All Forum Posts by: Ryland Taniguchi

If you are mentoring investors, then I am sure you know a ton about real estate. I completely agree that in real estate you are always looking to add value. Kind of the Warren Buffet approach to real estate. Buy low and sell high.

I think everyone would agree that it was easier to find value in a down market like 2009 to 2011 and harder in an up market like 2015 to 2016. Some markets like San Jose and Seattle are major roller coaster ride markets that go way up and crash way down. 

Buffett says, "Be greedy when others are fearful and fearful when others are greedy." I see everyone being greedy now and the contrarian in me says to be fearful. My goal right now is to accumulate $200 million in capital through my hedge fund so that I can get greedy when the market crashes and there are deals to be found. 

 More likely on a hard money loan but you can ask the bank if you can use your collateral as downpayment.

I tell everyone to diversify. 1/3 wealth preservation like Performing Notes and Tax Liens with a min 6% IRR. 1/3 cash flow like BRRRR or turnkey with a min 18% IRR. 1/3 accelerated wealth like flips and development with a minimum 60% IRR.

 Bring a bus of skilled labor up to Seattle please. LOL

I ran an awesome crew four years ago. I hired my guys at $18/HR. They were like 8 to 10 "regular guys." Super fast and super high quality. Now they want $75/hour plus benefits and I have to go union to get them.

So I asked them if I paid them that if they would come over. They said no. LOL But they will call me when works gets slow in the next crash.

 I completely agree that your statement is true in your market. But you are not in the Seattle market or San Jose market where it is completely about timing at this phase of the cycle. The fundamentals have completely disappeared as of two years ago. It is now purely speculation to flip in the Seattle and California markets.

You cannot "buy right" in the Seattle market right now on flips. So as a result, you cannot create value on flips. But there are still opportunities to "buy right" on BRRRR and urban development.

I am getting out of the seattle market for flipping because the fundamentals are not here any longer. 

 The crash I don't think will be like 2008. It would probably be more like 2000 with a 2-3 year sideways market. I would be more worried if it didn't crash in the next two years and took another upward swing. The housing market is being pumped up artificially by quantitative easing and low interest rates. How long can you pump air into a balloon before it pops?

All of the investors who have been around a long time are saying also that they expect a 2000-like crash. 

 For snohomish, I think the only safety will be in cash flow. If you have a property that is a 1% rule to 2% rule, that is decently safe. Betting on appreciation in snohomish is pretty risky.

I think the tech bubble prior to 2000 was based on pure speculation. The tech companies are now more mature. I agree it won't be hit as hard as 2000 from a tech bubble crash. Bruce Norris said he didn't see a tech crash coming and so I will take his word for it.

I completely disagree about the market not going to crash. There will be dangerous ripple effects from Brexit.

The stock market has no crashed in 8 years. In what historical time period has the stock market not crashed in 8 years? There are not many and when it did go over 8 years the magnitude of the crash was even greater. The one guarantee we have in real estate is that the markets will crash.

The trend is now is migration from out-of-state Amazon, Google and Microsoft workers to North Seattle. They come to Seattle and love the urban "hippie" vibe. A lot of newly married young professionals have the "romantic" idea that they are going to catch the bus. They move to 1-bedroom apartments around Ballard, Queen Anne, Magnolia and Fremont. 

Then they have kids. Their friend lives in Wallingford and so they all want to live in Ballard or Queen Anne. But it is so dang NOT affordable that they settle for a Ballard condo or townhouse or find a house in Lake Stevens, Shoreline, Greenwood or Columbia City.

They are not moving to Lake Stevens, Marysville or Bonney Lake. 

Another migration is occurring now as well. With all the urban development going on in Columbia City, First Hill, Beacon Hill and Rainier. The minority populations that have lived in the Central District are being priced out of this area and moving reluctantly to Tacoma. Gentrification. It's the Tacoma rental market to keep going up. They are all complaining very loudly about affordable housing. 

Affordable housing is an interesting topic. As housing prices increase, socialism will increase rapidly. Demand for minimum wage laws and wage theft laws will increase. There will be calls for rent control and housing subsidies. Expect more liberal landlord tenant laws. Expect Airbnb to go away because it takes away the supply of housing.

The socialists that run Seattle have one thing right on the Airbnb. When you reduce housing supply, the price of housing goes up. Here is where they defy common sense. Rent control and stricter landlord tenant law reduce the supply of housing. It is a mathematical certainty that socialism will double the price of Seattle real estate. And then rents will become more affordable right? 

