All Forum Posts by: Lesley Resnick

I may be myopic in my view, since I only invest in Jacksonville...

Experts say the typical home value in Jacksonville is $314,569, and Zillow forecasts home values will rise 22.0% through November 2022.

It is a fact net operating income are down on new purchases, all thing being equal.  I am generally not a big proponent of looking at appreciation, but given the rise last year and the projected 20% this year...  It is also expected that rents will increase as well.  This is note-worthy.  This is a long game and no one ever loses money in real-estate.  The only issue is the holding period and can you stay afloat that long?  Prices are now higher than they were in 2007 by a significant factor. 

This market requires a lot more subjectivity than it has previously.  What are the factors that are going to make this a good long term rental?  Location, schools, new construction in the area, etc. Would you be comfortable owning this in 10 years?

The last issue to consider is where else will you put your money, Stock Market, Dogecoin? Savings Account?  The batteries in my crystal ball are running low. I don't know where housing or other investments will be in a year, but I know I am sticking to my long term buy and hold strategy and it allows me to sleep well at night.    

I work with a lot of investors that have XLS tables that have XLS table embedded and pivots inside the 2nd sheet.  Impressive coding.  

This is a much simpler business than new people think it is.  No one loses money in Real estate.  How much did your parents pay for the house you grew up in?  How much is it worth now?  Inflation and price appreciation will fix all.  We are in hyper growth mode, amazing if you own.  A little harder if you are looking to get started.  With that said, I would assume  no one is buying a burnt out house for $1m in the worst part of town.  Prices today are higher than they were in 2008 during the boom.  I only raise rents when units turn over.  I have been able to raise rents to levels that I thought were just silly.  Some of my singles or doubles are now home-runs!  

In the words of Jay Leno, "You did not pay too much, you bought too soon."

Price appreciation in RE is expected to be in the 20% range this year.  I am generally not a fan of counting price appreciation, but given the rate it is noteworthy.

3 questions to ask…

1.  Is the area acceptable? Not would you live there?  There are different expectations based on if it is an A, B or C neighborhood.

2.  Will you have more money in your pocket at the end of the year than at the start?  I use only real numbers, tax insurance mortgage interest.  Until you buy the property you are only guessing by taking; reserves, vacancy, repair, capital expense, new grass fund, cash reserves, blue sky fund, I want my spouse to sleep at night fund.  If the money is in your pocket, it is not an expense.  I pay bills when they come in, not on a theoretical basis (cash accounting).  I generally renovate all my properties, new roof, plumbing, electric. A/C.  These are the big ticket items.  I have very little maintenance as a result.  In Jacksonville my properties rent immediately, property turns are my only vacancy. 

3.  Do you have a better alternative for your money, not just RE? What is the cost of your money sitting on the sidelines?  If you think the prices and rent are going to fall in the near term, keep you money safe for when that day comes.  If you think you money is losing value (inflation) for every day it is sitting in cash at Bank of America, then act. 

Great is the enemy of Good.  If you are chasing unicorns in Central park, you are never going to make a decision.  Base hits win ball games.  I know a lot of people who have made a lot of money taking base hits and waiting for the market to make them a hero. 

It is easy to fall into the trap of listing to a podcast or reading about someone who bought a property years ago and think you can reproduce exactly what they got.      

                                                                                                                   -  Master Yoda

Back in the 'old days' pre - 2019 covid, my expectations were simple.  I was scaling up to purchasing and renovation 10 houses a year. I was  helping 20 other investors do the same.  There were mostly doubles and triples at the time of purchase.  A few home runs.  

Covid hit and I along with other investors, I hit the brakes.  There was a moment that amazing deals were available.  Fear and doubt ruled the day and people were running for the doors.  Liquidity dried up, loans were not being written.  I am curious about the people who posted on BP, they were looking for 2009 prices and a crash?  Did they act boldly and pick up some great deals?  I am conservative by nature and took a pause when I saw it coming.  I am not concerned with the fear of missing out (FOMO).  I hate the idea of loss more than I like the the idea of hitting a home-run.

