All Forum Posts by: Dan H.

>Given the high valuation, good chance to catch them cheaper down the road....

This is the part where you are trying to time the RE market that I find difficult.  When did the run up in RE that started in the mid 1970s crash? Sure the appreciation had some slow years but the first significant decline I can recall was the one that started in the early 1990s. That is close to a 20 year run with 2 high appreciation runs (mid 70s and late 80s) without a significant depreciation (assuming I am not missing a significant decline).  I believe at some point there will be a decline but the when and the size of the decline is hard to predict. Maybe you will be correct and in the next year or two there will be a significant decline but you have already been making these predictions for a while now and so far have not been correct.

Only time will tell if you are correct and I may be wishing I had postponed my recent purchases.  I prefer to continue making purchases and to not miss out on any appreciation in fear of a decline.  If a decline occurs I will take solace in knowing that I am not over leveraged and should be able to handle any depreciation cycle that is not significantly worse than those in the last 50 years.  I will look at such a decline as a buying opportunity.  Maybe I am a glass half full type of investor: If market does not go down all is great and if the market does go down it provides a buying opportunity and all is great.

I was accidentally off by a year on the purchase (it was 2004) but agree there was still more appreciation after the purchase but the purchase that was $751K fell to ~$620K (a little less than 20% decline).  We were buying a lot fewer RE back then than in recent times.  We purchased in 1993, 1999, and 2004 (so 3 purchases in 12 years).  I did not intentionally avoid 2005 to 2008 expecting a collapse (I wish I was able to see that crash coming) but the 2004 purchase extended me far enough (we did not sell any RE for that purchase) that I basically could not comfortably purchase in 2005 to 2010 ($751K seemed like so much money in 2004).  We started to try to enter back into the market in 2010 but we were being more cautious than hindsight indicates we should have been and therefore did not make a purchase in 2010 or 2011 (we made many offers).  Since 2012 we have made at least one purchase every year except 2016.  We did not consciously skip 2016 and made offers in 2016 but did not successfully purchase.  So we are still purchasing (last purchase closed last Oct and last offer was last Oct).  I expect that we will purchase at least one RE in 2018.

If a crash comes then we will likely purchase a large multi-family to transition to less active RE holdings as we want to stay in RE but with less hands-on RE.  Until a crash we plan to stay with what we know but crash or no crash our intention is to continue purchasing RE.  So the long bull run has not stopped our purchasing but the RE that is our forte are becoming more difficult to find (we mostly purchase duplex to quad with some forced appreciation available ideally at the low end of market price or below market price).  Basically we are searching for the same properties as many other RE investors.

No worries on the rude; I was only doing calculations from the initial numbers provided so apologies that the calculations did not reflect the whole picture.

As indicated I do not know the San Fran market like I know the San Diego market but it was a rare area in San Diego that experienced anywhere close to 50% depreciation (maybe Valley Center or Jamul was close).  More pertinent to me is that none of the units I owned had close to 50% depreciation (I have never had one of my purchases more than 20% below purchase price).  Most of San Diego had closer to 25% to 35% depreciation (varied by location).

Regardless I believe virtually all (maybe all) areas in San Diego have surpassed their previous market high.  So even if you purchased at the market high you would be OK if you where not forced to sell (i.e. not over leveraged).  In addition, timing the RE market is very difficult.  Most people will not be able to do it as well as if they simply purchased on a regular basis using a cost averaging type approach and purchased some at market highs and some at market lows (ideally more at market lows because a cost average would have more purchases occurring when the prices were depreciated similar to how it works in stocks).

I choose not to try to time the market and twice have purchased near market highs (both experienced close to 20% depreciation after I purchased them).  It will happen if you purchase regularly.  I would prefer to never have a property depreciate after purchase but I know of no way to accomplish this without potentially missing out on market appreciation.  I have also purchased near market lows (1999, 2012, 2013).  People who try to time the stock market typically miss significant appreciation and do worst than if they regularly purchased using dollar cost averaging (many studies show this).  I speculate that the same is true for those who attempt to time the RE market. 

Maybe you are the exception and can correctly time the RE market.  I do not have confidence that I can correctly time the market so I purchase fairly regularly when the right RE can be purchased.  Our last purchase (a duplex) was Oct 2017. Our last offer (initially accepted but fell out of escrow) was also Oct 2017.  I expect to make another competitive offer in the next 3 months.  So I am still acquiring and attempting to acquire more coastal So Cal RE.

Good luck.

I do not follow the Bay area market like I follow the San Diego market but $450K to $360K is a 20% price reduction.  In the last 3 years the San Diego RE has gone up noticeably more than 20%.  If someone put off a purchase for the last 3 years and the market depreciates 20% tomorrow the purchaser would still be a little behind having purchased 3 years ago.  What happens it the San Diego market continues to appreciate 7% to 20% which has been the annual appreciation range for the last 5 years?  The person who put off the purchase due to trying to time the market would need a depreciation cycle in excess of any past depreciation cycle to be even.

