All Forum Posts by: Nick Robinson

@Branden Yang
I was responding to your comment that you had never seen a market crash because of inflation, and I gave you an example. If you read my response, I state that it will cost more dollars in the future to buy the same piece of property. I specifically wrote dollars because something being expensive is relative. If homes, go up 5% but the currency is devalued 10% the property is relatively cheaper. I think you are cherry picking things that my last post said. If you read my post, I said RE went up the same as inflation during a high inflationary time I did not say the RE market was going to crash. I was pointing at a specific market, stock market, that was affected by high rates of inflation.

To go over your second point interest rates do affect demand. If interest rates go up the payment goes up for the same priced house. To keep the payment the same the price of the house has to come down. If you believe because we have near record low inventories the supply is at a level that even with the rise of interest rates and the loss of demand for buying a home, there will still be buyers that is a logical position. Once again, I will remind you, I DID NOT say there was a housing crash coming. I was responding to your statement that you had never seen a market crash because of inflation. 

Your last point about speculation. I said buying a home that has a negative CF position and banking on appreciation to make it a good deal is speculation. Even though we all agree the price for that property will be higher in the future you have to get through the times when you have a negative carry. 

*The 30yr mortgage was at 5.78% last week measured by the FED, which looks at the weekly avg. There was a day last week that the daily 30yr mortgage hit 6.28%.*

@Branden Yang
Thats true you probably have never seen a market crash because of inflation but it has happened before. When we look to the 70s the stock market crashed 50% in nominal terms with high rates of inflation throughout the decade. That means in real terms it went down by over 50%. In terms of RE, because most of us mainly care about RE. RE over the decade went up about the same as inflation. Someone can probably do a deeper dive and tell us the reason home price appreciation slowed down in 1980-1982 was because of the spike in mortgage rates. This goes back to earlier posts I have done on BP and people have reiterated. You have to be CF positive. CF allows you to hold on to a property and allows appreciation to work. If you have to contribute to your investment every month, so you are losing money every month. You are no longer investing you are speculating. I agree with everyone that in 10, 20, 30 years property will cost more dollars, but it does not move up in a straight line. If you have to sell your property because something happens to your personal income it does not really matter how much it will be worth in a couple of years does it.

@Rodney Sums
I bought the building about a year ago and I am finishing up the renovations in the next month.

It depends how you are looking at it but buying a personal home is a liability or at bare minimum a bad investment. I am not saying you should not buy a personal home, but you should be aware of what you are buying. An example is someone buys their house for $300k and they sell it for $400k. They tell everyone they made $100k, which is incorrect. You have closing fees when you sell, you are not counting any maintenance or upgrades you did to the property, and the monthly mortgage you have to pay so you do not lose your capital. As long as you can make the payments you are fine but if you lose your income that "asset" will become a liability quick. You can make the argument that some of your mortgage is going to principal, or you have to live somewhere but we are talking about looking at your house as a pure investment.

If you were to take that same SFR and have it as a rental that makes $300/mo. Now besides your initial investment you will not be putting money into the building monthly. If the building is cash flow positive the building will take care of itself so if I lose any of my income, I do not have to worry about paying for the property as well. Renting also gives you the freedom to leave in 30 days or less where to get your money out of the house may take longer.

Just food for thought from Rich Dad, Poor Dad.