One major change in my expectations is there is no denying inflation.  Rents and prices of property are sky-rocking.  Housing increased in the 20% range last year and will do so again this year.  I have historically not look at rent increases or housing appreciation with any certainty and largely disregarded them.  My expectations of an acceptable deal have adjusted to account for these changes.  If I find singles and doubles and in a year 20% increase in price and rent.  I am in.  I am not going to pay silly money for any property, but that has not changed.

PC (Pre Covid) I was mixed on how much financing I would take on.  I felt no hurry to cash out unless I had an immediate need for the money.  I believe we are going to see rate increases and one year from today it will be more expensive to borrow than it is today.  The cheap money has also offset some of the price appreciation and increased the return on investment.  

I am now constructing build to rent properties. I am keeping some and selling some off. The housing affordability has gotten crazy. Can the average person afford the average house? In many cities the answer is, no. They will rent if they can not buy. The reality is you can rent more house than you can qualify on a mortgage. Rentals are 3:1 income to rent, purchases are 2:1 on DTI. Making it harder to qualify for a mortgage than a rental. Which has led me to the conclusion their will be an ever growing market for nicer rentals. Rentals in nicer areas at higher price-points generally have less demand and the relative pricing reflected it.

What expectations have changed for other investors?    

My prediction is that 2022 is another solid year for Real-Estate investors.  Much beyond that, my crystal ball is fuzzy.

How the rest of the economy does in 2022 and beyond, is anyones guess.  Prices and rents continue to rise.  The pace of growth can not continue, 20% in a year is unsustainable.  Rates will go up and the market has begun pricing it in.  Given the already sky high prices, rates will push a lot homeowners out of the market.  It will shake out marginal deals as well.  Tightening up the money supply will slow things as well.  In a measured and controlled way, this could bring back some stability in a heated market.   

As fed chairman often say, "we need to take away the punch bowl when the party is just getting started."

Supply chain issues are slowing everything down.  I expect that product availability should return to normal in 2022.  This should alleviate a lot of the inflation we are seeing.  

You make a great point.  The US has seen very little wide spread social unrest.  I used to believe, naively, it could not happen here.  I think we are in challenging times.  You nor I will benefit in any way from this.  I would propose that no one will be better off.  It will result in a lot of suffering on all sides.   

I don't have the level of confidence in any of these predictions or the CPI, itself since you can't compare it to historical data if the metric has changed.  

When some asked, "where do you see yourself in five years?"  I know it was not here.

We are in unprecedented times.  Debt at levels not seen since WWII.  Interest rates at record lows, fed pumping money.  Markets at all time highs.  People are not working by choice, since they are being subsidized by the government.

There is a global supply problem that is effecting inflation.  This does not appear in any stats.  For example, I need to replace a work truck.  I am not going to since there is a shortage and even if I could find one, the prices are up.  My choosing not to purchase is an example of unwinding of this mess.  People are getting priced out of the market and consumption is going to fall off as long as there is no more free money chasing fewer goods.

The question is, are we on the way to Weimar Germany and hyper inflation?  Representing a complete collapse?  The scenario that I find most concerning is we are, "out of rounds in our economic stimulus gun."  In the event of a negative economic event, there is no way to soften the blow.

There are a few things I do know….

Politicians will act in their own best interest, re-election, financial benefit.

Inflation will outpace interest rates.  It is called economic repression and will ultimately fix this mess.  Inflation will erode the future value or cost to payback the debt.  It will be at the cost of millions of Americans that do not hold hard assets that will increase in value with the inflation.  They will never know why or how it happened only that they are worse off and the top 10% is richer than they have ever been.

This is not: the great recession, depression or the dot-com bust, market crash of 1987, gas crisis of the 70s, the economic contagion in Asia.  

There may be similarities, but none of them were caused by a health crisis, resulting market boom, real-estate boom, consumption boom, supply chain falling apart.  

Doom and Groomers do not lose faith.  With certainty, I can say the the day of a crash is coming.  Don't know when or how big.    

If I am really good and mostly lucky, I will know when it is happening and react fast enough to make it through the storm successfully.  The idea that the future economy can be predicted outside of a few months has been come unrealistic.

Five years ago, if someone asked you where do you see your self….  I don't think anyone was saying in a pandemic where inflation (demand) is running near record levels and supply is near record lows.