All Forum Posts by: Jarrett King

Quote from @Michael Wooldridge:

Quote from @John Carbone:

Quote from @Michael Wooldridge:

Quote from @John Carbone:

Quote from @Michael Wooldridge:

Quote from @John Carbone:

Quote from @Nick H.:

@John Carbone BTW one clarification - there's no concept of a "margin call" really. The equivalent here is really if they mess up on a loan covenant (or again, whatever the specific provisions of their agreement is w/ the bank on the loan) - then it could be called. The most common would be a DSCR covenant. The value of the home itself isn't directly relevant to that - it's just their ability to service the debt with the cashflow from the property.

In practice, given how much rents have gone up, they would likely need rents to drop, a lot, to have any DSCR issues.

 https://moneymarketadvisor.com...

It’s getting mainstream now, here’s an article today from realtor.com, wait until John Doe sees this. This pretty much sums up what we have all been saying in here except the “never crashers” led by super realtor James . 

https://www.realtor.com/news/t...

james should report this writer for spreading falsehoods. Everything discussed in the article has been discussed in this thread and “proven” by James to be false made up information. How does realtor.com allow such made up conspiracies on their website?

 Did you read the article? 

“Zandi believes home prices will fall about 10% nationally over the next 12 to 18 months if the country avoids a recession. If one happens, he anticipates price declines could approach 20% from peak to trough in 2024.”

IT also said don’t expect foreclosures. Don’t expect more homes to go up for sale - essentially reduced prices which is what a lot of us have been saying.

But hey I’ve been saying 10-20% depending on a few factors :). So I’m not opposed to your article. @Carlos Ptriawan 

https://amp.cnn.com/cnn/2022/1...

How will we even know when it’s a recession? We no longer use the definition that we always used in the past. is there a new official definition? I know it’s related to unemployment, but what’s the official metric? 
 

@John Carbone Wow you fix the article link but not on the post where I called out that it’s probably the KPMG CEO Survey? You gave no indication in your original post except that it was hot off the presses (it wasn’t). I also made several comments this week that the Fortune 500 were planning lay offs. That you’d see many announced in q4 (some already have since those comments) more will. 

It’s not news or surprising. It’s something factor into my numbers. Numbers you seeem to skip over by not commenting also on other 08 factors like unemployment, labor rate participation and subprime crisis that led us to a 28% market shift. Mean while unemployment that is the lowest it’s been in history, high wages, and no subprime crisis but somehow we will end up at 25%+ price changes.

I’ve been saying 10-20% shift since day 1. You post an article as a resource to pricing changes from realtor.com - that literally says the same thing. 

BTW Blackrock isn’t ever going to fail. If blackrock fails it means the entire world collapsed. IF you are predicting that please let us know. You need to go revisit where I explain how many assets there are or to @Carlos Ptriawan point whose assets those involve.

I’m not going to argue with someone who is calling for a 10-20 percent drop. I’m not saying black rock will go under. I said if their stock was ever 60-70 percent down, they could be In trouble. Never say never. People said same thing about Lehman and wamu in 2008. Again I’m not predicting this, but risk factor is >0 . if my article didn’t work I’m sorry, it was hot off the press, the JOLTS report showing 1.1m drop unexpected. I’m not comparing this to 2008 with job loses, lower home prices on lower transactions, nothing like 2008, stop trying to say I’m comparing it directly to 2008, way different environment now. 

 So I never said you were comparing it to 2008. I'm comparing the macro environments and what the downshift was 28% and saying we know we don't have subprime, we now jobs arent' where they were. So why would you predict close to 2008 like variations. The math as you like to say don't add to it. 

As to Blackrock, I think you need to look at assets under management and compare BR to the rest of the industry. And then go back to look at Lehmans and Wamu. It's not even close to the same scenario.  IF BR goes under the whole economy globally has collapsed. not just the US but globally. We are talking great depression type levels of destruction. That's how much valuation and assets would have to be destroyed to impact BR. 

