All Forum Posts by: Michael Kelly

Your thoughts? 

Thanks!

Michael

"Recession-durable RE investing for non-accredited investors" 

How do you defend against recessions, without sacrificing ambition? What are your favorite loan products and LLC strategies to optimize scaling in times of economic uncertainty? Rapidly grow portfolio and maximize leverage, but mitigate risk, build durability and avoid pitfalls. Access equity without losing properties.

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The market moving forward 

What's going on today? The Bull market continues, though new market forces raise questions. Higher interest rates. Bank deregulation. More retirees. Geo-political pressures. 

Real Estate, like the stock market, has seen a boom from 2014 to present. Artificially low interest rates and lower prices incentivized investment through healthy appreciation. Will it continue? Price acceleration seems regional at this point and still accelerating, but interest rates are rising and corporate and national debt will feel some pain.

(Cautiously) Optimistic!

Despite these risks, I am optimistic. There are diverse investing strategies. Demand for living quarters is universal. Governments rightly look to private sector to provide and manage housing supply, bringing tax incentives for both parties. 

It's a strange time. Wages have been stagnant, but employment is relatively better, even if it's part-time or subsidized work. At least logic of the metrics is comparable since 1994, I think. 

Why not lock in low interest rates? Historical averages are still 75% higher in many cases (4% vs 7%). Is this correct? 

The solution

I like fixed rate loans, even if you have to pay for it. In 2008 new investors felt the squeeze when Balloons, ARMs second mortgages exploded, lockstep with rising interest rates. People lost jobs and speculators lost out. Today's environment is different, but there's certainly ways to avoid pitfalls. 

I don't favor products that greatly vary in 5 year time frame. What are the products you avoid? Products you recommend? How about scaling? My banker suggested HELOC loans are often pegged to treasury rate. Are these ever capped? Are there better alternatives?

Your experience? Your predications? Feel free to share past experiences and scenarios you prepare for. Do you see the past repeating or will things be slightly different next time? 

Thanks!

Michael 

Below I've outlined several topics I think about when analyzing future trends. Answering these questions helps real estate investors drive the future and buy in to hot trends while they're cheap. 

Where will people be in 5yrs. 10 yrs. 15yrs. 20yrs. ? How will Millennials and Gen Z prioritize aspects of living and define quality of life? Will traditional suburbia change? Will specialized rural communities flourish? Will single family home prices be affected? Are young people really drawn to apt. living and/or renting? Will urban migration reverse course? How will retirees fit in? How will retail space be effectively used? 

Please share your thoughts and other trends you focus on. 

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The old tradition 

Growing up, my parents owned a decent sized but standard 4 bed, 2.5 bath, two stories with additional finished third floor for storage, ironing and home office. Square design. Close to neighbors. Tiny "yard". All bedrooms were on the second floor, and in close proximity. 

Price to value 

The house appreciated 3x since they bought it early 1990s, but it never seemed worth the price. We live in a coastal region, lackluster schooling system, low crime, but nothing too exciting and certainly crowded area. As the Boomers retire and downsize, I expect a marked influx of supply of this very type of traditional, single family house. But what about demand? 

Boomers' traditional single family homes?

Local examples I've witnessed result in selling the house (and evicting kids / grandkids), because young adults saddled with student loans, wage stagnation and transient employment have do not afford many the option to buy. Even if they could, lifestyles, at least for now, do not make it a competitive option, at least at historical price levels. 

Are things still changing? 

Widespread access to high speed internet, the "gig" economy and online business opportunity have revolutionized work, but is it done? With 5G and expanding wifi options, remote work will become more available than ever. If I could conduct business anywhere, where would it be? 

My ideal living space 

Close to nature. Amongst friends and living in a community with more personal space, diverse economy, access to travel (roads / airports) and strong local culture (food / entertainment / socialization). I'd look for optimistic, less populated areas with work / life balance, basic conveniences and online shopping. Young people and less stress. Clean water and local produce. 

Technology provides alternatives to mainstream lifestyle of 1980s-present 

My vision is different than the historical "urban migration" trends. My ideal living is not close-quarters apt. complex, even with amenities I couldn't afford on my own like pools, gyms and social areas. It's also not suburbia, standard of the Boomer generation. 

New "American Dream" 

Will we see small, rural areas develop contemporary communes, with all the draws and fewer concessions? Modern communities with better balance, access to space, and without sacrificing technologies and connectivity? 

Schools as daycare, online programs as education 

Why not enhance education with online presentations and world class teachers? There are already incredible YouTube courses that are more relatable, more advanced and teach me 10x faster than standard instructors. Lessons are efficient and content is relevant.   

How will retain space be effectively used?

What will happen to retail space? Seen anything promising out there? I could see malls of America transformed into greenhouses, used as urban oasis for congregation. Or maybe event space, urban fitness course, concert venues, testing facilities, food courts, skate parks, breweries, education facilities or start-up incubators. Rental cost per square foot would still decline, but these things are simply not what they use to be and never will be again. 