My belief is trying to time the RE market is more difficult than trying to time the stock market which is very difficult.  Most people who try to time the stock market would have done better simply dollar cost averaging their stock purchases in times of appreciation and depreciation.  My belief is that RE is similar.  I have purchased twice near market highs (1993 and 2003) and I have purchased near market lows (2 in 2012, 2 in 2013).   Even the purchases purchased near market high look like good investments today.

What is the lesson here?  I think that long-term buy n hold has done well in coastal So Cal regardless if purchased at market high or low and that sitting out of the market trying to time it can be a costly decision.

Good luck

Ca cities have verifiably the best ROI for buy n hold RE for a wide range of years including top 3 total ROI cities since 2000. So our politicians obviously need to change to produce great ROI on buy n hold RE.

As for being hard to do well in coastal So Cal reality I guess top ROI cities is the result of extremely hard work.

I do not know what you find so easy about Arizona Re but do know that if you are comparing it to coastal So Cal you would on average have experienced better ROI on the coastal So Cal buy n hold.

 I care because the lease explicitly forbid it.  If he is not following the lease in this matter then there is no way of knowing what other lease terms he is breaking.  I care because I background check each tenant for my pease of mind, for the safety of my other tenants, and for the safety of my unit’s neighbors.  I care because he is profiting at my risk.  Mostly I care because he is being dishonest and deceitful.

I can find a new tenant that pays on time and is not being deceitful.  I typically have very short vacancies but in this case the tenant turn over cost would come out of his deposit because he broke the lease.  

I see no reason why the tenant should get into real estate at my risk by being dishonest to the landlord.  In summary, I see no good reason to keep the tenant but many reasons to evict him.  If you think that makes me an a-hole I do not care.  

One item I did not see is what sort of vetting did you do of your tenant?   Why did you do that vetting?   Why do you have no subletting in the lease?

I know why I vet the LTR tenants and have no subletting on my LTR units. It is so I know who is staying there and know the risk.   We do not even allow regular “guests” in our LTR.  If there is to be a regular guest they get added to the lease after a background check.  All tenants/neighbors should feel comfortable with our vetting process as it includes criminal and credit check. 

By the way I have been doing STR a long time (since the 1990s) and I do have some first hand stories. We had tenants turn a yard into a mud pit for female mud wrestling. We had a tenant physically start a fight with a neighbor (neighbor verbally incited the fight) and got KOed (tenant got KOed). You think this RE is in a cheap area? Our RE is the cheapest in the area and worth ~$1.5m. You STR long enough and you will likely have your own stories.

I would evict current tenant for their dishonesty, for the risk they put your property through, for them profiting at your risk, and because your screening process missed something.  

If you want to continuing have someone manage your STR there are companies that do this professionally (we do not self manage our STR units). Their cut is well understood and they have not deceived you. In addition, they are professionals that likely have dealt with many items like a yard being turned into a mud pit or late night excessive noise. They know about taxes that need to be collected. They may charge a bit for their services but they are professional services with items like a business license, insurance, etc. Most important though is that they are not being deceptive.

Good luck

I think you are looking at it correctly. Depending on your initial loan LTV the BRRRR can reduce your cash associated with RE as well as increase your equity via the sweat equity. Just do not expect in San Diego the BRRRR will be likely to get all of your initial investment out of the RE. It may not be as challenging where Brandon Turner does his BRRRR. I will also say that if my refi appraisals where more consistent with my purchase appraisals it may be more possible in San Diego but that has not been my experience so far.

Good luck

I have tried the BRRRR a few times but in my market it is difficult for 2 primary reasons: 1) the refi appraisals are conservative in this market and seem to trend lower than purchase appraisals 2) conventional refi seem to be capped at 70% LTV.

My last BRRRR had a purchase of $390k. We spent almost $50k on the rehab. So we are into it for $440k. It appraised at $580k so the refi at 70% LTV provided $406k. So we were still into it for $34k (not counting loan costs) but our equity position did increase. We would have needed an appraisal of $628.5k to have gotten all our money out. However I believe I know our market better than the appraiser and I would have put the value at $620k to $640k but as indicated I believe refi appraisals are more conservative than purchase appraisals.

So be leery of thinking it is easy to get all of your initial investment out via a BRRRR (it may be in some markets but in my market it is a challenging task).

Good luck

I think the cash reserves have to be enough to cover all unexpected items.  This includes prolonged vacancies, tenant trashing a place, severe maintenance/cap expense item, a prolonged drop in market rent, etc.  

my biggest single such expense was $60k but that was such a specific/unique situation that we will not count it.  My second biggest was a $28k foundation issue.  Eliminating those 2 items I have not had an item significantly over $10k.  

So I recommend having at least $10k cheap reserves (such as HELOC) and access to an additional $20k that could be more costly (I.e. credit cards or personal line of credit). Ideally you never need to access the more costly money.

Safest approach by far is to not heavily leverage your Home. I recommend saving some/most of the money necessary for the purchase and use the HELOC as the cash reserves if something goes wrong.