All Forum Posts by: Joe Scaparra

Hi Victor, I always like a good debate if you will. I have read many of your responses on BP and I too think a lot like you. However, I do think Cash Flow is King and I also think real estate can outpace the S&P, year in and year out, 3-5-10 year periods, whatever you like!

I take exception to the real estate investor doesn’t exist. Many of us, including myself would call us real estate investors. I do have other investments including stocks, bonds, ETFs, mutual funds, and the likes. Not that I am the go-to expert, but I do have a wide range of experience in the different asset class to include Alternatives. I also have a vast range of work experience to include 20 years as a Military Officer in the USAF, followed by 20 years as Financial Advisor (18 of those years as an independent advisor). Along the way, the last 19 years, I have invested in small multi-family investment real estate (duplexes). I only give this background to give some credibility to my words going forward.

For the past 15 years or so I have primarily invested in Real Estate over other asset classes. I know you’re going to pull the historical S&P numbers to the other asset classes and say there is my point proven. But are we limiting ourselves to those large asset bases then you might have a point. It is hard to break out what types of real estate your numbers compare.

Is there an index that factors in what a portfolio of small duplexes bought in Texas over the last 20 years using the 1% rule (among other criteria) that resulted in an initial monthly positive cash flow of $400-$500 on property that had approximately $30-35k outlays and the excess cash flow was used to pay down the notes so that the portfolio mortgages were paid off in about 15 years. So, to put in other way, is there an index that reflects a portfolio of duplexes that sold for 140k each but the total outlay of the investor was 30-35k per duplex and the ABSOLUTE rest of the expenses were borne by tenants with the excess used to pay the ENTIRE mortgage within 15 years.

You mentioned the S&P and how it outperforms (over the last 20 years 8.2% annualized), but failed to mention the average investor only realized 2.1%. Let me provide a reference: https://www.crewsbankcorp.com/blog/sp-500-vs-average-investor#:~:text=S%26P%20500%20vs.%20Average%20Investor%20Today%27s%20chart%20comes,is%20down%20and%2For%20try%20to%20time%20the%20market.

I always like talking about risk with any investment and somehow you do too! However, I again take exception to your real estate is the 2nd riskest asset class. Now again you might be right if we have to limit it some broad based all inclusive real estate index. But you do realize we are on BP talking about CASH FLOW deals on INDIVDUAL PROPERTIES. You know those BRICK AND MORTAR things that you can actually go and touch and say yes here it is! Not like some GM stock or United Airlines that went bankrupt but didn’t. You know that car company that didn’t shut down or airline that kept operations going but told you that the stock you hold is NO GOOD but our new issues are FINE as new wine. LOL.

Tell me where my risk is in small multi-family properties like duplexes. If they cash flow POSITIVE day one, they probably are really cash flow positive 10 years later. I have yet to decrease rents since I started buying duplexes in 2003. My average rents back then were about $700 a hole and now about $1400 a hole. I was making money with a mortgage at $700, what am I doing with NO MORTGATE at $700 a hole.

I will put my portfolio of duplexes acquired between 2003 thur 2019 against the S&P during that time and would bet my duplex returns would double the S&P with far less risk. Please tell me where my risk lies. Yes there is NO INVESTMENT without risk but pro-active investors on BP seek and acquire the skills to navigate that risk with ease.

Now don’t get me wrong, this real estate investing isn’t for everyone. THANK GOD. If everyone did it, would it really work…….hell no we wouldn’t have those guys called renters!!!! Yes this is well kept secret that the BP community has capitalized on…….but don’t tell everyone, I like your ruse in telling the other side is better……..let’s keep this our secret, keep the S&P story alive, we can’t sustain it ourselves if we have no renters! Cheers.

Let's revisit this discussion in July 2023.  You know, when the housing market historically performs well.  Let's see if median sales prices from December are higher than the median sales prices this coming June.  I predict that to be the case based on the trends of this market.  

 @Marian Smith, not pissed.......really sounds like it!  Fear Mongering, nope just pointing out a major shift from irrational buying to a market that just about shut down.  You call that Fear Mongering, I call it reality!  Your quote "No doubt there are recent job losses and interest rates are elevated, but I am not sure what percentage of the population are immediately affected...most just keep on living their lives".  Just about anyone carrying revolving debt or considering taking on additional debt (like maybe a mortgage, after all this is an INVESTMENT REAL ESTATE SITE) is affected, not to mention ALL OF US are feeling the effects of this higher inflation.  But you just keep on living.......good for you, that is what I hope we all do with a little caution going forward with how we might view the near term economic conditions.

