All Forum Posts by: Heather H.

Thanks for your insight everyone!

@Michael Guzik  I had similar thoughts, but of course it's not just the affordability of houses they look at - it's the change in affordability compared to changes in other economic indicators. I thought San Antonio was sustainably  growing though, so I would think that wages, employment, etc would be rising right along with property prices, so that's why I was curious to get the opinions of people who know SA.

Las Vegas is booming but I wouldn't be surprised if Fitch is right about the property being overvalued there. There is a lot of job growth, but much of it seems to be in construction, which is cyclical and one reason that LV goes through so much boom and bust. SA has historically been steady though (as far as I understand), so I was surprised to see it on that list.

Fitch's methodology is very opaque, as you found. The analysis is based on nominal income growth, population growth, unemployment, change in rental prices and change in home prices, but I couldn't find details on the criteria or calculations within each of those categories. I believe it's based on trailing indicators, as they look at the change in value over the past year (as far as I can tell) instead of projections into the future. I also noticed that they didn't define their acronyms, which is frustrating. The percentages that they give on the map are the over-valuation, or percentage  over what they see as what the market value should be. And that's a very good point that what is good for a realtor is not necessarily good for a buyer (whether that buyer is an owner occupier or investor). That's why it is so interesting to get peoples' opinions on these kinds of stats.

I know we can't evaluate their specific results without knowing more about the numbers that go into the calculation, but I was more interested in peoples' opinions on the general conclusions and what people think of the markets that are supposedly overvalued.

I would buy an apartment building in a good area that is popular with renters. Even if there is a cooling of the market and the value of the real estate goes down, rents should remain relatively consistent, providing cash flow for retirement.

Hi All,

I just came across this list of the five most over-valued housing markets in the US according to Fitch Ratings, which are Las Vegas, San Antonio, Austin, Portland OR, and Dallas. If you live or invest in these cities, what do you think?

List of top 5: https://www.forbes.com/sites/samanthasharf/2018/05...

Nationwide heat map of under/overvalued cities - click into the state to see individual cities: https://www.fitchratings.com/site/structuredfinanc...

I'm surprised by San Antonio because I thought their growth was more in line with population expansion - I thought it was a good place for appreciation on buy & hold, but now I'm wondering if that's true.

@Daniel Y. haha yeah, that's always the way. I wish we would have bought more at the time! I had no idea there would be any appreciation though - we were just after cash flow, and this has been an unexpected bonus. This experience actually makes it hard to get back to property investment though, because that might have been a once-in-a-lifetime opportunity, but since it's my point of reference, everything since then has seemed like a bad deal. I'm trying to get over it and adjust to the new normal. We're looking at San Antonio right now - the cash flow seems okay on cash investments, but on financed properties realistic net rental yields look closer to break-even. So this time, it would be about appreciation, which feels more risky because of course we can't know the future. We've also looked pretty closely at Memphis and Cleveland to a lesser extent, where a lot of people are investing for cash flow right now. They are working out for some people, but we don't really want to invest in cities that have problems with crime and lack of growth. 

@Daniel Y.  I love Las Vegas for a few key reasons:

1. It's a great city for tenants because the casinos employ a lot of people, and the tourism industry stayed strong during the recession.

2. It's dry and hot - mold and rot are rare. Snow-based issues and frozen pipes are not a concern. There are flood areas but outside of that, there are few severe weather events to worry about.

3. Grass isn't common so yard maintenance is super easy - "mature desert landscape" means dirt, rocks, and maybe some desert plants.

4. No state income tax, low property tax, and very landlord friendly laws.

Our houses have done very well but the market has risen so much over the past several years that you would be very hard pressed to find good rental yields at the moment. For example, we bought two 3 bed/ 2 bath SFRs that were both built in the 1980s for $51,125 and $65,475 in 2011, which are now valued at $174,000 and $203,000 respectively. They rent for $835 and $875 per month respectively, which are slightly below  market rates but vacancy kills yield, and we have good long-term tenants in both of them so we're not raising the rent too much (although we have had our share of tenant issues previously - that's another story but just a word of caution to people thinking about getting into real estate - it's awesome but not passive!). Neither of them would rent for more than about $915 per month. If you take the 1% rule as a guide, if you were to buy a comparable property today, it doesn't even come close (unfortunately - otherwise I would buy more!). If you were to buy the more expensive one of them at these numbers today, that is only 5% gross yeild, which would approach 0% net. Of course capital appreciation has been good, and that is a different goal. However, Vegas is very cyclical, and I don't know how much higher these prices can climb, so that game is too risky for my taste at the moment.

