All Forum Posts by: Rob Jafek

@Arsen Atanasovski yes last time there were a lot more foreclosures, and this time is very different in that there is so much equity in peoples homes.  For a foreclosure to happen, someone needs to walk away, and no one will be walking away from all the equity in their house.  They may need to sell or explore other creative solutions, but not walk away from equity.  Here is the graph, courtesy of the St Louis Fed and the Board of Governors of the Fed.

There are lots of places people are still finding inventory.  Wholesalers certainly come to mind.  And it's a good time to brush up on how foreclosures come to market, as there is some coming via that channel - it's NOT going to be some crazy huge flood like in 08, but there will be some and it is a very different process so will require a bit of homework.  

We chatted a bit about this when the recession fears were starting in earnest.  Here is that post and sorry to repeat, but honestly not much has changed.  This one speaks to Denver, so the prices reflected in the LA specific Case-Shiller index will look a bit different. There's definitely some nuances, but you will see they are quite similar. For example, Denver did not participate in the 04 runup, so the prices feel really high there, whereas LA partied pretty hard then.  But, there are a lot of similarities and you can get some idea as to the potential downside and I totally agree with @Victor Saumarez that there is valuing in looking at them.  

That's their take, and I agree. I am sure you learned from your macro classes that there is always a bear in the woods, and a reason not to do a deal. Real estate is intensely local, or in macro-speak: highly inefficient.

Rates DO affect refi, and hence overall transactions, but new home purchases are steady, and even boring. Ping me if you want charts on that.

Here's a bit more macro, and a last chart:

The red line all over the place is the 2-10 spread, probably the most accepted 'yield curve' indicator. Yeah, I ran it a couple weeks ago, so it doesn't show the inversion, but you get the point. Shaded areas are recessions, so you can see the problem with the indicator: size of the inversion doesn't really indicate length of recession, you can't 'time' off of it, etc etc. And, while this chart doesn't show it, as it was messy enough already, the size of the inversion doesn't portend the size of the recession. What's important here is the blue line in relation to all this. It is the Case-Shiller US national house price index, probably the best indicator of house prices. It's not perfect, but probably best, and I see you're from Colorado, so you may want to look at the Denver only price index (which I find fascinating, by the way). The point is: the blue line doesn't seem to pay attention to the red line, and quite frequently not the recessions either. 08-09 was an exception with a high degree of correlation, and we could discuss causation for a long time, but neither would disagree it was bad for all camps.

But; even here: you are not buying the index. You're very unlikely to ever gather enough data, or learn enough, or analyze enough macro to pull the trigger on investing in real estate. Stocks....maybe (but I doubt it). Real estate: no way. For real estate: study local, learn local, and invest local.

The LA Times reports on a property acquired and rehabbed by Diane Keaton.  It really looks quite nice, and perhaps has some good design inspiration for your next project.  

Found this article on Zillow, and thought it was valuable.  Here's the good parts:

That's their take, and I agree.  I am sure you learned from your macro classes that there is always a bear in the woods, and a reason not to do a deal. Real estate is intensely local, or in macro-speak: highly inefficient.  

Rates DO affect refi, and hence overall transactions, but new home purchases are steady, and even boring.  Ping me if you want charts on that. 

Here's a bit more macro, and a last chart: 

The red line all over the place is the 2-10 spread, probably the most accepted 'yield curve' indicator.  Yeah, I ran it a couple weeks ago, so it doesn't show the inversion, but you get the point.  Shaded areas are recessions, so you can see the problem with the indicator: size of the inversion doesn't really indicate length of recession, you can't 'time' off of it, etc etc.  And, while this chart doesn't show it, as it was messy enough already, the size of the inversion doesn't portend the size of the recession.  What's important here is the blue line in relation to all this.  It is the Case-Shiller US national house price index, probably the best indicator of house prices.  It's not perfect, but probably best, and I see you're from Colorado, so you may want to look at the Denver only price index (which I find fascinating, by the way).  The point is: the blue line doesn't seem to pay attention to the red line, and quite frequently not the recessions either.  08-09 was an exception with a high degree of correlation, and we could discuss causation for a long time, but neither would disagree it was bad for all camps.  

But; even here:  you are not buying the index.  You're very unlikely to ever gather enough data, or learn enough, or analyze enough macro to pull the trigger on investing in real estate.  Stocks....maybe (but I doubt it).  Real estate: no way.  For real estate: study local, learn local, and invest local.  

