All Forum Posts by: Nick Robinson

@Russell Sherman
I assume your tax guy already looked at this but if you lived in the home 2 of the past 5 years you would not have to pay capital gains on the first $500k, $250k/person because I am assuming you and your wife own the home together.  Thats $1.2m in equity after you have split the proceeds with your wife, paid the closing costs, realtors etc.?  I know myself personally I would feel comfortable 1031ing this money because I have done it before.  That being said I have done years of studying, reading, and had experience building up a portfolio.  You saying you are a complete novice at this makes me think this maybe a little too big of a bite to handle by yourself.  I would either find a real estate investor who has a proven track record to partner with or if the situation allows it, study real estate so you feel comfortable doing what you are saying.  Last one probably is not realistic as you are in a time crunch to finalize your divorce.  

Buying a large multifamily, 5+ units, you will need a partner with experience, or the lender will not lend to you.  You also will need to meet the NetWorth, liquidity and reserve requirements to get the loan.  If you are netting $1.2m after all the costs associated with selling a property and splitting with your ex-wife you probably sold a $3m house.  I also am going to assume if you moved out you probably bought a new place to live in and if you are like most people, you bought something more expensive.  To afford all of that residential property you must make some pretty good money so the NetWorth, liquidity, and reserve requirements may not be a problem but not having experience would be the sticking point.  My advice is to buy smaller multifamily.  

When you say you have $1.2m in a 1031 exchange do you mean you have already sold this property?  If that is the case good luck because there are time limits on a 1031 and considering it sounds like you have not found a market or realtor, you are going to have to make some quick decisions.  If you sold a $3m house your share is $1.5m, assuming you and your ex-wife split it evenly, so that means you need to buy $1,500,001+ of real estate or you are going to be taxed on any of the unused money.

@Kim Durst

I agree with @Bob Okenwa.  What was the point/goal when you bought the real estate?  Most people buy real estate for the cash flow to help them improve their lives specifically in retirement.  If you're selling your entire portfolio right now you are going to be hit with some capital gains tax.  I would be careful with any financial advisor and taking their word on what to do.  Most financial advisors just tell you that you want a 60/40 split stocks and bonds they put it into their funds and charge you, their fees.  You may want to slow down and have a plan before you make big decisions.  

The way I read what you wrote is I am tired of managing real estate, so I decided to sell without any idea what to do with the money and I am hoping for this financial advisor to save my butt.  Then you obviously must not 100% trust what your advisor says because you come on to a forum to get other people's opinion that you have never met.  You also do not know any of our qualifications or why we would have "the answer" for your situation.

When you say you are tired from real estate it is obviously the managing aspect because that is more time intensive than the owning real estate part.  If that's the case, you should have looked into hiring a property manager to handle that for you.  If you cannot afford to hire a property manager then maybe you just bought into the wrong deals, and you should move your capital to more cash flow deals.


 

@William K.
If they are "renters who are behind" on their rent you should have already evicted them, so this is a non-issue.  You are running a business it is very simple you give them a nice, suitable place to live, and they pay you rent.  If they cannot live up to their end of the agreement, then they need to go.  Cutting deals with tenants and letting them "slide" on rent payments never works out good for anyone.  Trust me once you start letting them skip rent and telling them it's okay, they will be less likely to pay your rent.  

For tenants you have that are current on their rent and not causing issues it is up to you how much you raise them.  If the gap like you said is $100/mo I would not raise them the whole $100 that month.  I would make incremental rent increases every year to slowly get them closer to market rent, maybe $25-$50/mo.  Knowing if they stay at the property, you will never get them to market rents, which is fine.  If you have a good tenant, they are worth their weight in gold, and I do not think you should raise them all the way to market every year.  You can do that if you want but you will have a lot more turnover, and you will not make the money that you want to make.  Evictions and turnovers should be avoided if possible but someone not paying their rent needs to be removed.  No one will care when you cannot make your mortgage payment.

@Samuel McCart

Sam,

I think it is great that you want to start in RE. Like many others that have responded I think you should look into house hacking, brrring etc. For house hacking I would get a 4-plex and live in one unit. Flipping houses is just a high paid job that is taxed at a very high rate.

I think you’ll find it will be more beneficial to own rentals and be a buy and hold investor. Also no matter how much you know real estate you want to study macro so you know any potential cross currents. Cash flow also allows you to hold the investments.

On Thursday, 12/2 the Eurodollar Futures curve inverted, and Friday inverted even more.  Although it was not dramatic an inverted yield curve usually forecasts economic conditions that make a recession more likely, or low economic activity.  The Eurodollar is the biggest market in the world as it is all dollars created outside of the US, ~70% of all dollars.  This would imply that in the upcoming months the global market will have lower productivity.  The US bond market is saying the same thing with 10yr treasuries continuing to fall the bonds are projecting slow growth.  Considering the FED cannot really control interest rates and at best can control the short end of the curve it would seem to me that Jay Powell would be in a position where he cannot raise rates.  Last week on Macrovoices the person they interviewed even was projecting the 10yr would drop to 1%.  Usually when there is an inverted yield curve the response is to lower rates, but will they keep going lower?