Thanks!

Michael

I'm new to real estate too, but not to investing and personal finance. Velocity of growing a property portfolio will depend on "core" financing strategy, including equity management, mortgage products and financing resources, but a wholistic approach beyond standard banking will: - speed things up - open new options - mitigate risk To obtain money for real estate, you can: 1. Borrow 2. Save 3. Earn I recommend using a combination of all three methods. In addition to [growing portfolio faster], using 'save' and 'earn' methods alongside 'borrowing' will [keep your pipeline full] down the road, give you [buffer to prevent setbacks] and [durability to last through any downturns]. It will make lenders want to give you loans and alleviate temptation to take on excessive loans too fast. Below are some ideas. 1. Borrow Refinance: you may be able to pull out max of 90% equity from a local bank. Build relationships through networking and ask a good mortgage broker. This strategy introduces some risk because you may be less durable in the event of a recession. Carefully review loan rate terms and calculate "worst case" numbers should treasury interest rates rapidly increase and home value drop 20-50%. Could you still afford payments and avoid selling low? Even with surprise vacancy? Is interest rate capped? Adjustable? Length of term? Balloon risk? All need consideration. 1031 exchange: you can sell your current place and move proceeds to escrow for 1031 exchange to buy a different property of equal or greater value. Officially, you need to make next purchase within 45 days. Advantage is proceeds from house sale are "tax deferred" so you can indefinitely delay paying capital gains tax on appreciation you gained in the old house. This means you get to reinvest that money and get appreciation and CashFlow on those dollars. Consult a qualified pro for help. Seller finance: work out a deal directly with the seller of a future property. This can let you buy a new place in a situation when bank might not lend it to you. Private investors: practice running numbers on cash flowing deals. Network to find established real estate investor and ask them to review your deal to critic. Once refined, ask that person or another if they'd like to front money for large percent of gains. Bigger pockets community can recommend fair terms. For profit share on top of principal, I like 35% me, 65% for investor. Always take good care of your investors. They make the deal possible and have most skin in deal. In this case, I've heard people putting loan in their name when investor puts way more cash. Transfers risk off investor and puts on borrower. Build credit: Strategically build credit to get future loans 2. Save Analyze current expenses: - create spreadsheet of ALL expenditures over last three months - find and reduce or eliminate any expenses you don't need or love - target 15% monthly reduction. For 3k monthly budget, that's $450/month or $5,400/yr. - areas include eating out, entertainment subscriptions, convenient purchases, expensive dates or drinks, consumer goods, fancy brand items, rent or mortgage at or over 30% pay, etc. - don't give up everything you enjoy, just be aware that small choices add up. Avoid unnecessary ones. - send extra money to separate savings or investing account on same day each month Invest in other asset classes: - you might seek a talented mentor in stock investing and ask for help building a portfolio targeting 15% annual returns. There's risk, but it's definitely possible, even these days. Review capital gains taxes before. - get a compounding interest calculator. I use "compound me" app for IPhone. $450/month for 3 years at 15% average annual compounded appreciation should yield $20k+ after taxes. That's a 20% down payment on a 100K property, a new roof for an existing rental property, or 12 months cash reserves at 1500+/month. Certain loans may require 6 month's cash reserves, so that may cover two loans, qualifying you for money you couldn't otherwise borrow for new CashFlow. Pretty awesome, and this new strategy can cook on the back burner so it's ready when you need it. 3 yrs is doable! 3. Earn New income: - add new sources of part time income to accelerate savings and get funds sooner. - goal to earn extra $500/month - combined with $450/month savings = $5700 after 6months, or 3.5% down on a 165k property residential property with an FHA loan. I think you can get 4 of those type loans before entering higher lending requirements? -After 2 years it's nearly 25k. - After 3 years invested for 20%annual compounded interest - nearly 50k! That's close to a turnkey single family in some regions. Certainly would buy another flip or pay for good reno projects on two properties to force appreciation on each. Worth looking in to. Ideas include: - drive uber - Tutor school kids - babysit - cut grass - handwrite invitations - sharpen cutlery - make YouTube channel for product reviews - write a book - teach guitar lessons - run a summer camp - sell things on eBay - organize parties for people - part time customer service emails for company - write resumes for employees - property manage - start Etsy store - air BnB a room in your house - buy clothes in thrift store and sell online - host BBQ dinner and sell tickets for food and beer Get a raise: - you can also ask boss for a 5% raise. If you and husband do so successfully, that's 10% more right there, or another 10k/yr pretax for 100k income household. Added that to $5700 gained from six months of saving + extra earning and you've achieved over 20k new money by this time next year. Good luck, and I hope this helps spark ideas! Anyone have comments on this? Best, Michael