All Forum Posts by: Nick Robinson

@Gregory McKinley
Congrats on getting this 1st deal under contract. Hope to hear about more in the future.

@Carlos Ptriawan

Are you sure manufacturing has been strong? it has produced terrible results since July.

You put too much emphasis on the FED. The FED biggest tool is psychology. You can look back at previous FED minutes and they will even admit they have no idea what's going on. The Euro$ system is more important than anything the FED is doing. You really think the treasury buy back system is going to help? Buying back off the run treasuries and issuing out more on the run treasuries. Thats going to make things worse.

They papered over the last recession, and we have yet to recover. Recovering from a recession is coming back to the previous trend line. This has happened after every recession ever except for after the GFC. Just like the job market we brought back all the jobs that we had from Feb. 2020. This is not a recovery because to recover you need to create enough jobs to get back to how many there should have been if not for the recession.

I would not trust any of the FEDs models do you know how hard it is for those models to produce negative numbers? Have you looked at inflation projections from their models? It has shown for months a quick drop back to 2%. It shows that b/c their target inflation is 2% so their models produce those results. What are you going to tell me next because the NAR projected -8.8% appreciation in houses nationwide homes cannot drop below that.

@Carlos Ptriawan
I skimmed some of the posts so someone may have mentioned this, but the market has been projecting a recession, at min. a decrease in economic activity for over a year. It was obvious 2yrs ago that big retailers were buying mass amounts of goods and that it was false demand for these products combined w/ supply chain issues. We were going to see a surplus of goods and thus disinflation if not deflation on goods. The Euro$ futures curve inverted last year at the beginning of Dec and the 10yr/2yr UST inverted in March of this year. With the UST inversion it has over a 90% success rate in calling a recession in the next 6-24 months with the avg being 16months. The one time it was "wrong" it inverted went positive reinverted and then you had a recession.

The #s that are being released are terrible. The Jobs data you are looking at takes raw data and puts it into logarithms to smooth out the trendline, so it is easier to read. Look at the Household survey #s FT jobs have declined in 5 out of the last 7months and this month we had a loss of 490k FT jobs. This data is a lot closer to reality seeing companies stop hiring and moving FT workers to PT. How about unemployment? The U-3 number is 3.7%, but a more accurate U-6 is 6.3%. Look at auto loans, Airbnb bookings. Based on the UST yield curve it was projecting Nov may be the last rate hike months ago and now seeing the 3mo/10yr invert for most of the week not looking good. We probably will still see a melt-up in stocks before the big crash. Once things start to break it spreads through the financial system like a virus and w/ all the leverage in the system no one knows how long or deep the upcoming recession will be and what it will affect.

@Serge S.
Agree with your points especially about the syndicators. I have sat through a lot of presentations over the last year where they were projecting 8-10% rent growth over the next 2-3 years and then down to 6% in perpetuity. They estimated record low interest rates and CAP rates. I am waiting to see what happens over the next 6-12 months b/c like you I assume when these bridge loans come due, they will not be able to refinance to permanent debt. Like @Daniel Green I bought a property 18months ago, only a 14-unit, in Phoenix and ran my numbers very conservative, about $200 under market, and I got a construction loan that rolls into perm financing. Even though there were better financing options I took this b/c economic data has looked terrible for the last 2years.

Unfortunately, I think a lot of RE investors do not follow Macro and just believe headline numbers. Great example is on Friday the jobs numbers came out and showed a "great" number adding 260k jobs. People do not realize those numbers are skewed b/c it is run through logarithms to smooth the data out. If you look at the Household Survey #s, which is raw data, it was the 5th time in 7 months that there was a loss of FT jobs and increase in PT. This last month was a loss of 490k of FT jobs!! BP over the last 2-3 years has been caught up in this craze telling people just buy property it doesn't matter if it CF just buy it. RE is an inflation hedge. Now we are seeing housing slow down dramatically and we have not even started the fall out of AirBnB, syndicators, etc. When you have a monthly expense for those rentals, long and short term, it can create massive damage to your personal balance sheet. Throw in if you are one of the white collared workers who are on the chopping block this can get ugly quick. Too much speculation. 

@Michael Figueroa

I agree with some of the post here but totally disagree with a lot of them. First $500k is a good chunk of change but you are probably looking more at $1.5m as a purchase price, maybe less. $450k for a down payment + 3-6 months of expenses. If you have never done a RE deal, I would spend this time learning about RE and researching a market to invest in. Especially when you have the negative labor numbers today and countless other Red Flags, I would be extremely cautious. Negative labor #s was the household survey coming up w/ its 5th negative month in the last 7. It showed a loss of 490k full-time jobs. 