I wanted to see if anyone is watching this, or anyone has any thoughts.  As of right now there is about a 20basis point difference between the 5yr and 10yr US treasuries.  *Disclaimer* the bond markets are projecting low economic growth and Euro dollar futures are projecting low growth and a high probability of a recession.  That is not projecting the housing market crashing significantly but you would assume during a recession, or period of slower economic activity, that the amount of people buying houses would shrink which should lower demand.

@Matthew Zelaya

This is a hard question to answer because it depends on what and where you are buying. For instance I’m renovating a 14-unit in Phx and it will be just over 8% cocr. If I were in KC, Dayton, Greensboro I would want to see a higher return CoCr.

The reason I am ok with an 8% in PHX is there is a lot of migration to PHX, specifically businesses. The rents on average will move a lot faster than a KC. For instance I am already getting over my projected rent and based on what I should be able to get rents to I will end up closer to 10-11%.

@Patrick M.
What fundamentals look sound? The housing market?  What about the US Economy?  There is more to the housing market than just housing.  When you look the aggregate total of money in checking accounts went from $1.2T in December 2019 to about $3.6T now.  Now with the BBB (Build Back Better) agenda they want to give people more money for not producing.  Then they are still trying to push the vaccine mandate which has already led to 4.4million people quitting since it was announced.  So they are giving away "free" money to people and paying them not to produce.  Based on a survey 34% of workers say they will quit and 33% will quit if there is not at least the once a week testing.  That will further lower production.  If there is less goods and services and more money the cost of those goods and services will go up.

*Note I do not put a lot of stock into surveys but at 77% even if only 20% quit that will be an issue.

As far as housing there have been far more houses started and permits drawn than houses completed.  Builders are dealing with these supply chain issues and not able to complete those houses.  You could have a situation where the supply chains start coming back together and you have completed houses at the same time they want to raise rates.

Since they have kept interest rates so low and inflation is starting to heat up it has pushed people further out on the risk curve and they are investing in riskier and riskier things.  They are investing in riskier things because who wants to buy a 10yr treasury for 1.6%.  The best example of that is Shiba Inu.  This is a meme coin made as a joke of Dogecoin and has no applicable value.  

Does any of this matter? Will it "crash" the US economy?  Will it end all pop all of these asset bubbles?  Maybe or the government and FED could keep propping up the markets and everything will keep going up.  Everyone forgets the market can "crash" up.  Maybe houses go up 5% but inflation runs at 10%.  

It goes back to solid investing strategy.  Buy cash flowing assets. Do not bank on appreciation saving your butt. Have capital set aside in a reserve account.  If you do that you will be fine in any market.  As pointed out earlier they were saying in 2014 the market was going to crash when I bought my first property at $300k.  This last year I am all into a project for $2.4m and have a stronger cash flow position, more reserves and a nicer property.  If I would have listened to everyone in 2014 I would have not bought anything.  You want to be aware of everything that is going on but it should not paralyze you from taking action.  It will never be a "perfect" time.

@Bill B.
She asked for a prediction of what I thought would happen and I said the market will at minimum cool down and likely crash.  I did not say homes will fall 40-50% in value.  A real estate crash is over a 10% drop from the 52week peak value.  I understand crash makes it seem like your making a doomsday prediction.  Like when people say hyperinflation.  You do not actually mean hyper inflation will happen because the definition of that is a inflation rate of 50%+ in a month.  So maybe I should have said I think it will be over a correction of 10% but do not expect prices to free fall and pick up a house for pennies on the dollar.  We can see list prices starting to fall with increased inventory in places like Boise, St. George etc.  This can also just be the nature of real estate that it usually slows down in the 4th Quarter.  

I agree with prices increases continuing to go up over the next 6-12months.  I would also expect the prices to be a little stickier with the increase in wages.  I never suggested people should sell or that I am going to sell my real estate.  I think long term view in real estate will go up and if there is high inflation the last thing you would want to do is sell your assets unless you had something to do with that money.  As you stated you have to pay to sell the property and then you will be taxed on the capital gains and then you have the bigger issue of what am I going to do with the money now.  If someone were asking my advice I would say look for cash flowing assets, run your numbers conservatively, and do not put all your hope on appreciation.  Which is basically always the advice I would give to someone.

In terms of my personal portfolio I found a deal in PHX, AZ for a 14 unit building.  Bought it below market, renovating it, and plan on doing a cash out refi once it is stabilized.  This year I took out $1.6m in loans.  It is always a good time to buy depending on what and where you are buying. 

@Account Closed
To try and answer your questions my opinion is the market will at minimum cool down but will likely crash.  The big question would be when and how long can the government continue to kick the can down the road.  Right now we are seeing more listings in the mountain west area, Idaho, Nevada, Colorado.  Real Estate is always local so hard to make national predications, but generally the appreciating markets you will see the biggest fall.  Markets that are more linear are less likely to be as volatile and should maintain more of their value.

@Bill B.
Where did you get the idea that after high levels of inflation you are unlikely to see a market decline?  What about the early 1990s or 2008?  The CPI, which is not a good estimate of inflation, was high before both of those crashes.  

@Mike Hern

Haha possible red flag for opendoor. You mean a company that’s loses 100s of millions of dollars every year maybe over valued!!!!!

Opendoor should not even be in the NASDAQ. It’s not a technology company it’s a house flipping business.

Don’t worry Goldman Sachs is projecting 16% home appreciation. Zillow was at 13% and Fannie Mae was 7%. 🙄🙄