Just pointing out the Trend line and how it has done a 180 in just a few short months!  I have no conflict of interest not a realtor or lender.  But what i am is an old grey hair 67 year old who has a lot of experience under my belt and is not afraid to be called a Fear Monger!  Cheers.

@Bryan Noth, I appreciate Greatly the numbers you post each month.  Most real estate professionals try to put a positive spin on a declining market but these numbers should be sounding ALARMS to all, to all put your hard hats on as it is about to get UGLY!

We are in the slow cycle of real estate so we are not so concerned as it will pick up in the Spring, right!  I say NO WAY, MY estimate  is it will get SIGNIFICANTLY worse in 2023, yes not next qtr only, but the entire year!

Come on guys I know we are trying our best to put lipstick on this PIG but it is not going to hold up in the rain!  The elephant in the room is what are the numbers telling us verse the just the numbers.

Terms like:  relatively low volume, mostly mortgages are not forcing owner to liquidate en mass (What? Their mortgages are fixed and they haven't lost their job yet, the rise in new mortgage have no affect on older rates); I don't expect a crash will result?  These terms are too mild to use at this juncture.  I am not a flipper, buy and hold guy but my duplexes have lost 75k-100k in equity just in 6 months.  My rents sky rocket up until about 2 months ago now we are even seeing a slow down there even though there are fewer buyers.  More and more people are moving in together to make ends meet.  Those who bough income properties over the last year might start feeling the pain or at least getting a little anxious. 

Is not this the first month that we have declining sale price year over year (in this recent bull run).  Yes and in-of-itself you might say it is slightly flat to down (no big trend).  Wrong it is down because BuYING has STOPPED and sellers are not listing (they like their low mortgage rates).  Sales are down 50% and I predict it will be down that much or more next month and continue into (strong market months) 1st quarter of next year and beyond.  Trend line shows a dropping knife.  Don't try to catch a droping knife, let it hit the ground before you pick it up or your likely to get CUT.  When a market crashes there is alway a point you can see when it crosses the  moving average line.  What is important is how it crosses that line and when you look at year over year numbers especially this month you see what looks like a leveling off, but that would be wrong.  Month over Month shows a CRASH and will be confirmed with the YEAR over Year numbers in the coming months.  

Here is why this market is crashing down now.  When these thing change there will be a lag effect then things will get better.

1.  Inflation is ridiculous high and predicted to be that way for sometime.  Results:  Mortgage rates continue to rise, cost of goods and service EXTREMELY MORE, disposable income Significantly decreases.

2. Increasing interest rate not only effect real estate buyers and sellers but also companies.  Companies stocks drop, their ability to leverage their stocks decrease causing them not to be as liquid to expand (cost of loans too high, possible defaulting on existing loans as business loans are more the floating type right!)  So they can't expand, BUT THEY CAN CONTRACT.  Contracting by cutting cost, laying off employees, stopping production on the warehouse or manufacturing plants ect. Amazon just layoff 10,000 employees, so did Facebook.  You say that is a drop in the bucket.  Yes it is but they have to layoff 10k before they do 50k. In the real estate boom how many we're they laying off, that right NONE they were hiring by the 1000s.  It is just not Tech, but every where around the nation.  Kohler just laid off 1000 employees last week.  More are coming.

3. Fed's just announced a .5% interest hike this week.  That new continues the significant slide of the Stock and Bond markets.  Making worse #2 above.  Our government is spending more money than it takes in tax revenue.  Nothing new but to the tune of about 1-1.5 Trillion dollars short.  Oh, BTW about 46% of the tax revenue goes to pay INTEREST on our existing 40 Trillion dollar debt.  Put that in perspective, you have credit card bill and your balance is $50,000 and your payment of $1000 only reduces your balance by $550 dollars. Yeah!  The real inflation is because our government spends more than it brings in and raising rates will only put companies and people out of business and jobs. 

4. Get your hard hats on......it is coming. Buyers realize it, Sellers can't sell and if they do where do they go?  Do they downsize only to get a higher interest rate and if over 65 lose that nice property tax discount unleash a higher taxes.  Just look at the closing sales Year over YEAR numbers.......That my friends is a CRASH and in the slow time of year, what is it going to look like when we get to March....it will be worse because last March we were in a buying frenzy when the market starts up.  This year the market is NOT GOING TO PICK UP and those numbers are going to be horrendous.

