All Forum Posts by: Riley F.

I hope that I'm not being completely misunderstood. It's fine for you to take a guess at what your appreciation is going to be and even for you to factor it into your analysis. It's also fine for you to frequently revise your methodology. That being said, if I asked you to forecast 5 year appreciation in 5 markets, and you were off by > 6% anualized on average, your forecasts are of no practical value. They might help you "complete" your analysis and provide you with comfort, but they aren't accurate.

If the methodoly isn't replicable, then how do other people derive value from it? You told J that you thought that appreciation was more realiable. I disagree, for this reason: When I buy an investment property, I can forecast collected rents, vacancy and costs to a high degree of accuracy over the long term, 5 years or greater. Time and again you find people on the forum that talk about just how accurate the 50% rule has been for them. It's so accurate it's a RULE. There is no commensurate rule called the "Korean population rule" or the "Tech center rule". 

So in summary, yes I'm hung up on numbers. Everyone tells me how good they have been in the past at forecasting appreciation, but it's anecdotal. "It's so obvious 2008 was a bubble." or "Obviously SF was going to apprecciate, it's a tech center." Well, the same could have been said for Detroit and automobiles in the 90s. Unless someone can  provide a method other than "take the data and draw conclusions" then others can't apply it.

 There is a concept in mathematics called GIGO, or garbage in - garbage out, which says broadly that if your inputs aren't accurate, your results wont be accurate. So far, I don't see a credible way to forecast appreciation, so you can finish your analysis using a plug figure, but it will be nothing more than that if you can't accurately forecast it.

@Manch Hon 

I think you're right. Living in NYC, everyone is always telling me how crazy I am to not buy in NYC given the price appreciation that we've experienced over the last 10 year in particular - but I'm not sure that either market is immune to price depreciation even with foreign investors stepping in to sop up any excess inventory at ridiculous cap rates. 

I think that @J Scott was just using SF as an example. In reality Detroit had cars, Pittsburgh had steel, Buffalo and Rochester had rail and manufacturing and all of these cities saw their collapse. I don't think NYC's finance or SF's tech are immune to these market cycles, and in reality these industries actually just serve to make them more volatile. 

You want the 40 year chart of tech stocks through 2002? NASDAQ has been around since 1971 - not sure there is much reliable data before then. You win, I can't.

My point was that if you're going to join the conversation, try to add some value instead of jumping in to tell everyone how smart you are. 

I see. Yes, well in hindsight I can predict The Great Depression, Black Monday, both World Wars, the winner of all Presidential contests, and the sad musical career of Macaulay Culkin. Tact is you still haven't provided a single metric save for "it was obvious", which nearly all economists, Fed Governors, financial writers, etc. disagree with, to predict strong markets or markets that are in a bubble. Or, put another way, if it was so obvious, then why did it happen? If only you had warned people!

http://www.socionomics.net/2010/07/asset-bubbles-d...

"Most people—including Alan Greenspan, Ben Bernanke and the lion’s share of economists—say it is impossible to predict asset bubbles"

http://www.ie.ufrj.br/hpp/intranet/pdfs/krugman_se...

Throw us a bone. Which markets are going to appreciate 7% each year for the next 10, and which markets, real estate or otherwise, are currently in bubbles?

Historical performance is a terrible indicator of future results, any investor in any field of investing can tell you that. Using your above formula, Miami was a great market to invest in in 2007, and 2001 was a great time to buy tech stocks. The problem with the your method of forecasting is that there is literally nothing replicable about it, save for "let historical data be your guide", which you can clearly see is a bad method. And please don't say you have to use "anticipated market conditions", because anticipated market conditions are what I'm trying to forecast.  If you are talking about leading indicators, rather than coincident, do us a favor and be specific about which ones you're referring to.

Or, better yet, how about this? Based on your methodology, i.e. "The type and locations of the properties I buy double in value about every 10 years", what markets and property types will double over the next 10 years? And just so you realize what you're saying, you will need to pick markets that appreciate ~7.2% annually on AVERAGE.

@Account Closed 

I think vacancy rates tend to have less variability from market to market (obvious examples excluded) and be more static in a market over time. You may say that they don't and use Detroit as an example to buttress your point, or cite some markets or properties that you've invested in that have had 40% vacancy rates over certain periods of time, but I call that idiosyncratic risk. If we took a sample of all people on this forum, I think you would find little disagreement that somewhere between 8.333 - 10% is the number that they use for vacancy. 

Now, the vacancy number that was experienced, I'm sure varies from person to person, market to market, and property to property, the same way appreciation does. My question is, why would you then forecast appreciation any differently?

And if you're contending it can be forecasted, how?

Commentary is poorly interspersed above.

If you have the fortitude to read it all, the below is relevant:

http://www.biggerpockets.com/forums/48/topics/34916-appreciation-vs-cash-flow-the-clash-of-the-titans-?page=3