@Bill B. and @Rodney Sums
Bill to answer your question how many people would sell their personal home to become a renter you have at least one right here. I sold my home to get the equity to reinvest it. The house I moved to was 500sq ft bigger, single story, has a pool and has solar panels.  The best part the owner just renovated it and the payment is the same I was paying to own.  I did "luck out" because I found a great landlord who cares about his properties. Sure, I expect him to raise my rent as time goes on, which he should, but the money that I put into the RE investment continues to grow and I am not locked into a personal home. I am not sure if I want to live in CA long term and the price to own a home is crazy when you included the down payment and the higher monthly payment to own rather than rent. Like you stated about your friends for them to buy the same type of house will cost them another $500.  I know the house that I am renting when I checked would almost be $2000 more than I am paying now to own it.  Some of my friends that own homes in CA just said their insurance just declared all of CA a fire zone and doubled their insurance. Now I will concede one very big point. That is, I own a 14-unit building in PHX, AZ that is cash flowing $8,000+/mo. If I did not have the rental that has a positive cash flow, I would have never sold my house to buy another MF property and moved into a rental. 
I did not sell my home because I was/am trying to time the market. I did it because I believed that I could reallocate capital more efficiently than to have it making no return sitting in a personal residence. I do not believe anyone has a crystal ball and can predict what the price of anything will be in the future. We can however use the data at hand, and we can see the probability of what may happen in the future. Example the administration claims we had a 5m build in oil last week, but they are releasing 7m barrels from the SPR, so it is actually a decline of 2m barrels. They claim we have record job growth, but we are still 800,000 jobs short of pre-pandemic levels, so we are just bringing jobs back because of the government's reaction to COVID-19.  If you go one step further a recovery is when you come back to the same growth trend line you were on before the recession.  We have not even returned to pre-GFC growth much less pre-COVID growth. If you look at the pace, we were on pre-COVID we are about 5-6million jobs short. Super tight labor market with a low unemployment rate and a large amount of job openings, but they are excluding the fact that the labor participation rate sucks. Personal savings rates near all-time lows, while CC debt is at all-time highs. I am not sure if you are aware, but the FED does not affect long term bonds or 30yr mortgages (their own study showed all the QE the did since the GFC affected rates maybe 10-25 basis points). What the FED funds rate does affect is CC interest rates, which are at all-time highs. Consumer sentiment at all-time lows since University of Michigan started doing the survey 70yrs ago. Last thing the 2yr and 10yr bonds inverted in March and earlier this week, along with the Eurodollar futures curve being inverted since 12/1/2021. I do not know if this means there is going to be a housing crash, but at minimum there is going to be some bumpy roads ahead. Hopefully everyone already has but this would be the time to make sure your finances are in order, protect your investments, and this is one of the rare times that you would want to hold on to more cash because there will be a deal somewhere. I will take my chances.

@Tyler Dietrich
Kind of to reiterate what the past few responses have been.  If your grandma needed CF or anything like that, I personally would not take any cut from her because my goal would be to help her not to try and "grow my business".  If she offered, you that deal that would be different and you guys would decide what is fair.  I personally would still give that money back to her.

Based on your explanation of the situation it was your uncle that bought the house and is paying all of her bills or "lifetime stay".  To me your uncle owns everything, and this has nothing to do with your dad and has less than nothing to do with you.  The only argument that your dad could have if the property is in her name but then you are probably going to have some pretty big family issues come up if everyone knows your uncle is paying for everything and your dad demands half.

From a tax point of view if the property is in your grandma's name, she is entitled to a tax-free gain exclusion of a primary residence like @Mike Dymski said.  If it is in your uncle's name than it would be your uncle getting hit with the tax consequences or doing the 1031 exchange.

It sounds like you need to talk with your uncle about investing the money with you and determine with him what your cut/percentage will be.  If your uncle is the one that is taking care of your grandma's bills it is ultimately his decision what he wants to do and what risks, he wants to take on.  If you have no experience and just theoretical knowledge of RE Investing why would your uncle give you $400k and what would you be doing to justify your cut?  How much money have you saved?  I personally would rather talk with my uncle and go into a deal together even if I have a small percentage, so I have some skin in the game.

@John Martinez
I completely agree with @Nathan Gesner that now would be a very risky time to try and flip a house.  The lack of housing units and low interest rates have put a lot of demand in the market that has increased home prices substantially.  I do not see a major increase in the amount of supply coming into the market but that is not the only thing that can slow down or crash demand.  If interest rates continue to raise it will slowly start eliminating some buyers and there will be a point when the monthly payment will get so high that there will not be any buyers for that property at that price.  Who knows what that interest rate will be to crush demand?  The other question we are running into is we are not just answering an economic question but a political question as well.  The FED has backstopped the market since the GFC slashing interest rates, QE, etc.  The government is doing everything they can right now to give people free money.  Will the FED continue its hawkish stance even when the system starts to break because over the past decade the CPI numbers have been low but now you have 8.5% CPI.  Will the governments continue to keep trying to pass stimulus after stimulus for "COVID" relief?