There are some good suggestions here already, and I will add one more, given the circumstances, which is that you have experience, and they don't.  You will probably be tempted to share advice, but you need to resist the urge.  It's a bit arcane, but by offering advice, you may be opening yourself up to a situation where it can be construed that you were actually  not just a lender, but rather a partner.  If that is the case, then you are liable for building errors (10ish year tail), code violations, civil issues, etc, basically you are a 'partner' in anything stupid they did, so you are liable, and potentially for 100% of the error (you'll be rolling the dice on the joint and several thing).  Therefore, my advice is: offer no advice.  

Read more here: 

https://geracilawfirm.com/lender-beware-the-risks-...

and here: 

https://www.cnbc.com/amp/2017/03/09/buyer-beware-t...  

Note the lender getting wrapped in/sued. 

And (especially) here:

http://apps.americanbar.org/abastore/products/book...

@Yonah Weiss is absolutely right about the value of a lawyer.  And the concerns about NJ jurisdiction, and the #s here allowing walking away are valid as well (we don't do 100% financing for that reason).  

Although it looks like their site may be down at the moment.  

This still may be a good, or even great deal.  Just go in with your eyes wide open, hope for the best and plan for the worst.  We wish you well!   

Short answer: no, the market is not 'about to CRASH' 

Longer answer: the guy has some good points, and places are struggling, and will continue to struggle.  And other areas will flourish.  And some places are way over-priced, and others are quite cheap.  And, yes, overall the market feels a bit toppy (to me).  But there are plenty of opportunities still out there, and there will be good deals and bad deals at all points in the cycle.  And you aren't investing in the overall market, you are going to pick a project, an that will be your experience.  As @Joe Villeneuve correctly pointed out in a post of mine a while ago: 

"There's never a wrong time...just a wrong deal."

A couple additional things for you to consider: 

• An interesting datapoint may be to look at other options. In a very comprehensive analysis of "The Rate of Return on Everything, 1870–2015" from the Federal Reserve Banks of San Francisco Working Paper Series, researchers concluded that housing returns were close to equity returns, but with much less risk, which may help to assuage buyer's fears of making a bad choice.
  The whole paper is interesting (at 123 pages!) and is available at:
  https://www.frbsf.org/economic-research/files/wp2017-25.pdf
  PS: Your holding period won't be 145 years :) but there is less volatility in real estate over any period considered, and the point is: where else are you going to put your money?  
• Check out a guy who started at the total 'wrong time', @ Clint Macklin .  Here's his podcast interview with @ Tim Emory : 
  https://icorockies.com/real-estate-investing-podca...
  Short answer: he started at a tough time, but worked hard, figured it out, and is doing well (and you can too).  
• And...uh...not to point out the obvious, but: what's going on in San Fran is not what's going on in the rest of the nation.  Full stop on that one.  

Good luck!  You are off to a good start by asking a lot of questions!  

We lend to a lot of realtors.  They tend to know areas very well, and know other people in the business to help with their projects.  

Having said that, they are related lines of businesses, but not the same.  If you are good at 'realtor things' (not gonna pretend I know that business), how many of those skills are transferable to 'investor things'?  While I am sure there are elements of hard and soft skills in each line, maybe there is more of a focus or value to one type in realtor or investing.  Like I said: lots of overlap, but also lots of differences.  

Bit of an aside, but once in a while we hear stories of guys who have rehabbed a house, and think they will sell it themselves to save some money.  Consistent with many studies and all, they end up with lower prices and longer time on market.  So, there's a reason for the specializations, the trick is to figure out what you do best, and can you do more of it.  And: is your time and energy better spent working on something narrow, like one OR the other, or is your time and energy better spent a bit broader, so do BOTH?  

Started out with $4,000 at 22, and at 27 he's rocking it with his own company. And covered in Forbes, no less.  How'd he do it?  For starters, I couldn't agree more with his 'secret'. In his words:  "I believe that being straightforward with investors and not overselling them on what you know you can’t deliver."  

And as far as a bit of concrete and specific advice, again in his own words: "Some of the key foundations for your real estate journey I recommend include: getting a mentor, doing business with professionalism and integrity, focus more on execution than ideas, and place a high value on building quality relationships."

His final advice is just as good: "When you decide that you want to become an entrepreneur, that essentially means you have decided to take your life into your own hands and design your future. Don’t fall into the trap of making excuses for yourself, or telling yourself why entrepreneurship and real estate investing may not work for you, bet on yourself."

To read the whole article: www.forbes.com/sites/maryannreid/2019/02/11/real-estate-investor-changed-life/amp/