Now, hold on you are probably pissed at me with all this negativity.  Well let me say this, if you can withstand this downturn by preparing for the harsh winter like squirrels do with nuts, you can survive this.  Be prepared and if you have overextended yourself, start cutting out the luxury items and vacation plans and prepare to hunker down.  If you can survive this you will come out stronger in the long run.  There will be a lot of dead on side road but after the storm there will be a rainbow.  I just don't know how severe or long the storm will be but we are already at a Hurricane 3 and getting stronger.  Hoping I am wrong, fearing I'm right.

 Great transactions, love to hear your stories.  I too have a bunch of great ones but I don't want to make anyone jealous.  However, i do want to pass on a little advice that might help everyone in the long term.

I will start out by saying go by and look at my profile.  As this tidbit I am about to share relates to my profile.

Before you buy any investment, write down you goal and your WHY (especially true for real estate).  If you do that it will keep you grounded if you keep referring back to it when it comes time to buy OR SELL.  

What I am getting at?  After reading my profile you will realize that ultimately I invested for CASH FLOW (Goal).  My Why is what drives my motivation and keeps it on track and my WHY is this:  TO PROVIDE PREDICTABLE, SUSTAINABLE CASH FLOW TO FUND A ROBUST RETIREMENT UNTIL I DIE.  

Pensions are predictable, and sustainable.  We all need them, unfortunately we don't have enough of them.  Social Security is a pension. So are my 19 rentals.  Each one a separate pension.  If you flip a home or property you have no pension.  Usually when you get a good windfall, YOU SPEND IT!  We don't invest in real estate to MAKE MONEY.  MONEY is not an end to it's self.  It is a tool to help us in life and I use CASH FLOW to live life abundantly EVERY DAY not for just one year!

Once you have a goal and your WHY (which BTW is most important) then you can analyze which type of property might be best for your locale, and situation.  I am almost strictly invest in duplexes because we have a lot of them in TEXAS and they CASH FLOW well and lastly they are less risk and easier to manage than SFHs.  A four plex or apartment bldg might cash flow better but I got started with duplexes and now I feel very comfortable with the ease of management as I am 67 and this dog does not want to learn a new trick.  Different type properties can work, you just need to research which is best for you.  But don't try to get rich overnight with real estate, GET WEALTH over TIME!  Cheers.

All great points and they get you thinking about where this market is headed. Austin MSA real estate market is unlike most in America.  I feel good about the economy in Austin, it is the Nation's economy which has me concerned.   We are seeing major tech companies announcing hiring freezes and layoffs. If this trend continues, and I believe it will, then the Nation's economy will have a negative impact to the Austin economy.  My thinking now is that Austin is best positioned to weather this coming storm.  My thoughts are we are in for a protracted downturn, but let's hope for the best.  

What I have learned as a financial advisor, is that as markets go up they can go down as fast or quicker.  Also we have been in an extended economic boom.  Bust can be extended as well.  Bust usually are not as longed lived but can be very sharp drops.  Because we have been in such a long, positive economic climate (some of which as been propagated with unusual government influence) I think the downturn will be longer than the average down turn.  Cheers.

, as always I appreciate your reporting.  I am a little surprised we saw no change month to month in median sales price.  I was expecting it to go lower.  I think it will over the next few months, but several factors might be contributing to this no change.  Homeowners who have owe nothing on their homes or those who have mortgage rates in the 3%'s or lower (which are most at the current time) are very reluctant to sell as they will probably incur higher cost even if they decide to downsize due to the rise in mortgage rates.  AND, all those boomers, myself included, who have their taxes frozen at 65 are reluctant to sell as well because swapping houses will most likely cause their tax bill to increase since they are currently enjoying somewhat locked in taxes year to year now.  

Both of these factors result in lower inventory which bodes well for keeping prices propped up.  On the other hand, with there trend of increasing interest rates and the beginning of major companies beginning to layoff employees is spooking would be buyers thus causing less demand and lower housing prices.  In the Austin MSA the feeling of economic prosperity is still higher than most other parts of the country and thus it may be understandable that the market is showing a stabilization (month to month median prices unchanged).  However, I think this is short lived and that the Feds will win out with increasing interest rates and you will see in the coming months the median house prices continue to drop.  Inflation is real and we will have to endure some major pain to bring it down and the housing market is a lagging market indicator as to how the economy is trending.   I say buckle down as the worst is still in front of us.  Cheers.