You're in Texas so you may have not heard but in the People's Republic of CA the governor wants to give us $400/car that we own, and the city of Palm Springs wants to give every transgender and non-binary person $600-$900/mo.  I have also seen LA and other cities trying to roll out UBI for select groups of people.  I am not even debating whether you agree with these policies or not from a humanitarian, political or personal perspective.  All I am pointing out is that if you have a supply problem in the economy, so you have too many dollars chasing too few goods, the answer is to not hand out more dollars.  We need to create more supply not, pay people to not produce.

@Marcus Auerbach
Marcus I think when people say they are going to save money and wait for prices to come down they are waiting for a crash.  If they believe that the assets that they are going to invest in will come down in the near future, it could work for them.  If the stock market crashes by 50% it went down faster than your cash did and that would be your opportunity to buy the stock, you want at a better price.  This all depends on your portfolio and your personal financial situation whether this is a good or bad idea.  Just like with everything that you may think is a good deal may or may not be a good deal to me.  

If you have no investments and you're waiting around for a crash before you invest that could be an issue because no one knows for sure when and by how much the market goes down.  Then when the market actually crashes, they will probably be the same people that do not want to buy because they are nervous about buying during a recession.  If you have investments and are just waiting for a good deal on a property, stock, commodity etc. that's different.  You are just looking to invest your money in your next deal.

In real estate you should/can be a buyer throughout all cycles.  You can always find deals in any market and if the building cash flows and numbers work out buy it.  The problem people will have is when they speculate on what the market will do.  I have heard a lot of people buying properties that have a big negative cash flow because they think rents will go up 10+%/year and appreciation will be 10+%.  If in your projections you are assuming that rents and prices will continue to go up by double digits and that is the only way the investment makes sense you maybe in for a bumpy road.
  

@Christie Speciale
There is no such thing as a "guarantee" on any investment. I suggest never taking on a property that you think going in will have a negative cash flow. Especially if this is your first property, I guarantee everything will not go as planned. That is why you want positive cash flow and a reserve account. I personally have never done a STR, but I would run my numbers conservatively and be very cautious with a vacation rental going into a recession. Long term rentals will be more stable long term, but I understand the potential for more money in the STR. Just make sure you assess your risk just like you would for any decision. Good Luck

@Michael P. Lindekugel
I am guessing the raise it to about the same rate as the 2 yr treasury which is historically where it has been.  Even though the FED seems like they are "serious" about tackling inflation I think they will break something and reverse course by dropping rates.  They have done this over the past 10-15 years the only difference now is that the CPI is higher.  How is raising interest rates going to pump more oil?  How will it produce more goods and services and fix the supply chains?  The Atlanta FED has already come out with a prediction that interest rates will rise to around the 2yr treasury level and then it will begin dropping.  Everyone needs to stop looking to the government or the FED for answers.  They are the ones that created the problem.  The way to fix the issue is to remove the government/central planners, remove regulations, fees etc.  

@Marcus Auerbach
So, you are still seeing over $500k homes fly off the market?  I understand they have more of a down payment, but the house still gets more expensive as you move up.  A 20% down payment on a $350k house has a $280k loan and a $500k house has a $400,000 loan.  If the cost to borrow money goes up, you will see bigger fluctuations in homes where more money is borrowed.  I do not come on to BP often or listen to the podcast, but I see people posting all the time that it is all about appreciation not about cash flow.  Even though I do believe you need/want both the most important is CF because that protects your investment.  When I see people going 100% appreciation they are speculating.  I agree homes will be more expensive in 10-20years, but nothing moves in a straight line and if you lose your job in a recession and you have a lot of expenses you are going to be in trouble.