So it's just more of a non factor in terms of worrying about them. Because if that happens cash, homes will all be worth nothing. It's kind of like predicting a post global breakdown. Who knows what will be worth anything and we will all be hurting so bad it doesn't matter. 

 Agreed. I think people have a hard time disassociating from 2008 because that's the "last time". I don't think we have anywhere near the degree of risk in the system for that to happen and if it does, like you said we're all f'd anyway. We can't expect once in a generation type downturns to become the norm. 

At the end of the day, for me, we look at the long term thesis and it's still very much in play. The housing shortage is real and any recession makes that worse. We saw new housing starts cease for years after 2008 and we saw it for a minute after March 2020. Higher rates and inventory additions slowing down doesn't help the situation. I think we'll see a slow down but not a long term one (pending Russia-Ukraine, supply chain stabilization, Fed rate hikes/cuts). 

I just look at the supply and demand dynamics. Housing supply is at an all time low. Building new units activity is lower than it has been in years because of supply chain and rising costs. Simple. People need places to live. The more expensive houses get, the more likely people rent. Find deals in strong metros with strong metrics, buy them, and just wait. 

Originally posted by @Bill B.:

I would GUESS 80-90% of the sellers are either downsizing or upgrading their housing and buying a replacement. (No additional inventory created.) who else can be selling?

Married people eliminating one home (requires 2 single people who both home their own home, 1% of sales max?)

People getting divorced and can’t afford their current house? (Probably reduces inventory as they each need separate housing now, but again 1% max?)

Death of the sole owner (otherwise remaining owner stays or moves in to another property creating no inventory) (again, 1%? Max?)

People moving because of high taxes, bad government policies or a new job? (No inventory created.)

Living landlords selling? (30% of the homes but does anyone really believe more than 10% of landlords with one property or landlords with multiple properties selling 10% of their properties? (This would make 3%)

Maybe 2% of landlords die every year? (Didn’t like the answer on this math, but average landlord is older and 2% is 50 years). So that could be 1% if inheritors don’t want the properties to live in or rent out. 

I just don’t see inventory climbing from sales.

Ps. Question to anyone who does sell AND doesn’t buy a replacement.

(1)What is your expected “cost” (or loss) form selling instead of holding? Assuming you didn’t lose 20% in the stock market but just 5% to inflation plus the lost rental income plus the lost appreciation, plus the 20-30% tax hit)  Are you hoping to lose only 30% hoping that for the second time in history housing prices drop more than 20% so you can get back in at even?

(2) if prices are still higher in a year or two are you simply done being a real estate investor? I mean you can’t take a 20-30% tax hit, and lose the rental income, and buy back in at prices that are 10-20% higher while borrowing at a higher interest rate than you had. Is plan B Bitcoin and stocks or just biting the bullet and buying back in at an even higher price which might very well be “today’s bubble” just 15 years after it was predicted back in 2010. 

Good luck with your choice but realize it affects future you waaay more than present you. While everyone is loss=averse. Selling may cause a larger “loss” than even a price stabilization or dip. 

I know national housing prices dropped more than 5% once already in 100 years, and “everything is cyclical” but 100 years is a long time to wait. (Which reminds me of people who used “cycle theory” to explain why the crash was going to happen in 2018, 2019, 2020 and 2021. I guess the cycle theory is cyclical in its length. :-)

Interesting response Bill. I've never thought about treating the tax burden as a default loss that you need to recoup on the next buy to break even but definitely makes you think about selling differently. 

My position right now is short term to buy in path of progress and either rehab myself or sell the property to someone else who will. I turned my first duplex into a 20 unit by selling that I otherwise wouldn't have been able to without the increased duplex value. But like you said, that's a difference move than selling and sitting. 

