All Forum Posts by: Lesley Resnick

You make some excellent points.  Through out history there has always been a high Gini coefficient.  It will continue to cycle through time and location.  It is even more prevalent in the third world.  The enlighten strategy is to make sure that the the poor have enough not to revolt and redistribute wealth themselves (Russian Revolution, French Revolution, etc.)  The lower socioeconomic classes in America have been promised the opportunity to raise themselves up.  That opportunity has largely kept the peace.  

Home ownership has been a key part of that peace.  "I am not going to burn down my own house or my neighbors house in protest."  Doing so will effect me directly or indirectly.  If the neighbor and I do not have a ownership in the property, who cares.  I can go somewhere else.

Enter government participation in private single family RE, Fannie Mae, Freddie Mac, state sponsored programs.  The best rental neighborhoods have a large owner occupied population.  They take care of their property and call the police about crime.  The letter rating of a neighborhood becomes less important in these cases.

The other concept that has always eluded me, is that the poor are not a monolithic group.  They are fragmented, by geography, ethnicity, skills and education.  Politicians draw great power from this fact.

A rising or falling market will drive the quality letter of an area.  If the A neighborhood is unaffordable and the B is near by, I can easily travel to the A for resources.  

The opposite is true as well, if the A neighborhood is only slightly more expensive than the B, resulting from a weak market, then people will decide not to move to B as the quality people migrate up.   When you look at the bottom neighborhoods, the values are low and the owner occupants have moved to better neighborhoods.  Those areas sprial down creating a self fulfilling profacy.  

It is the cheapest money you will never spend, the seller covers it on MLS transactions.

If you are dealing with a wholesaler, you should use an agent with experience in the wholesale world.  If the agent does not know the wholesalers in town, you should find one that does.  While you will have to pay something it will be the cheapest money you ever spend.  The agent should keep you from face planting.  The wholesalers do not have your best interest in mind.  No matter how charming and warm they seem, their job is to extract as much from you as they can.  You only need to get burned once and you will see the value of paying for talent.  There is no regulation or enforcement of bad behavior by a wholesaler. 

Let the buyer be ware.

There are a lot of people out there with GOLDEN HANDCUFFS, a 3% 30 year mortgage.  They could sell their house at an appreciated value.  The next house would have a higher rate, they would pay a similar amount or more for a similar house.

Investors are a small part of the housing market.  Owner occupied homes drive the market and the home values.  If there isn't buying and selling across the board, then pricing and supply are effected.  

Its not just the rate, but the uncertainty of the future of the rates.  There is not much clarity in when and how much rates may change.  In this scenario, waiting for clarity may be a reasonable approach.  However, this should not be THE RULE.  Wait for the right pitch and go for it.  In time the market will come to you.  

I am bullish on AMERICA.  This is a long game.  If think you are retiring on any one deal, you are probably in the wrong business.  Over time and a disciplined approach, you will get there.

There are always good and bad deals to be found.  There is a lot of money on the sidelines waiting for clarity and some level of predictability in the economy.  I think that money coming into the RE market and the health of the overall economy will effect the market.  

Bear with me for a second while I geek out.  There is a principle in economics called financial repression.  The idea is that if a government has a large debt as we do, the government will allow inflation to stay above average levels and lower the interest rates.  The dollars become worth less than the dollars that were originally borrowed.  That is actually the classic definition of inflation.  It is money having less value, to purchase goods and services than during previous periods.  Increased price is a side effect.  When inflation runs high and debt service costs shrink, lower rates, the debt shirks buy the gap between inflation and the cost of money.  It gives politicians the appearance of doing something positive. 

In this scenario, the losers are people holding cash or cash equivalents, saving accounts money market, bond funds and highly leverage banks.  

The winners are politicians and government.  People holding leveraged hard assets, real estate with a loan will be protected from inflation as the price of your property rises.  The payments you make to the mortgage company will be made with less valuable dollars.  RE investors will benefit from the same gap. 

In short, financial repression is good for RE investors and not as good for main street.  The media will not be covering this sine it does not make a good sound bite and it is a complicated idea.

I do see better days ahead.    

 Passive is a tough to define.  It is only a tax status.  If you have a property in another city and strong property management and once a month you look at the report.

On the other hand, if you have a stock portfolio and you check it every day, read the annual reports and 10ks, it is time consuming.  It is considered a good practice to  regularly evaluate your portfolio for which securities to buy, hold or sell.  Should you be buying solar companies in the current political environment or oil and gas?  While that is an easy one.  Should you buy NVIDA, is it going to keep going to the moon or is competition coming from China?  Will there be tarrifs on chips next year?  Will they be allowed to sell thier chips in China.  Starting to feel pretty active to me.

