All Forum Posts by: John M.

Welcome @Shea Bartolino and thank you for your service!

I am also reside in the Sacramento area although I am not currently invested here at this time.  But I do have my a few years of real estate experience in sales and investing.  Feel free to PM me if you want to talk real estate sometime.

Welcome @Paul Rumolo and that's awesome sounds like you are well on your way!  I am in Sacramento as well although I don't own any properties here.  Are you doing real estate full time?

Hi BP'ers! I think in general the school of thought is that rents tend to go up along with home price appreciation because it is all based on the demand for housing in a particular area. However, this isn't always the case - for example in the housing crash rents in some markets barely budged due to the sudden demand for rentals by foreclosed homeowners. Freddie Mac also had a very low number of foreclosed multi units vs SFR in the Fannie Mae world during that period. I also know during the boom right before that rents didn't go up much in Phoenix where I was buying/renting at the time, even though home prices had almost doubled in just about 5 years. So rents and home prices movements can diverge, and rather dramatically.

In the current real estate market it seems that in most major markets across the US there's a pretty tight correlation between rising rents and rising home prices, some markets even in percentage terms (which I find somewhat remarkable).  For example where I live in Northern California rents in some areas have gone up 50-60% since about 2012-2013, almost the same % as price appreciation. 

So here's my question:  Do rents tend to act more "rationally" (for lack of a better word) than home price appreciation and therefore rental markets are in general more stable and predictable?   And if that is true, in markets where rents and home price appreciation has diverged significantly (i.e. flat to down rents with rapidly rising home prices, or vice versa), can any conclusions be drawn about those markets that might help guide decisions to invest (or not) in those markets?

I think cash out refi's so soon after closing a deal only really make sense in a rehab with lots of forced appreciation and you can get your original down payment back?  

It seems to me accepting bids for a rental would only benefit the landlord in a very competetive rental market with low supply/high demand where you might find high quality renters willing to oubid each other just to get into a place.  Even then, what if the winning bidder didn't pass your screening critera?  Do you put it back on the market and solicit bids again?  Otherwise, I am not sure what it would achieve. If you want to at get market rate rents then why not just list it slightly above market and see what happens?  

Even though I am a landlord I am also a renter (by choice - I would rather own what I can rent out), so if I saw an ad that like that I probably would not even bother with it unless I had few other options for places to live in.  For me as a potential renter it sounds like a pain in the arse.

The word bubble is sort of hard to substantiate because it means many different things to different people, depending on who you ask.   I guess the question really is are prices sustainable, and if not, do you get a mild correction, a deep correction, or a flat out crash?  Or maybe nothing at all?   That's a hotly debated topic depending on who you are talking to - For example the National Association of Realtors might have you believe there's never been a better time in the history of the world to buy real estate than right now, while Harry Dent and Peter Schiff would insist that a total collapse of the USA is imminent and you should grab your guns your ammo and your gold and run for the hills immediately.

There's a part of me that thinks that the crash from the recession was an unusual event not to be repeated again in our lifetimes, but on the other hand the real estate market is cyclical and local markets are subject to periodic corrections (and crashes) just like any other market.   So I can't rule it out.

That said, the market will do what it will do regardless of what I think or say, so all I can do is navigate around it as best as I can and adjust for risk accordingly.

I do think that as a market continues to climb higher and people are forced to take on more and more debt for lower and lower returns, the danger of over-leveraging yourself becomes the biggest risk.  So although I wouldn't avoid buying if I found the right deal, I would be just as happy paying off the debt on my existing properties and if/when the market does correct then I can take on new debt at that time.  

The take away is that we know based on evidence that real estate can lose value, so there's nothing wrong with being a little cautious if conditions warrant it.

@Nicole Heasley Beitenman  Haha so true!  I was born in LA (Santa Monica to be exact) and lived the majority of my life there so I know from personal experience that a few homeless people and some random graffiti tagging doesn't mean anything.  Not only are you probably not in the ghetto, but you might even be in one of the most expensive areas of the city.  Like Santa Monica, lol.

I own in a C class neighborhood that is also in a prime urban location, which is also in the process of turning (ie new mixed use/retail/commercial/residential).  So it's starting to attract B class residents.  That's the best of all worlds - C class price, great tenants and good appreciation potential to B class for both rents and property as the whole area improves over time.  

By the way, it's crazy how clueless and out of touch some people are, a couple local "investors" I chatted with won't even look in this area because they think it's "ghetto".  It's not!  All the better, less competition for investors like me!

@Brian Adams  Thanks for your reply Brian!  I do appreciate your view in that it's better to start smaller building an empire rather than sit on the sidelines doing nothing while everyone else zooms by.   I think it is good for someone to build confidence by doing some smaller deals in the beginning to get some experience, then you can build on that to move up to bigger deals once you have some experience and knowledge as a foundation.

Will continue to read your posts, it's been very inspiring to getting your play by play updates!

@Ralph Noack   You don't mention what the area or neighborhood around the house is like, but assuming the neighborhood might attract similar residents to your previous occupants, do you feel it is your responsibility to disclose that the neighborhood is "rough", "sketchy", "dodgy", or can they see that for themselves?  If so, could a reasonable person deduce that possibly the previous occupants in your property might be of similar character to the surrounding neighborhood?   

Just something else to consider, but renters move into apartments, houses, condos etc all the time without any knowledge of who lived there before or what they did.  As @Thomas S. mentioned, is it reasonable to expect the landlord to give a full history of a property's past occupants to prospective tenants?  If so, how far back should they go, and what exactly should they disclose about those occupants? 

That said, I personally want my own tenants to feel safe so I have security systems installed that I include with the rent.   I don't offer that to release me from some sort of liability if something bad happens, I do that because I genuinely don't want anything bad to happen to them.  But there's also only so much I can do,  tenants also need to do their part to ensure their own safety.   

I would say if disclosure and/or installing some security helps you sleep better at night it might the right thing for you to do.   Then just take it as a lesson learned for the future.