/quarters to see it's impact before we start seeing less speculative property types begin to stabilize/decline in value.

As to the question about why I didn't buy in 2018. Fantastic question! I actually did purchase a townhome in WV in July of 2018 thanks to this podcast. My career has taken me from Lexington KY (born and raised) --> Morgantown WV (July 2018) --> Phoenix, AZ (August 2019). I sold my townhome in WV which surprisingly broke even despite it being an FHA loan with only 1 year of seasoning. But essentially I took the Rich Dad approach. Went to school for a decade, got a professional degree (pharmacist), did 2 years of residency, and now am getting a job and trying to repay all of that debt. So in 2019 upon moving to a red hot market, I had a negative net worth as I was just starting my career.

Fortunately I have a business in addition to my W2 income, and from 2018 to 2022, my financial position has changed drastically in the positive direction (mostly thanks to the business), but the market today obviously looks completely different. Had I purchased in 2019/early 2020, my business would not have grown nearly as much as it has, so it was a pick your your poison situation: buy RE and watch it appreciate rapidly or grow the business equally as quickly. The business worked out but now I don't have a primary residence under contract and am stuck in rental purgatory :(  

Long time listener of the podcast and reader, first time poster and someone with experience searching for a primary residence in north Scottsdale and/or surrounding areas. Despite having a salary in the mid 100's, I am effectively priced out of today's market. Contemplating moving back to a the midwest to find something manageable but what is happening in this market is not only disgusting but unsustainable. Something will give.

Properties that I looked in in the Scottsdale area, specifically looking at 2B/2B condos that were not A class were routinely in the low $200Ks in 2019. It was possible to purchase these properties and have a monthly payment ~$1,000-$1,100. As of last fall right before the rate hike, those same properties were routinely selling in the $325-$385K range with a few fire sales being gobbled up in the upper $290s. Payments pre rate hike were approaching $1500-$1600. Those same properties or equivalent properties are now being listed in my area at a faster clip, they are now sitting on the market as payments for these properties are now in in the $1900-$2200 range pending property value and HOA.

So anyone saying that today, right now, is a great time to buy real estate is a foolish unless you are clearly acquiring a property off market. Of course a blind squirrel will find golden nuggets once in a blue moon, but specific properties will decrease in value once time on market continues to extend out/inventory grows (which may or may not happen depending on if folks want to get rid of their 3.25% mortgage, no reason to move). I'm already seeing more inventory in the condo townhome market relative to 2021, and that inventory is not moving at the same rate. With a near 2% rate hike in 4 months, home affordability is now 20% lower, and people like me have essentially stopped searching, let alone investing (side note, I was supposed to close on a quadplex in my home state this very week but underwriting isn't wanting to approve business income so now taking the seller financing approach...and again, this was an off market deal via a friend of a friend). 

Just thought I would chime in as a prospective buyer in one of the hottest markets in America the last 48 months. It's extremely frustrating, and folks like me are not willing to overpay for artificially inflated property that was available at 50-75% lower prices 2 years ago.