The only truly passive thing to do is hold cash under your bed and that does not have much of a return.

IN FULL DISCLOSURE, I have lived in Jacksonville my entire life and own 25 rentals here.  I am a full time investor focused RE agent.

If you live in a gateway city, don't even bother looking, your rowing against the current.  Sure people say, I will buy for cash and a take a yearly loss and wait it out and sell it someday.  If that is your situation buy the S&P index fund and just let it ride.  Typically these city's have unfriendly landlord laws, long evictions tenant rights that encourage bad behavior.  Ask the NYC rent-controlled apartments how that is going?  To bring units up to code, will cost more than all the rent for the next 5 years.

Looking at the nationwide demographic.  People are moving south and west.  The gateway cities in the south have some of the same problems.  Miami is a good example if you bought pre covid, you are a genius and are killing it now.  If you are trying to buy in now you are to late.  

Now my market, Jacksonville, is benefiting from the migration growth.  People who want to leave the Northeast and west coast, but do not want to pay Miami prices are coming here.  Florida has low property taxes, a diverse and growing economy. Insurance in Florida is higher than other places, but it is stabilizing as the claim laws and assignment of risk laws are being re-written.  

If you like media lists of best of….Jacksonville shows up on those lists.  We also show up on the negative lists, "worst place for left handed single gear bicyle riders", obviously an  overstatement, but you get my point!

It is not a one data point deciscion to invest in any city or at all.  In total, my analysis is RE is an amazing investment over the long term and I belive Jacksonville will continute to be at the forefront of that class of investment.   

The Thing I can say with authority is, "listen to the market", the trend is your friend.  You must analyze what the market is telling you.  

Fix and flips are a function of:

Local absorption rate, how long it would take a market to sell out if nor more inventory came on the market.  Even if you are correct and built 25% value, you could lose it all to the time you hold the property.

Understand the costs and time for the renovation.  It will take longer than you think.  You can come in on budget, but your timeline will go over.

Where are prices going?  What will the market look like when you are ready to sell.  Today is less important than in 6 months when you close.

DSCR:

After you pay all the bills do you have money left over when you buy?  There are more metrics and xls than could possible be useful.

What is the trend for rent?  Inflation is going strong and driving rents.  Can the average person afford the average rent in the area?

Do  you like the neighborhood?  Do you like the city.  Gary Indiana and Detroit, have some super  program numbers, but I don't want to invest there.  There is a day coming that those areas will rise from the ashes.  You could go broke waiting.

The real question is what is your risk tolerance and do want a job or to be an investor? Fix and flip is not passive, nor should it be. You need to watch the project or it will get away from you. DSCR can be truly passive if you set everything up correctly.

In short, there is no right answer only each individuals situation and goals.

In RE, The Rule of…is time driven.  

In the words of Jay Leno, "you did not overpay, you bought to soon". 

 If this is a long game, then today's return should not be the only criteria.  Inflation will take care of all RE investors.  How much did you parents pay for the house you grew up in?  What is it worth today?  

It makes sense to evaluate properties with a critical eye.  However, there is a lot of art over science.  I have seen a lot of pretty spreadsheets and if I gave you the property for free, the xls would not like it.  I always suggest that investors reverse engineer.  In other words, does your 100k purchase require 3k a month to please the spreadsheet.  (Cap ex, property management, expenses, reserves for vacancy, emergency funds, mortgage, tax, insurance, travel expenses.)

The market will tell you what it is willing to do.  The 1% RULE has become challenging to achieve anywhere.  Just a few years ago it was easier to make.  Behind that rule is the idea that better neighborhoods are harder to make the numbers work.  Homeowners push out investors.  If an area has few homeowners then you are in an investor market and you can achieve higher returns.  Other investors are not willing to pay a premium.  Home owners see if differently, if I want the house (school system, proximity to family), then they will pay a premium.  Additionally home owners take better care of their properties than renters.

If you wait for the perfect pitch you will never get on base.  There is a solid portfolio to be built on singles and doubles.  Home-runs these days are rare.  I am bullish on the long term outlook and do not worry about the daily ups and downs of the RE market.  

If you want something to worry about...can the average income support the average home purchase or rental?  If no one can afford the rent, then the pro-forma is meaningless.  

This is tough stuff.  There is no substitute for experience.  Regrettably, there is no one catch phrase that is going to keep you out of trouble. 

 It is the cost of an education.  I recommend finding people with experience to look at the deals.  Anyone who has been at this for any length of time has lost on deals, or is not telling the truth.

Welcome to the CLUB!