All Forum Posts by: Sebastien Hitier

@Steve Sun, as an out of state investor, the issue of comparing rental property nationwide is key.

A naive approach comparison of median rental yield leads means that deeply blighted cities get compared with dynamic and affluent ones.

Such an approach makes blighted cities more attractive. Another common ranking method is to factor appreciation for over 1 year (which is a ridiculously short period). Even looking for consistent year over year appreciation can lead to unaffordable housing. The point is that distressed areas have such prices because it is difficult to invest there, and areas that appreciated the most rapidly may well have peaked to unaffordable levels.

I saw a podcast recently where it was claimed that high-end grocery stores like Whole Foods Market and Trader Joe's are a good indicator of a high-end neighborhood. The presence of such retailers ensures we compare affluent neighborhood nationwide.

We can use census data (PM me for ref) to determine the areas that are growing the fastest over the period 2000-2015 and then see for each MSA in which postcode those retailers are located.

Using Zillow home value data by postcode, it is then possible to retrieve the median price and rent per sqft and figure out the gross rental yield in those most attractive areas. Amongst the MSA with over 40% cumulative demographics growth over 2000-2015, these 2 retailers are present. It is then possible to compare across state boundaries.

Here are the affluent zip code gross yield, for the nation's most demographically dynamic MSA:

• Indianapolis IN pop cum growth 30% , gross rental yield 10.6%
• Houston TX pop cum growth 41% , gross rental yield 8.6%
• Dallas Fort Worth pop cum growth 38%, gross rental yield 8.4%
• Atlanta GA pop cum growth 34% , gross rental yield 7.8%
• Orlando FL pop cum growth 45% , gross rental yield 7.7%
• Des Moines IA pop cum growth 29% , gross rental yield 7.6%
• Charlotte NC pop cum growth 40% , gross rental yield 7.4%
• Jacksonville FL pop cum growth 29%, gross rental yield 7.4%
• Phoenix AZ pop cum growth 41% , gross rental yield 7.0%
• Raleigh Cary NC pop cum growth 60%, gross rental yield 6.7%
• San Antonio TX pop cum growth 39%, gross rental yield
• Nashville TN 40% 6.7%
• Colorado Springs CO 30% 6.5%
• Denver CO 29% 6.4%
• Charleston SC 36%, 6.4%
• Greenville SC 56% 6.4%
• Provo Orem UT 55% 6.2%
• Austin TX, 60% 5.6%

You should note that local tax and insurance is much higher in Florida than other states so that 3% to 5% more needs to be deducted from gross yield to compare to other states such as Georgia or North Carolina.

California growing population MSA are San Bernardino, Stockton, and Bakersfield. Those grow as a result of overflow and sprawl and none of these have a Whole Foods Market, so those are not included. Mc Allen TX on the Mexican border also does not have a WFM so it was not included.

You did very well to buy in 2008 and should have enjoyed great appreciation. Economic growth might indeed be harder to come by and devaluations are probable.

2 questions to assess your opportunity cost:

• what were your gross and net rental yield in 2008?
• what are your gross and net rental yield now?

UK savings account paid 7% back in 2000.

I thought that Poker and Real Estate Investing are very different things: poker is by nature a very unstable, zero-sum game. Earnings come and go. A player is risking his whole capital every minute during a poker night. 

Real Estate is a much more routine way to earn. Also, it creates value as properties are improved and a service is offered. There is also work involved ensuring that your property delivers what the buyer or renter expects. This is not an abstract game.

It seems to me that investors who look for thrills would go for day trading on stocks or crypto.

Still, she gives great advice on how to improve one's game and not get complacent. Those apply to any domain. These podcasts really open the mind.

Hey Nick, if borrowing for RE investment, the actual amounts you pay do not matter that much. What matters most is the APR on your debt, and the expected yield of your investment.

Compare the investment and debt yield and keep the debt only its rate is lower than the investment, otherwise, that debt will just reduce your profits.

If you need to pay back debt, start paying the highest APR debt first to minimize your costs.

What is your expected yield and your debts APR?

It seems to me that the 2% rule asks for $1600 for 80k. So $800 rent and price no more than 40k per door to get the 2% rule.

So in general, you do get the 2% rule with a $750 rent wherever you can get a unit in tenantable condition for 37k.

I would add that besides market value of the land, average cost of construction of new house is $150 per sqf and insurance puts replacement value at $70 per sqf. So such houses prices at 40k do trade at a large discount.

The economic calculation is actually to compare the cost of buying home + paying local tax and HOA to the cost of rent + income on investment of the upfront payment. Comparing mortgage payments to rent is nonetheless a very good proxy for that, and people who rent instead of buying when mortgage is so cheap are behaving suboptimally.

If you look to pay a rent of around 2k, you will see that you can get a house valued 350k, so that rent cost is getting much nearer of that of the mortgage. The reason is that 2k tenants have very good credit and can get a mortgage. Your argument makes sense for rents of $1000 and above, if you look at other countries where prices are less affordable or other decades when rates were very high, it was often the case that buying was more expensive. 

The situation is the way it is because households are still rebuilding their credit and rates are very low, and once credit is rebuilt the cost of owning can exceed that of renting, especially with higher mortgage rates.

The economics at $750 are different: the tenant pay does not have access to credit, he does not want to take care of a home and will let not fix leaks or change aircon filters. So buying is not for them.

The high crime and bad schools may weight on the potential appreciation of the house, and it is not such a obvious good deal for an investor given the tenant risk and the annual $3000 of capital reserves (roof/furnace/windows) one needs to put aside for any house that does not appreciate.

 That pretty much summarizes it: you could earn $200 here an there in exchange of working hard to keep the place tidy, and had to manage the risk of getting a dirty tenant partying at the place.

Now in some cities, you run the risk of loosing $20,000 to a code enforcement officer with a communist agenda. Just picture yourself in a conversation with a leftist who chose this job as he sees "profit seeking" as an activity that should be regulated away, and who has the power to enforce fines on you, and you lose years of income.

Paris started to collect 14,000 euros fine per airbnb rental (renting full place is forbidden, you can only rent some room). City has hired 15 inspectors who just collected 1million this year. 

I expect this will first kill the pro Airbnb rental, and then those inspectors will go after the corner cases in order to keep their job.

Even if you never see that inspector, just knowing what they could do to your activity... that's the definition of being terrorized.

It is easy for someone to argue for a rule that does not cost him anything. 

Airbnb owners are putting a lot of work into this and they are solving a real problem. Staying in a hotel is truly unhealthy if you need to stay more than 2 weeks somewhere.

People who want it to stop so hard, they should just pay market rate to indemnify airbnb owners, and then pay the difference with hotel to airbnb clients.

Eviction time to get rid of the tenant depends on state law and city rules... New York and San Francisco are tenant friendly. 

In AZ, it took 1 week after filing for case to see court, and tenant was out in 2 weeks from filing, but then there is no recouping the legal fee of $300 because tenant was late 1 month+.

There is a lot of wisdom on seeing it the tenant's way: there is a cost of deposit + move. Tenant will often pay rent and legal fee to stay.

excel is not bad for 1 property, otherwise intuit software stuff (the reviled incumbent), the unusable and technologically inept gnucash, the up and coming https://www.xero.com, or the free http://www.investor-realestate-accounts.com/ , this is the one I work with, and it has accounts for real estate rental operation and does double entry. 

Let me know what you think.