All Forum Posts by: Bill R.

Okay, 25+ year veteran of the tech industry.  Was in before the first website existed and have done the bubble and burst.  

If I wanted to take the time, I could probably find you this same scare story written in the 1980s, 1990s, and 2000s.  The AI and robots are going to take our jobs theme has been around a long time but in 40 years . . . the impacts has been rather subdued.  

And while AI has many practical applications, the predictions of the mass extinction of need for humans  tends to forget we still have so few actual needs for AI at the moment.  I mean, look at this story citing a single example of the burger bot over and over again to stress how easy it is to kill 3 million jobs.  But the number of people who cook only burgers is not 3 million.  It's not an article written to give one a realistic look at the potential impact of AI and bots, rather it's purpose is to scare you.  

There really are a lot of holes in this story.  Like noting that there was an economic shift in the 1970s but back in the 1970s computing was a negligible blip in terms to contributing to that change.  Yet it then quickly forgets all of the other economic factors which lead to wages being flat vs. productivity and somehow attributes nearly everything to technology after that.  

Not that I'm saying that AI won't change our lives or that many jobs will be automated.  But someone here suggested we're not that far away from computers being able to write sophisticated applications . . . I don't see that.  Right now, AI can barely write very structured copy like stock market reports and sports scores where it's mostly MadLib style plugging in of data.  "The market [rose] today [75 points] on [strength in industrials]."  Writing quality consumer oriented software would be like extrapolating this neat little copywriting trick into writing a novel.  That, I'm fairly confident, won't happen in my lifetime.  

But should computers take the job of somebody who was writing market recap reports like a mindless machine anyway?  I don't see any harm in that for the job market other than we really should be taking a very close look at how we educate people for the future.  Probably 60% of college majors should be done away with or at the very least, no public funds (student loans) should be put towards funding educational paths that will lead to people with skills that have near zero value to society.  

I've hired hundreds of college grads over my career and it's so sad to see someone dump tens of thousands of dollars and four years of their life into a degree that makes them less qualified for an entry level job than someone who at least has held a job at McDonald's for four years.  

In the past just having a piece of paper from a four year university was enough to guarantee middle class membership.  But that's not true anymore.  Train people to move up the value ladder so they can get jobs that aren't easily replaced by AI or robots.  

One of the causes of income inequality (but far from the only cause) is that there's a shortage of labor in the highest paying fields (which is why they're the highest paying fields).  We keep graduating people with degrees, and charging them tens of thousands of dollars, that are over saturating the market with college educated people who aren't prepared for a career path that will lead to middle class incomes.  Those that actually get a degree in a field with high demand end up making magnitudes more income than everyone else.  

I also find it amusing that the theme of this post was that jobs are going away so invest in RE.  Except, evaluating deals is a pretty automatable job.  Even property management can be highly automated.  Why can't you have a self-serve, totally automated system to place ads, screen tenants, collect rents, and file eviction notices?  

If the OP's thesis is correct then the ultra wealthy will simply employ an army of AI bots to scour the market for deals 24/7 and purchase it the same way that bots trade the stock market with little human input.  The market will become highly efficient and spreads will become so thin that you'll be lucky to be making $1 a door.  

Sorry, you can't have it both ways.  If bots are going to automate us all out of jobs your job is just as automatable as everyone else's.  

I'm hearing of real estate investors talking about flipping buses.  Scary times, indeed.  

@Brian Dalton:  Yes, the article did note that credit scores are improving.  I didn't mean to suggest that the buyers weren't quality.  Was looking more at it from the angle of what does it say about the market or the economy that so few people can afford 20% down.  On the surface it looks like you have two main factors, either people aren't earning enough to save up 20% down (totally possible as this is aimed at millennials who might already be up to their neck in student debt) or it means that housing prices have accelerated past the point where people can easily cobble together 20% down.  Or it could be a combination of both.  Or something entirely different :-)

@Chris Mason:  Interesting.  It wasn't clear how this worked behind the scenes.  Thanks for the insight.  

Ran across this article on Housing Wire that says that BofA is offering 3% down, no mortgage insurance loans to help buyers get into a home.  Apparently they're conforming loans which means they can be bundled up and securitized which smells a lot like what got the housing market into trouble last time around.  

Granted they're not doing ninja loans or anything but there have been a few articles recently pointing to the fact that home buyers in the $150K - $300K range have less equity in their homes than they did even before the 2008 financial crises.  

Just wanted to throw that out there and hear from of of the old hands regarding what they think this means for the overall housing market.  

My inexperienced take on it is that if so many home buyers can't afford to put 20% down either wages or home prices are out of whack.  

Perhaps I haven't fully and completely embraced what it means to be a buy and hold investor.  :-)  

It kind of sounds strange to me to hear people say, "just buy it right" but don't not invest because you think the market is too frothy (i.e. don't try to time the real estate market).  If you stick to your investment criteria to some extent you're accomplishing the same outcome.  

If you decide the market is too frothy and you sit back and wait for it to pull back a bit or for rents to catch up to price appreciation, isn't that the same thing as not deviating from your investment criteria if no deals meet your criteria?  Are you market timing or are you a disciplined investor?  What's the difference?  

Obviously it's very different if you can find decent deals all day long and you choose to sit on the sidelines because you think the sky might fall but I don't think that is what most people are asking about when they question whether the market may be running too hot for them to jump in.  

Actually, I think it would be interesting to see both scenarios modeled out.  In the stock market buy and hold dollar cost averaging beats out market timing in most models but stocks don't generate cash flow and stocks tend to have far more volatility which means being out of the market on the wrong day can destroy your chances of ever beating the buy and hold investor.  

