All Forum Posts by: Nick Robinson

NOI (Does not include PM, Loan)- $980/door

Cash Flow, which is after PM, Loan, and is the actual money coming into my pocket is $428.57. I expect this number to rise a little as I had one vacant unit consistently the past 3-4 months

@Christopher G Platt

Initial post way too long skimmed it. I am parking my money in UST, mainly in T-Bills. 6mo has been paying 4.25% when I started to 4.8% recently. It's a decent return while waiting to get enough money to do my next deal. It is risk free and since it is so short term it is "cash like" meaning I can pretty much sell at any time and at minimum get my principal out.

Saw where you said to be in the stock market if you have not done so already you should have taken profit on these last couple of rallies and moved the majority of your portfolio, over 50% into fixed income, and I am only doing UST right now. We are in a risk off environment with the probability very high for a recession which if the market drops to the avg P/E ratio in a recession puts us around 3200. I would not want my money in something that on avg will drop 20%.

Do not over complicate things. Making money is about patience and making sound decisions.

@Denzel Faulken

Right now I am stacking cash and have put it mainly in 6mo T-Bills making 4.25-4.9%. That way at least I can get something for waiting. 3mo is at 4.62% so may start moving new money there. The bond market has said for the last 6mo have said the probabilities were high that Dec was their last rate hike. Now the Fed pivoting if we look back in history is historically a bad sign for assets with most the damage coming after they cut rates. When we see rate cuts and the probability of a recession very high that is going tighten lending standards and it may be harder to get a loan.

I am looking to buy sometime this year depending on the situation. Since I am looking for 10+ units I will have the money all together this April. For me I am waiting for some of these smaller operators/syndicators to have to refinance their bridge debt with lower valuations and higher rates. I think a lot of them had lofty projections and will be very aggressive sellers this year, we will see. If not, I will buy during any cycle where I can buy a quality property for a good value that I can make more valuable.

In terms of SFR the national market has dropped off since June, like every economic indicator. Median home sales price has dropped over 10% and inventory is up 67% nationwide. This is different for every market with the west and south inventories increasing 110.2% and 103.9% respectively while the Midwest and northeast is only up 28% and 16.8%. Should make sense that the areas that saw the fastest growth ie Bosie, PHX, Austin will see the most volatility and the most downward pressure. As far as waiting for prices to come down in most markets you need 20% more drop in price and rates in the mid 4s to get back to Dec 2019 pricing. Lumber has also been crashing since June which is never positive for housing.

It is very hard to predict price that's why I always state that the probability indicates or more pressure in one way or another. No one knows for sure what will happen, but you have to make calls based on probabilities like in Blackjack. My advice would be to buy 3mo T-bills and save money. Keep looking for deals and be very conservative with your numbers. If you find a deal that works, and you have the money to buy it buy it. If something cash flows and can pay its bills and you no matter what happens over the next 1-2 years in 5-10 years, it will be worth more. DO NOT BUY ANYTHING WITH NEGATIVE CF.

@Katie Miller
This year hoping to add another 10+ unit to my portfolio. Probably looking more Q2-Q3 to see how these syndications fare as their bridge loans need to be refinanced. I plan on waiting to see how the market reacts after it hits the fan. Terrible economic data, housing nationwide down 10% from June, based on bond market we should see the FED pivot soon which is the final nail in the coffin for markets. I would expect a higher probability to the downside in prices. 

Set the goal b/c my main goal is to acquire MF properties that have a +CF that I can renovate and refi. Main goal is to continue to build passive income yearly.

@Nikki Nicole
I am just going to go out on a limb and say if you are only buying one lot it is a terrible investment. Just because you can buy something does not mean you should.

In case you ask why I think it is a bad investment with only one unit no scalability. Is like AirBnB, which is struggling right now, except to stay here you need an RV. Your rental pool is just RV owners that are going through UT and decide to pick your lot instead of another one in the RV Park/Area. Seems like High Risk/Low Reward to me. Put that 10k in a 6mo UST for 4.8% and wait for another deal. If you are looking in the West 110% yoy increase in active listings, I believe within 5% of Dec '19 levels, and increased days on the market and the stuff hasn't hit the fan. Be patience. 

@Heather Brown

How much is your monthly payment? It sounds like you would lose about $600-700/mo as a LTR based on Proforma, which as you are finding out does not mean anything. Obviously, no one wants to take a loss but how long can you afford to lose $12k/year? Did you set yourself up with a reserve account? How long will that last you? Considering the probabilities are pretty high and growing daily that we are heading into a recession it's not the best time to be losing money. The hard part is no one knows how long or deep the recession will be. Another question to ask yourself along with can you afford to take those monthly losses is your job security. If you get hours cut, lose your job etc. now you have your own bills plus this albatross around your neck dragging you down.

Sorry to hear this. Unfortunately based on markets and evidence I have been seeing you jumped into the STR market after the high. In the future I would look more into LTR, being CF+ on current #s not proforma, use conservative projections, and looking into local rules and regulations more. If you closed 9/30 you were in contract early September and on Oct 1st, they passed this law. That means they had probably been talking about voting on it for a while.

This will make you a better investor b/c you won't make that mistake again. The more you invest the better you will be at it. Don't let this sour your taste on investing learn from it move on and you will make better investment choices in the future.

@Garrett Ayers
I would be careful "pulling out as much cash as you can". That dream can become a nightmare real quick. You have a couple options:

1. refi pull money out, making sure you are CF+, and buy something else. I suggest out of CA or tenant friendly states. You see the UST yield curve is extremely inverted which is not a good sign for economy. Considering it takes on avg 16mo after the first inversion of 2/10's and it inverted last Mar. I would be careful. Curve is putting a higher probability of FED lowering rates, but low rates do not necessarily mean easy money.

