All Forum Posts by: Lesley Resnick

I am a big believer in the old saying, “the trend is your friend”. I do not try to predict where something is going, just identify it as its happening, and act on it accordingly “This neighborhood is better maintained than it used to be”, could be a leading indicator of price appreciation. With that said, how can real estate be safer than a savings account?

It is actually quite simple based on the economic policy that our government is following. This is not a conspiracy piece, quite the opposite. They are following a policy that is in the greater good, but hurts the individual saver.

Currently, long term inflation is around 3.0% (higher in the 70s lower in the 90s). Banks are now offering passbook savings accounts in the sub 1% a year. This creates a net effect of a -2% on your money. Every year you will have lost 2% of your buying power. This hurts savers. It helps the debtors. The single largest debtor on earth is the US government. They cannot easily control the inflation, but interest rates are theirs to change. They owe a lot and each year they pay it back with dollars that are worth less than the ones they borrowed.

In the long term, 30 years, you would lose 60% of the purchasing power of your savings account. (-2% x 30 years = 60%). The best protection is to purchase hard assets, like real-estate. In my scenario the same asset would be worth 60% more (in reality the numbers would be greater as a result of compounding).

When you start to consider leverage, borrowing money, to purchase the asset you receive the benefit twice. First you are paying back dollars that are less valuable than what you borrowed, due to the effect of inflation; the dollar 30 years from now has less purchasing power. Secondly, the asset is worth more than you paid for it, not as a result of anything you have done.

As long as the current fiscal policy continues, it is unwise to keep money in a savings account since it is eroding every year. While hard assets increase in value due to inflation. As a result following the government’s trend to hard assets is the best course of action for the foreseeable future  

As compared to the sub 1% return from a savings account, it all looks good.  I think it is far more complicated than simply one number (Rent multiplier, cap rate irr, etc).  No one has mentioned the time time and effort it takes to  find and maintain the property.  It is hard to factor the value of your time.  Real estate will never be as passive as the savings account.  Financing also changes all the numbers.  Pay interest only, seller finance at a lower rate for a ltv over 80%.  

Cash on cash as a measure beyond year one, is not very useful. How do you measure cash on cash when you get all your money back? Time to recapture investment might be a better metric.

With that said, if you can clear 1% a month you are in a good place.  Much beyond 2% a month you are in a rough neighborhood.(pun intended)  The second area to look at is how much cash it generates after all the expenses ( mortgage, tax, management fees, etc).  I have heard people say they like to be in $200 per door.  I generally like to be north of $300-400. 

I generally shy away from appreciation as part of my strategy.  Any deal I am interested in must stand on its own merits today.  I can not predict the future any better than the weather man.  I do expect my equity to increase based on inflation and paying principal every month.

I live at the beach and have been thinking about going that route.  The part that concerns me is scalability.  If you have one unit and you rent it out, the local jurisdiction will probably look the other way.  On the other hand, if you are a company with many rentals they may not.  In Florida, any rental under 7 months of rental by the same person is technically a hotel, which carries zoning and tax implications.  I believe that airbnb lives in a gray area that needs to be resolved.  

I think people are quick to jump to the B word.  I agree that some markets are getting over heated.  The part that no one has mentioned is there are still a lot of non performing assets.  Drive through most any neighborhood and look for the houses with paper taped to the inside of the front window.  You can also look at the Homepath, Homestep site.  They have plenty of inventory.  They have been slow to release houses to avoid flooding the market and lowering prices.   

The second part of the equation is the demand.  There are a lot of potential single family home owners that are sitting out ,due to tighter banking regulations.  The forces that create and sustain a bubble are not in place.  A tight supply and growing demand.

How did you come to invest in Jax living in CA?

How many do you have?  Where in Jax?

Mark, 

There are just some areas that are not profitable.  I regularly hear NYC and the surrounding areas are tough.  I have not heard that specifically about RDU.  I would encourage you to take a look at other markets including Jacksonville, Fl.  I see projects regularly cash flowing and  turning in 1% a month and 2% if you are willing to take on more neighborhood risk.

I would check out the local banks and credit unions.  Florida has a ton.  I like vystarcu.com

Where is the property in Florida?

Congratulations!  Sounds like a great deal.  I would double check the occupancy rules from the mortgage co. Owner occupied is usually move in within 60 days and stay for a year.

You should also start to look at the depreciation of the building.  It is worth a conversation with your account as to weather you want to use accelerated depreciation as a break out.  If you are not required to live there I would not, so that you can take the extra deprecation on the other side.  As an active property manager you can take up to 25k off your your taxes.

The us census outlines the population shift from the NE to south and west.  The data is from 2012, but the reasons for migration have not changed.  Technology and virtual employment have increased and it is expensive to live in the NE.  

https://www.census.gov/dataviz/visualizations/024/

I think I first heard the saying was from Buffet, it is good common sense.

I would sell it.  You have an under performing asset.  Would you buy it today if you did not own it?  

The taxers are not the issue, with a decent tax person you can do a swap and postpone the taxes indefinitely.  The transaction costs are the issue for buying and selling, closing, stamp tax, I believe NY requires 2 lawyers, etc.

Future appreciation is guaranteed to no one. In a long enough time frame you will have appreciation, but how much of that is just inflation? If your house goes up 10% and the cost of everything goes up 10% have you gained anything? Specific to Brooklyn, I am not sure that it can keep gentrifying at the rate it has. In the 70's and 80's it was where you lived if you could not afford Manhattan and wanted a short commute. Then at some point it became cool. Additionally, the NOI as a percentage is lower due to higher property taxes, maintenance, less landlord friendly laws.

  As a long term trend, the population is shifting away from the major hubs to the suburbs and rural areas.

Cash Flow is King! if you are like most people.  Appreciation is nice, but you can't live off unless you liquidating the asset.  Sure, you can take the equity out and live off it, but that becomes a payment.  If you leverage your investment you can cover the fixed costs and generate cash flow.  If all goes well you have the added benefit of appreciation on top of the cash flow.