@Jean Moynahan you need to find a realtor who understands MULTI-FAMILY dynamics.  The way you find one is either here on BiggerPocket for your locale or you interview and interview until you find one that ACTUALLY OWNS not homes but DUPLEXES OR MORE MULTIFAMILY.  I am not a realtor but you might tell I believe whole hearty what I say.  You need to find that guy or gal to help you sell your property.  BTW, if you can't then sell the property without a realtor.  Your bright and it is not hard to figure out.  If you want to discuss on the phone I would be happy to give you a few more pointers.  DM me for my contact info if you would like!

@Jean Moynahan, ok if you really want to sell it, I have the solution.  Since you are having a hard time finding buyers.  Do what i have been telling realtors in this hot market.  Realtors have the same problem you have and that is finding a client.  Yes in this hot market there have been a lot of investor/buyers but there have also been a LOT OF COMPETITION to acquire them as well.  So do this.

Convert the renters into buyers.  There is no competition finding renters, now you just have to convince them it is in their BEST INTEREST to buy.  Here is how you do it.  Find an upscale apartment complex in the area that has moderate rent prices.  Get to know some of the tenants, any way you can.  Also when you meet people, especially those who have decent paying jobs but are renting.  Ask them why are they renting.  Many will say it is too expensive to buy, or that I might only be here for a year or so.  NO MATTER THE REASON, it is better to buy!!!!! Now if they say "WE or I am looking to buy a home, you look at them as if they are crazy and say why would you say that bad word................they say what bad word and you say HOUSE.  A house will cause you problems but a duplex is exactly what you need.   Your target market is a single professional or a young couple no kids or with child less than 5 years old.  

First let's play it out with the renter. The perfect target is someone willing to or is renting a 2 bedroom for your asking price of $2250. Take a look. A person who rents $2250 has a negative cash flow of $2250 each month. But they also don't have the 20% down to buy either. They will need 5% so on your 350k property they will need $17,500. They will mortgage $332,500. They will move in the 2bedroom side and get owner occupied rates 6.5% 30 yr mortgage with a payment of $2665 which includes PITI and PMI payments.....Everything!!!! Yes that is more than their rent of $2250 but wait they also receive $1500 for the other unit. So now, their out of pocket is $1165. A monthly saving of $1085 and yearly savings of $13,020 compared to renting. Yes they may incur some maintenance and vacancy some years but the yearly positive cash flow should handle that with ease........especially since your property is turn key ready.......right!!!!!! Live in it for two years, then if they must they should have in excess of 20k saved verse renting and more than enough to use as a down payment on that dreaded HOME. Also, when they move out they don't sell the duplex but now have a positive cash flow to help make the house payment for the rest of their lives. How much positive.........$2665 monthly holding cost (mortgage, taxes and insurance) but add in rents for each unit $2250 + $1500 ($3750) equals a positive $1085 to help out their monthly SFH cost. Yes some months when vacancy or big maintenance items come to bear the profit will be a little less but buying is absolutely their best choice. I suspect if this plays out, in two years they are looking for another duplex to buy not a SFH.

Now the buyer who is getting ready to buy that SFH. Until they meet you. Target market the same, single professional or young couple with no or 1 young kid. They buy or house or your duplex at $350k The same scenario applies. Numbers are the same as above but with the house should they have to move they could be stuck if properties go down in value. To break even by renting they would have to rent the home for more than $2665 which could be harder to do in a down market. Selling the home they will lose money if the market stays side ways or goes down since it will cost they 6% to sell the home. Also when renting and just breaking even will wear on you especially when you have vacancy or maintenance items and you have no positive cash flow. With the duplex you will always have at least one unit rented between vacancies. They aren't committed to living in the duplex for the rest of their lives. Just two years, you will have a savings of more than 20k vs buying the home and again if they want that SFH then go buy it with the savings from the duplex. But don't sell the duplex. Think about it after owning 2 years then take the savings and buy that SFH you NOW have 3 occupied units instead of one at less risk and more cash flow.