2. 1031 sell it and move it to a landlord friendly state and probably dramatically increase the CF you are getting. Best time to have done this was the same time you sold your Riverside properties. Then again usually with a 1031 when you sell your property it's at a high and you buy into a high so it's harder to find a "great deal". I like this option b/c I prefer to have as little gov. intervention as possible, so I do not want to invest in a blue state where the actively tell you they want to take your stuff. Just a personal preference and everyone makes their own decisions.

3. Hold on to the property CF, I assume pretty well on a paid off property in LA, for the time being and move that money into 4wk T-Bills making 4.2% till you find out what you want to do and let the Q4 economic numbers filter through the system. While you're waiting research where you want to invest and what you want to invest in SFR, MF, Industrial, office, etc. When you see a deal, you can make your move. Th advantage of this if we go through a rough recession, you are CF+ and so you will have a big buffer. Especially if your tenants are having problems paying rents in CA it can take 6mo+ to get some people out.

This is not the time to be taking major risk. This is a risk-off environment, and you want to be ready to move when the time comes. Be fearful when others are greedy and be greedy when others are fearful.

@Jackson Risse
Interest rates especially long-term rates are determined by the market not the FED. Look at yield curve LDT are in a downtrend the more they raise FED funds rate. This is telling you the market wants safe and liquid assets and they will pay a premium for it. I agree with a prior post the trade was to buy TLT under $95 and continually keep reinvesting waiting for the hammer to fall. 

What is going to hit the hardest is when everyone realizes this was not inflation, creation of more currency units, it was consumer price increases. Look at CPI from July to now MoM. Those 5 months annualized is CPI at 2.472%. People will point to M1 or M2 which is a terrible metric for the amount of money in the system. If 80%+ of dollars are created outside the US in the Euro$ system and the commercial banks are not creating money, then what the gov./Fed does is irrelevant. Look at Z-1 data for a proxy for how much money is created. 

There is a recency biased that the FED will just keep pumping the market up and can inflate it just by cutting rates. Look at history. Historically when the FED cuts rates we see the worst part of the recession after. In terms of waiting for rates look to Milton Freidman's Interest rate fallacy. Low rates do not mean easy money. Think about after GFC rates were low but no one was lending.

Look at commodities, specifically lumber has fallen dramatically. This has never been a good sign for housing to see this rate of change. With NAR projecting -5% appreciation and saying the "strong" labor market will keep us from falling further to me means you need to look around. If you look at every measure of economic data, we are in a bad place. The only labor data that's good is the gov. job data which is not raw numbers its run through logarithms taking into account birth/death rates etc. HH survey which is raw data is a better metric to use when there is a transition in the economy. We are only 1M jobs, using inflated gov #s, more than Feb 2020 and to get back to the same growth trend, which never recovered from '08, we should have 4.8-6m more jobs than FEB 2020.

Long story short there is more downward pressure on the housing market than upward pressure. This is based on PROBABILITIES not CERTANITES. No one knows how far or long the prices will go down. If a deal CF's and you are ok with the current returns, do not project big rent growth near term, buy the property b/c no matter what happens over the next 1-2 years the property will be worth more in 10+years, probably more in 5+.  My thoughts I have CF assets w/ reserves and took my free cash and bought UST. For my investments multifamily (5+ units) I know syndicators ran liberal #s bit off more than they could chew. When those bridge loans end and they need to refinance that's when I plan on making my moves. My 2¢

@Marek Kucharski

If you are CF negative then you are speculating the price of the home will keep going up to make your profit or at least the next 5yrs. The other problem is how much money you are putting in for payments, and expenses. Over the last 15yrs it will probably take you a couple of years once the house is paid off to make up for those losses.

If you can sell and not pay any taxes, you lived in the house 2 of the last 5 years it maybe a good option to sell. In terms of reinvesting the money this whole year has been a risk-off environment. I would sit on the money at least over the next 6months before making a decision. Housing transactions are crashing and home prices have been falling since May. Stocks your looking at projections of S&P at 3,000-3,400. The bond market is projecting the FED pivot but if you look over history after the pivot assets fall in value.

Long story short if you can get your money out of the house there will be some big opportunities over the next year or 2. Be patient and make sure this time you invest for CF. If you buy stocks buy companies that pay solid dividends.

@Dave Meyer
Exactly and if you look at the current data % of homes bought by investors just dropped dramatically. Over the past 2-3 years especially we have seen a buying spree for investors of rental properties. I think this craze has not only slowed down but to some extent will work in reverse. Companies like BlackRock do not look at property the way you or I do they treat it as a stock. You probably have the number on the top of your head, but I believe the avg CAP over pandemic was 4.5-5%? If they can pick up a 1yr UST and make 4.75% and not hassle with tenants, property management etc. they will probably take that option. Not to mention it is a cash like instrument making it extremely liquid. Even though they bought these properties with "cash". That cash was most likely margin. With exposure to FTX and the avg bear market in stocks bringing the S&P to around 3k-3.2k, I think much worse based on yield curves, they may have margin calls and will need to liquidate their positions. This is speculation because no one knows how much leverage is in the system.

The other place you will find supply is through AirBnB. I have been saying it over the past 2 years and over the past couple of months it is becoming more evident some investors put the cart in front of the horse. 50% of all AirBnB's were bought over the last 2 years and I would be willing to bet none of them work as LTR. With the community seeing less bookings and going into recession I expect to see more pain to these owners and we will see how long they can hold out.

Even just these two factors will increase supply and if rates stay high, which once again based on history and yield curves I expect to fall, the affordability will decrease the demand for housing. Even if the FED cuts rates you can look back in history and find that is not a good thing. The markets and economy fall after the rate cut.