Sure -- in your utopian socialistic dreams!!!! 

Higher housing prices will drive rents even further up. So the end result is that the socialists make the poor poorer and they subsidize the rich capitalists through inflation.

And whose fault is this? Well the government of course. What do you think quantitative easing accomplishes? This exact market dynamic.

There are some practical solutions to make housing more affordable. Build higher density. But wait, that would be highly opposed by the environmentalists. The other solution is deregulation. A recent article in business week explained how government overregulation like Labor and Industries accounts for 25% of construction costs. 

So we have a dilemma. The very socialists in favor of affordable housing are making housing much more expensive through overregulation and environmentalism. 

So if you trust the socialists to fix the problem they created, I must remind you of the definition of insanity. Doing the same thing over and over expecting a different result.

Real estate is all about timing. Between 2009 and 2014, it was quite easy to flip here in Seattle. In those years, you could find REOs and short sales to buy or buy at the auction. Construction labor and contractors were readily available. 

As of writing this on November 1, 2016, flipping is ultra risky in Seattle.   Construction prices have gone up 40% to 50% in the last twelve months. Contractors complain that flippers underbudget their rehab by 50%. The commercial construction companies come around in buses to "steal" your crews. Hiring supervisors is very expensive. Permits are taking forever. Subcontractors delay for months. 

You know it's bad when you have friends saying they can't find a single contractor to install one window. Or it takes a month to get an reputable electrician to show up to fix four outlets.

It is nearly impossible to find 70% of ARV minus construction costs. Construction costs per multiple experienced rehabbers are going for $75 per sq ft to $100 per sq ft on a "gut out" REHAB.

Some could point to this experienced flipper or that one and say it works. When I look at the risk they are taking on their flips, these experienced flippers all have one thing in common. None of them was doing this prior to 2008. In other words, they have no idea how much risk they are taking.

Yes there are some that really know what they are doing and are still making it work. But I virtually guarantee that all of them are also hard money lenders as well. They are making more money doing hard money lending than their flips. 

The only areas that I would flip in now are Seattle and the Eastside. That's because I seen prices fall like crazy in every other area. In 2010, the houses in Bonney Lake, Summer and Puyallup went from $350,000 to $100,000. Kent, Lynnwood, and Lake Stevens dropped from $350,000 to $180,000. The Newcastle China Creek area and Reserve dropped from $2 million to zero buyers. Oh how people forget.

With all the construction delays going on, it is risky to use a hard money loan at 1% a month interest, 3 points and 2-point extension fees after the 180-day and 270-day mark. Hard money will eat up 8% of ARV every 6-months. If the market crashes and the days on market drop to 24-months, be prepared to pay 32% of ARV if you use hard money.

Hard money lenders make a lot of money but what they are doing is ultra risky too. Here is how it works. You raise $20 million on a reg D rule 506(c) exemption. You get a $20 million warehouse line from Columbia bank. You make a fortune on the velocity of other flippers while THEY take all the risk. The market crashes and you lose your warehouse line. You lose your warehouse lines and your top 3 investors freak out and exit. You hard money fund is down to $10 million, you have huge overhead and now your borrowers give back the keys to the property. If you loan hard money and keep your notes, you are subject to the same market price drops mentioned above. In my opinion, this hard money model is ultra risky. I have seen many hard money lenders go bankrupt during the 2008 crash and it will happen again in the next crash.

So I hear others argue that they put 100% cash on their flip. This is crazy as well if their IRR is less than 60%. Why take all the risk for such a low return. I see people happy to get a 6% IRR with 100% cash. How does that make sense?

If you can't win the game, it is better to sit on the sidelines and wait. My business now is pretty much all hard money lending but we sell the paper through our FINRA broker/dealer in 60-90 days. We loan at a 50% LTV on cash flow turnkey properties in the Midwest. I think hard money lending in Seattle is ultra risky.

I like flipping notes and flipping development projects. Flipping properties in Seattle is virtually crazy. I love flipping though and if you can do it in 90-days with the right numbers, it can be extremely profitable. I am moving to Florida halftime to flip and do BRRRR.

There are still BRRRR deals in Pierce and Thurston county... And urban townhouses deals in Seattle (only). I also avoid West Seattle like the plague. Other than these niches, I am getting out of this Seattle market. I cannot invest money other people's money with the risks being so crazy high.