@Eric Adobo are you saying that it is possible to get 1% monthly net yield, which would equate to 12% net yield annually in Las Vegas? If so, I would be very interested in getting more information on where/how. I watch the Vegas market carefully and aren't seeing anything close. At the original purchase price of both these properties, they haven't even achieved 12% net every year so that sounds a bit too good to be true, but I would be so happy to be proven wrong! And we have bought in Sweden, haha! You've gotta live somewhere :)

Thanks all! @Daniel Y., we actually applied at US Bank and Prime Lending (which is a mortgage broker). At US Bank, the main reason it ended up falling through was due to our self-employment and resultant variable income, whereas with Prime Lending, they were fine with that, but couldn't budge on us not living in the US. We also had conversations with loan officers at several other banks (including Chase) and one other mortgage broker, who advised that it wasn't even worth making the application. However, these were all institutions and loan officers who are used to working with owner occupiers, who can be very cautious when dealing with a situation that is slightly out of the ordinary. We seem to having some success at the moment with an Arizona-based loan officer who often works with investors, and I will post details if it ends up working out.

Hi Frankie,

Doing your first deal is so exciting, and your numbers look decent on paper. But the sad truth is that (with any deal) you need to rethink your optimistic assumptions, and build in realistic buffers for unexpected repairs and vacancy. I've had two investment properties for seven years that looked like they would net 18% according to the spreadsheets that I very meticulously created. Some years the yields really are that good, some years they are closer to zero (like when a roof and air conditioners need to be replaced - these things happen).

Also, you mentioned increasing rent - having a steady tenant who actually pays their rent is much more valuable than pushing someone out and dealing with a couple months of vacancy for an extra $50/months in my experience. Just food for thought.

Make a spreadsheet with all your expected expenses and play with the values, to see how much your yield would be affected under different vacancy and repair scenarios. Put in impossibly high numbers and see what happens.

This is an exciting time, but don't get overly optimistic - you will have repairs and other unforeseen expenses, but that's part of what makes landlording exciting! Good luck!

Thanks for both responses!

@Bill B. yes we both have a credit score of over 700. I would think that the rental income would be enough, but we were hit with a couple big bills for roof and air conditioner replacements over the past few years, so the numbers weren't impressive enough for the banks. Investing in Sweden is an interesting idea that we have looked into, but it's a very landlord unfriendly market, and it's actually not legal to be a private landlord in many situations. We have looked elsewhere in Europe, but the language barriers and unfamiliar regulatory environments keep pushing us back home. Deals with seller financing are interesting too - I'm looking into that at the moment - the typically higher rates initially turned me off of the option, but it's a possibility if conventional financing doesn't work out.

@Phillip Dwyer that's interesting, I hadn't found any that only consider the asset (although I initially assumed that some would, and was surprised to not find any). I'll ping you for details if there are any that you would specifically recommend. Thanks! :)

Hi All, 

I'm a long-time member,  first- time poster.

My husband and I tried a couple times to refinance our two SFRs in Las Vegas,  both of which we bought with cash in 2011 and have had good rental yields since then. Both properties have appreciated quite a bit,  and we'd like to access some equity to make other real estate investments. 

We have run into a couple hurdles,  and I'm wondering if anyone can offer advice if you have seen or been in a similar situation in the past:

The issues are as follows:

1. Until recently,  we were both working for ourselves. Our income was high (when we had clients) but not consistent between years. We have both had permanent jobs for the last 1.5 years, though. Our income is lower now, but is "safer" in that we both have traditional salaries. 

2. Although we are both citizens, we live and work overseas (Sweden at the moment). We still report all our income to the IRS, but our main income does not come from within the country. 

For these reasons (primarily the second one), two banks and a mortgage broker have not been able to work with us (due to their own  internal rules, not legal ones).

The houses provide good collateral, and we can provide proof of employment and income, so I feel like this shouldn't be impossible. 

I'd love to hear from you if you or someone you have worked with had a similar experience and managed to resolve it. Thanks!