Originally posted by @Rudy Manna:
@Ryland Taniguchi as always, get some of the best advise and insights from you.
None of us have crystal ball for the far future, but what is your opinion on chances of a crash in 12-24 months? I can't predict the macroeconomic forces such as China slowdown, Britain collapse, Greece bankruptcy or mortgage rate spike. But when I look at local factors there is incredible strength in the Seattle area. Population is exponentially increasing, I personally know friends who are moving to Seattle area and few others looking for jobs here as well. Facebook and Google have aggressive plans in Seattle. So many people live in rentals with double income high paying tech jobs waiting to buy houses, or looking and got discouraged seeing the competition ( I personally know at least 10). Without any catastrophe with Microsoft, Amazon or Boeing just don't see how a crash is possible. Don't know about Boeing but microstructure and Amazon have really strong senior leadership at this point.
A plateau in price is possible, or even a small correction ( 5-10% drop ) is possible, but given the local dynamics don't see how a major crash (>10%) might happen in the next 2 years.
The local economics in Seattle are very strong. The demand for housing way surpasses the supply. Housing prices will continue to go up.
But what is going on the world is what would lead to a major correction.
There is an incredible amount of currency crisis uncertainty related to the European Union. Brexit has exposed five bankrupt countries in Portgual, Ireland, Italty, Greece and Spain. If any or all of these five were to go into a sovereign debt crisis, they could exit the European Union and start devaluing their currencies. It could not only disintegrate the European Union but also start a chain reaction of currency devaluations similar to that which lead up to the Great Depression. Any crisis in Europe would directly affect China.
The global economy is susceptible to a meltdown. Banks would fail and then bank lending will stop. It would happen even as interest rates dropped. The music stops.
I am sure the global leaders are working together to prevent a global meltdown and so that will determine whether we have a correction like 2000 or something worse than 2008.
So here is how I am shifting gears.
1) Got out of flips completely. Seems risky to me based on my understanding of holding costs during crashes. Also, I only buy now pretty much in Seattle for development and Tacoma for rentals. I have been avoiding all other areas for the most part and wholesaling like my deals in Arlington, Newcastle and Lakewood.
2) Moving to a strategy that I call the 10-10-10 Rule.
10 projects a year that meet the goal of Wealth Preservation. Super safe instruments like Notes with 50% LTV and government guaranteed tax lien certificates.
10 Projects a year that meet the goal of Financial Independence. For me, I am doing 1% rule cash flow properties using the BRRRR strategy in Tacoma. Anything that I pencils to flip, I look to get a 1% rule cash flow as additional criteria.
10 Projects a year that meet the goal of Accerated Wealth. For me, this is building high density urban townhomes only in Seattle with a minimum 100% IRR.
3) Shifted from aggressive deal accumulation to a conservative accumulation of cash.
4) Focus entirely on building up a self-directed IRA group and raising millions for a hard money fund. For hard money, I think it is risky to hold the paper so I partnered with underwriters with over 20-years experience that have systems to sell the paper in 60-90 days on the mezzanine markets.
5) Have completely stopped being reliant on any bank financing. Have replaced the take-out BRRRR financing with private money 30-year fixed 6% loans. Moving to private money over hard money. I would not rely or overuse a bank line of credit... That will be gone when banks go bankrupt. Don't crosscollateralize anything.
6) Buy gold and put it in a ditch.