If I lived in your town and with MY CONFIDENCE I would find you a buyer inside of 10 days.   Converting renters to buyers once they hear the story is a piece of cake.  Most don't realize the possibilities of ownership and those who are considering buying don't even consider the possibilities of a duplex.

So if you must sell go and do it as you now have the strategy!!!

@Jean Moynahan  Just a couple of thoughts.  Duplex investing is still a new opportunity in different locales.  For example, in Austin TX back in 2005 when I began to invest, duplexes were a dime a dozen and no one wanted them.  I began to buy them using the 1% rule!  The more I bought the better my debt-to-income rose.  It was a crazy time to be a buyer, you had your pick with absolutely no competition.  Sounds like Harrisburg today as described by you.  Austin, now, is at the other end of the spectrum, in that duplexes are the hottest commodity or it was up to about 4 months ago and now everything has slowed down a good bit.

With the numbers you spitted out, I question why you would want to sell, but that's another conversation.  The first thing that comes to mind is that you are using a year ago rental income numbers.  You have been vacant for what a year now?  IF YOUR PROPERTY IS VACANT NOW........THAT IS YOUR PROBLEM!   If you fill your property with tenants paying the numbers you state you should have no problem selling your property.  Get real with yourself, get specific as to what you want.  Telling us you're going to sell in the 300s tells me you are not sure what you want.  What is it 301 or 390k.  That is a big spread!  Your rental income based on your numbers are $3750 a month.  1% rule says sell at $375k.  If that was in Austin it would sell north of 500k.  Yeah, your not in Austin but what you described:  Located in class A neighborhood, fully renovated, tenant projected to be medical professionals.....WHAT IS THERE NOT TO LIKE?   

Investors who buy duplexes or small multifamily are looking at it as a business.  If it is vacant, then the business is bringing in zero income!  You will have to sell at a discount vs a business making a positive cash flow.  As an investor, I can tell you EVERY REALTOR SELLING A DUPLEX, always say, rents are below market; you can get more!   They SAY that for one reason, it is more attractive the more money it makes.  When they tell me that I let it go in one ear and out the next!  In a slow market, I AM NOT GOING TO PAY THEM BASED ON PROJECTED RENTS!  If they ARE getting $3750 a month I believe them; if they SAY IT WILL GET $3750 a month I doubt them.  GET MY DRIFT!  Don't fall for the I want to keep one side vacant incase they want to move in one side.  If you are worried about that then rent one side month to month.  However, most buyers of a duplex are investors not looking to move in.

The real problem in giving you advice is that I don't know the Central PA real estate market, but I do know investing! Let's run some numbers that speak to investors no matter where you live. Based on what you did not tell me I will make a few assumptions. You sell for 350k. Here are the numbers as I see them. 20% down (70k), mortgage 280k at 7.25% 30 yr fixed payment is $2335/monthly includes taxes(3600) and insurance (1500). Vacancy rate 5%, maintenance 5%, CAPEX 5%, total expenses 15% of $3750 is $560. $3750 - $560 (expenses) - $2335 (PITI) equal a positive $855 per month doing your own property management! That is a total of $10,260 profit a year on a 70k downpayment plus 5k closing. 10,260 / 75000 is 13.68% Cash ON Cash RETURN! In this real estate environment that sells all day long, no matter where you live. THESE NUMBERS ARE ONLY VALID IF YOUR UNITS ARE OCCUPIED!

When I am looking to buy I want to know 4 things right off the bat.  1. Asking Price   2.  Current rents, 3 Current lease Terms. 4. What if any deferred maintenance needs to be done. If your Current rents and lease terms are NOTHING that hurts your sell opportunity.  Lastly and I don't want to be too critical, but when someone tells me I have no income for a year because I have been rehabbing my duplex.......It raises all kinds of questions, the major one is it is a  DUPLEX.  Shouldn't you have gotten one side ready and rented while you do the other side?  Unless it was a complete gut job, taking a year to do rehab on a 1600 sq feet and 740 sq feet units seems excessive and NOT BELIEVE-ABLE to an experience investor.  In my mind, I am questioning the numbers more as if may be you are having a hard time finding renters.  Renters in place makes those thoughts go away!!!!!!  Now put those numbers on a laminated sheet, show potential investors and go and sell your property......Cash on Cash return or 13%, potential of appreciation and rent increase and keeping expenses fixed, sells anywhere in America. Cheers.  The bigger question in my mind is WHY SELL?