All Forum Posts by: Nick H.

You said "Leverage ALWAYS wins." but that isn't true. 

If you give me a scenario today (PP, DP, Int Rate + cash flow for 5 80% levered houses vs 1 unlevered house + any cash reserves on hand), I'll tell you a scenario where you fail in year two. 

Maybe you will then admit that leverage does not always win (even though it does usually win), and that you're simply saying that max leverage is better unless, ya know, something really bad happens to rent amount/vacancy. 

 Yes, if you have continued cash flow, you can't lose, sure. The baked in assumption to "continued cash flow" is that you stay profitable. Are you saying it is impossible that next year a property that profits today won't profit?

i.e. buy house for $400k, leverage 300k, dp 100k, cash flow is however many hundreds of dollars per mo after mortgage pmt. It is not impossible to go negative cash flow (between rents going down and vacancy going up) and for your house value to go down. 

@Joe Villeneuve to boil down your commentary, it sounds like the bulk of what you are saying is "the more leverage the better". Obviously this is nearly always true with an appreciating asset/appreciating rents (depending on the cap rate, interest rate, and time horizon, which @Scott Trench was alluding to). 

As someone who owns quite a bit of real estate and uses leverage, I don't disagree that leverage is good. But to be clear, Leverage does not ALWAYS win (like 2008 Detroit max leverage, you probably lose out). "Leverage always wins" or whatever your claim is, is simply not true. "Leverage always wins" under your most likely forecasted scenario - sure that might be true, but that's a big caveat. 

So yes, of course max leverage is great when rents go up. But if you hold max leverage for 40 years, I wouldn't be shocked if at some point you go broke. Therefore holding less than max leverage isn't unreasonable. Black swan events can happen. 

@James Kerson check out companies already doing (or those that have tried) something similar/same in concept to what you're describing. Check out Homie, which is one Utah based, VC backed company doing what you're describing. I've seen others, but don't remember the names. Looks like Homie charges more (probably because they have to), but from what I recall, they have employees who handle the transactions / door openers / etc. This market already exists, if it hasn't gotten large it's probably a function of market dynamics not idea/execution is my guess. 

@Johann Villalvir interested in this. Shooting you a DM. 

@Scott Trench great analysis. On timing and credit considerations, which is pretty key here, if can't find the data, I'd be curious what % of the multi fam market is large PE RE players ($10B - $100B+ AUM) vs. mid-size RE PE ($1B - 10B) vs. large syndicators $100M - $1B vs. smaller or one-off syndicators. 

I think larger players are likely locking in longer term debt, maybe 7+ yrs? I'd be surprised, though, even for 1-off syndicators, any substantial part of the market is sub 5 year debt (someone correct me if that's wrong). So I'd educated guess that the avg of total apt market is closer to 7 years term length of debt. 

Let's run with your 5 year example though. If that were true, I wouldn't expect 20% of market to have to sell in 2023. 2023 sellers would be the cohort that took on 5 year debt in 2018 (or 6 year debt in 2017, etc). Depending on repayment penalties, I'd expect the bulk of 2018 5 year debt cohort, 2017 6 year debt cohort, 2016 7 year debt cohort, etc to have refinanced in 2021 or early 2022. 20% would assume zero refinancing, but I'd guess the majority of the market may have refinanced in 2021-22. 

So that + longer than 5 yr debt term may swing your analysis a bit. Just food for thought. 
 

 ok I guess we'll see if it happens. so far according to zillow data avg us home prices have stayed flat the past few months since y'all have been calling for a crash. but anything is possible. think 15-20% being the pessimistic case (10-20% chance?) as the fed says is probably about right, would need a much worse scenario than expected for unemployment/recession/etc to drive 20% imo. time will tell. 

https://www.zillow.com/home-va...

 "A “pessimistic” scenario where prices now retreat by 15% to 20% could subtract 0.5% to 0.7% from inflation-adjusted consumer spending, he wrote in a blog post Tuesday."

That is their pessimistic scenario that "could" happen. Whereas 20% (or 20%+?) has been your high conviction base case, such that you guys labeled anyone who disagrees as "deniers"? In reality you don't agree with the fed as your base case (or the lowest end of your base case?) matches up with the upper end of their pessimistic case. 

Haha you do a good job of keeping your long thread going, i'll give you that at least

 When did I say anything about Michigan? I'm talking about all 50 states, the whole market. 

What you are describing - focusing on your markets - is the definition of cherry picking. We're talking about the the entire US housing market.