If you are a SFR buy and hold investor and never deviate from the 2% rule and only acquire new properties when you can get a deal where the monthly rents are 2% or greater than the purchase price, even if it means you end up sitting on cash at 1% sometimes for a few years, do you end up better off than someone who randomly invests whenever they have cash available as long as they can get positive cash flow, no matter how slim the margin.

@Matt R.  Although I have spent the vast majority of my life living in So Cal, including the SFV, unfortunately I was far too young in the 1970's to have had any memories of what the real estate market was like  :-) 

I can say that I think one of the major differences is that LA always had a somewhat diversified economic base.  Aerospace, entertainment, tourism, etc.  Vegas is too heavily dominated by the tourism industry which is why it is so boom and bust. 

Maybe LA and the SFV used to be like that back in the 60's and 70's with big government aerospace contracts and such but, like I said, I'm too young to remember any of that.  

@Robert Adams:  Not to be pedantic but you're saying that the problem with the figures is that I'm factoring in debt service into the return calculations.  I'm not.  I'm not saying anything about return at all.  Return and cash flow are, as I'm sure you know, two separate measurements and the discussion has been thus far about cash flow.  

Factoring in debt service to cash flow is mandatory since cash flow is defined as total income - total expenses and debt service would be an expense.

https://www.biggerpockets.com/renewsblog/2010/06/3...

@Robert Adams:  Not questioning your experiences but what do you define as an "Class A" level area? Is that Summerlin?  Southern Highlands?  Just trying to get an idea about what we're talking about.  

In what I would consider to be a Class A area, minimum home price is going to be $250K up. Mortgage, HOA, taxes, insurance will run you $1400 with 20% down. If you can get $1700 rent on a $250K home, you would be doing pretty good. So that's $300 to cover vacancies, management, incidental repairs, etc. Nowhere near the 50% rule. You'll never positive cash flow that.

Let's say that you find a rehab opportunity with an ARV of $250K and you can buy it at the 70% rule which is $175K minus rehab fees (let's say $20K) which puts you at $155K. Your mortgage (plus yadda yadda) would be around $1000. Assuming the 50% rule for operating expenses such as vacancies, management, capex, incidental repairs, etc, you're still short as your mortgage would need to be $850 just to break even.

Like I said, would be interested in hearing what you consider Class A because maybe I'm just looking at a different segment.  

Yes, in what I consider to be B- and C level areas you can positive cash flow.  

I tend to agree with @Brent M. in that rents are not moving at the same clip as property values in the A and upper-B levels.  I mean, I can look at my own home which has appreciated in value about 20% in the last few years but if I had to rent it I don't think I could get any more for it than I could have when I bought it.  

I think there are a lot of different factors being discussed here.  Some are related and some aren't.  

@Francis Rusnak: Vegas is going to be a tough market unless you're willing to rehab. Unfortunately, you're several years too late to the market to be able to walk into A and B neighborhoods and pick them up for pennies on the dollar. Institutional investors have already picked over many of the best deals years ago. And what's left has a bunch of competition even if you're looking to rehab so unless you're sending postcards and yellow letters it's going to be difficult to find anything in the MLS that cash flows or that can even be bought and rehabbed to cash flow.

Not impossible.  Just difficult.  Even if you're trying to buy short sales and foreclosures there's a ton of competition.  

There's no inventory on the market right now.  Maybe an agent can give some stats but I think existing home inventory is around 3 month supply.  Healthy is considered 6 months.  

@Matt R.:  Yes, they keep building A neighborhoods, so if you buy A today it likely will be the B neighborhood of tomorrow.  Unlike a lot of other places, you rarely see someone buy an old property and strip it down to the sticks.  It does happen but it's difficult because so much of the map is controlled by HOAs.  Who wants to take an old home to the sticks and have to rebuild a house that looks exactly like all of the other homes in the neighborhood?  It just doesn't make sense.  

Most of the A and B areas are master planned communities.  Even the custom homes aren't really custom.  

You can find non-HOA controlled properties but most are currently in pretty rough areas. They tend to be the older parts of Vegas. While there are pockets of nicer neighborhoods within those older areas would you rather have something in a nice, new A neighborhood surrounded by other A neighborhoods or start building an A neighborhood in the middle of a C neighborhood?

With so much relatively cheap dirt available, it's rare to see anybody go back and fix up the old parts.  

Not saying you can't find total rehabs happening or that you can't find pockets of stuff going on but it's just very difficult to find.  Developers just keep building these huge master communities with cookie cutter homes and people keep scooping them up.  

And everyone talks about the BLM (government) land keeping things in check but there's still so much unused land.  Literally there is nothing for 2 or 3 miles on Las Vegas Blvd, the world famous Strip, from South Point to the M Casino (the price of the raw land is too high to build anything other than high income generating properties like casinos but nobody is building casinos).  To the east you have thousands of acres of empty land and then Lake Las Vegas and multi-million dollar properties. To the North you have North Las Vegas which still has tons of buildable land.  And Summerlin just keeps growing to the north-west with A neighborhoods.  

There's no shortage of land and there won't be for a long, long, long time.  There's just too much of it.  

@David Faulkner Agree that Vegas has tended to have a boom or bust cycle but they do seem to be trying to diversify.  As more and more tourist income comes from non-gaming activities at least it's less dependent on gambling.  Of course, it's still highly dependent on tourism in general which can be very boom or bust.  

In terms of attracting other major industries, you've got the Tesla stuff going on in northern-NV but that doesn't really help the Vegas economy much.  

Real future growth will be highly dependent on Vegas attracting industry other than tourism related businesses.  What that is, I don't know.  

Fantastic job on the renovation.