Tips or things to think about:
1. Stay in Landlord friendly states 
2. Property has to be CF+
3. Always have reserves for your properties

@Adah N.
Yes, you will have lower rehab costs in the future. The reason for these lower prices will not be good and I would be extremely cautious about buying any type of flip or speculative type of investment. This is definitely a risk off environment. You do not want to try and catch a falling knife. Cash Flow is king
 

@Renee Ren
I agree with @Michael Baum why would you pick an area that actively is trying to cut down on STRs? I would be very careful jumping into the STR market right now. Bookings have taken a major hit. To have a successful STR you need to have something that makes your property standout. I would also want my property to CF as a long-term rental as well which pretty much knocks out everything in CA. The market is slowing down and considering we have a lot of headwinds hitting the housing market I would be careful jumping into something speculative.

@Harrison Colunga
I would be cautious investing in CA or any other tenant friendly state. I normally would be an advocate for house hacking a small multi-family where you live. I personally was in your position 8years ago and bought a duplex in Riverside, CA and scaled from there. With the way the state government is behaving, including still having rent moratoriums from the pandemic and the cost of the property it is not worth it. Right now, I have all of my RE outside of CA paying all my bills in CA. I rent for $2,700 a month and to buy a house in the same track it would cost $180k and $5,600/mo. That is ridiculously overpriced. Stay with fundamentals and the goal if you house hack is to minimize your expenses or if you buy a rental to be CF+.

@Brad Stallings
I would be very careful getting a hard money loan right now. The bond market and Eurodollar futures markets are projecting a FED pivot late this year or the beginning of next year. Remember these are only probabilities not certainties. What happens when you go to get the refi and the building does not appraise for the value you estimated, and interest rates are higher than your projections? The last thing you need to do is over leverage yourself in a risk-off environment and lose everything. You think it was hard to save $75k wait till you lose your butt. I have no problem buying a cash flowing asset and use the BRRR strategy to build equity. I would not buy anything that does not CF day one. I believe that some of the advice on BiggerPockets about buying assets that have a negative CF is completely wrong. If you are buying something with negative CF you are speculating that the property will go up in value. Everyone has recency bias because that's what it has done for the past 10-12years. When everyone starts speculating in the market and no one thinks a market will go down that's when you should be cautious. We are seeing a dramatic increase in inventory and a lack of demand in housing. I understand that supply is still under 2019 levels, and everyone says it is simple supply and demand, but they do not even look at the demand side. Housing inventory is at I believe 2.7months nationwide and we are seeing prices come down M-o-M in places like SD, SF, San Jose, PHX. Still a seller's market but the M-o-M data dropped yearly appreciation from 19% to 17% still a very high level when the norm is 3-5%. We're seeing a lack of mortgage demand which should in turn lower pending sales and that will lower closed sales.

Long story short I would look for a CF deal. I would buy as many units as possible, if you want to stay residential then I am shooting for a 4plex. Be careful with condos and properties with HOAs. You want some type of value-add deal. Do NOT overpay for the property. If you cannot find a deal do not just buy to buy. Buy in landlord friendly states, ie red states. The market is hitting an inflexion point and you want to keep your eyes on it. These were national trends and all RE is local. For instance, if I am in Bosie, SF, PHX, SD etc. with seeing a M-o-M drop in median home sales, and a big drop in pending home sales I am probably going to at least pause and see where the market is heading. 

"The best way to make a small fortune is to start with a big one"

@Milan Villarreal
I agree with @Joseph Ryan and @Benjamin Aaker that you need to assess your personal financial situation and risk tolerance. Right now, first thing you need to do is see if your current home will be CF+. If it isn't then sell it, do not keep a negative CF asset especially as your first rental heading into an economic recession and probable depression. Second thing I would look at is can I qualify for that multifamily home without a HELOC or a refi. If you can I would probably do that right now because I want to manage my risk. If you decide to do a HELOC or Refi you will want to weigh the pros and cons. Refi would eliminate your 2.5% 30yr fixed rate debt but you lock in a payment that still allows the property to have +CF and you let the new tenant pay your debt. With a HELOC you get an adjustable rate that is tied to the FED funds rate which they are currently raising, bond market is predicting a pivot and massive rate cuts by the end of the year to beginning of next year, but this is a probability not a certainty, so you want to make sure you can afford higher rates. If you and your wife, make good money and can repay the HELOC in 6 months or so maybe run the risk because the bank also usually gives you a teaser rate for 6-12 months. If when you pull the money out on your HELOC you will not be able to pay it back quickly or it will be tight I would not do that. I was talking with someone yesterday from BP that wanted to use a $50,000 HELOC to pay down his mortgage, velocity banking, but is losing money in most of his investments and money is tight personally. That is way too much downside risk to pay off a 2.5% mortgage. So, the advice I gave him that I am giving you. Now is not the time to lever up. This is a risk off environment.

High tides raise all boats but when the tide retreats is when you see who has been swimming naked. - Warren Buffet