Man @Shiloh Lundahl shaking the trees with this thread but I do agree. I work in real estate private equity and I've seen out portfolio grow a ton over the years since I've been there, but we buy office. I just branched out and had the initial goal of at least replacing my wife's income, which is close enough to the $10K a month dream. It definitely takes work and I think part of the point you're making is people don't realize the work that it takes is true because it's not passive. It's constantly chasing deals, finding new investors, managing property managers, etc. 

$10K is a good number. I like it. Round numbers make me tick. Making that from work makes it easier for me to see what I'm actually working towards vs if I didn't even know what $10k a month even looked like, I think I'd be more intimidated by it. Long road, but I agree there needs to be more sobering discussions around what it takes for that to happen. 

@Christopher Burge

Thanks! It was definitely an interesting ride start to finish. This was a syndication of friends and family. My first deal I offered a 10% pref return and 50/50 equity split at exit. I figured I'd keep it the same on this deal since it was a broader raise and I was more focused on securing the equity to get the deal done than making a ton of money off the deal since I still have a full time job. 

Investment Info:

Large multi-family (5+ units) buy & hold investment.

Purchase price: $1,200,000
Cash invested: $350,000

Acquired a 20 unit multifamily property in Midtown Memphis, TN.

Target return profile:
19% IRR
10% preferred return to investors
2x equity multiple at exit

What made you interested in investing in this type of deal?

I've worked in real estate for over a decade now, with a few billion dollars in commercial loans underwritten and managed at a large regional bank in the southeast as well working on the equity side for a firm with over $300M in assets under management. I've seen a lot of deals and I always wanted to branch out and start on my own and this was a perfect deal to launch my business to another level!

How did you find this deal and how did you negotiate it?

I built a strong relationship with a local broker in Memphis after a few years of chasing deals. Listening to BP podcasts are very inspirational, but for me it was easier to keep working my job instead of taking the risk. I knew how to underwrite deals no problem and finally just decided to blindly put and offer on a deal because the numbers were good. Ended up not getting the deal, but I showed my broker I was serious and she found my first deal for me, a duplex, and now this one!

How did you finance this deal?

Working on the debt side, I know a lot of lenders, so financing this was pretty easy. Raising the equity was the challenge but I actually found it fun. I put in a solid amount of my own money and raised the rest from friends and family.

How did you add value to the deal?

So far the plan is to finish the turnover units the seller didn't finish and we'll be at 100% occupancy with strong cash flow. Rents in the submarket have grown 50% in the past five years, so I'm holding off on renovations until it's necessary. The cash flow is very strong and the area is exploding so I can be patient.

Lessons learned? Challenges?

People really want to see you win. It's crazy how many people jumped to help make sure I closed this deal once they learned about it. My biggest concern was raising the equity, since I didn't have it on my own. Going hard on such a large amount was also an added stress, but it just motivated me to make sure we saw the finish line.

Go do a deal! That's the only way to do a deal!

BRRRR is nothing but a value add investment strategy. Nothing fancy just a new name. It's not going anywhere ever. It's for investors who know what they are doing and the popularity of the strategy has resulted in a number of rookies jumping in with no idea what they are signing up for and losing a LOT of money. Just be smart and careful.

Don’t be scared off from Memphis. A lot of posters here have money in Memphis. There is a large renter base to keep occupancy if you can find a solid property in a solid area. That’s the key to Memphis. Plenty should pop up here soon to weigh in. Check out Chattanooga and Atlanta around the airport as well. Atlanta still has a lot of untapped potential and Chattanooga is getting a lot of spill over from Nashville and Atlanta. Added 20k jobs the last 2-3 years.

Hey @James Martin I'm looking for properties in Memphis as well. Could you send me that investing map as well? Thanks!

Since you would have an operating property, as long as your renters are paying enough to cover the mortgage it is not a realizable or at risk contingent liability. That’s how we underwrite developers and investors. As you grow, your debt position will grow. Always make sure you’re making money on your properties and you will always find a bank who is comfortable with your portfolio debt.