All Forum Posts by: Shafi Noss

Real estate is harder than it's been in more than a decade -- we all know this. High prices + high mortgage rates + low inventory is making this a challenge. So my question is  -- in an era where you can get a 5% CoCR from bonds, money market accounts, or a high-yield savings account is RE still the best place to put your money? 

I'll give you my opinion below, but curious to hear what you all think. 

Here's my take, and you probably won't find this shocking, but RE is still the best asset class. I am what I would call a 'total return investor' -- which is that I don't care as much about cashflow, or tax benefits, or appreciation in particular -- I'm in it for the whole package. And when you look at it that way, RE is still the clear winner. 

I just put a deal under contract that was on market. It will generate about 4% CoCR, and 2% in amortization. Even with a very modest expectation of 2% annual appreciation, I will earn about 6% there (thanks leverage!), and tax benefits will give me another 1.5%. If I add that all up, I am getting somewhere between a 12-15% annualized return, for an on-market deal that just needs some cosmetic upgrades. 

Compare that to bonds (5%), or the average return in the stock market (8-10% depending on who you ask) and REI is a no-brainer to me. Am I missing something here?!?

Sure you could say that RE is at all-time highs and is going to come down. It's possible, but a big correction in residential RE is not likely, and over a long hold period, RE will appreciate. Plus, I am generating modest cashflow now + amortization and tax benefits.  Also, the same can be said about the stock market. It's also at all-time highs, and its historical far more volatile than RE. 

Now you may be thinking that owning RE is more work than the stock market, and that is undoubtedly true. But the difference between 10% and 12% over a long hold period is enormous. For an investment of $100,000, over a 10 year hold the difference in total return between a 10% annualized rate, and 12% is $51,000. For some that might be worth the work of REI, for others not so much. BUT -- if your hold period is 30 years the difference grows to $1.25M!! Gotta love compounding.

 So, back to my original question. Is RE still the best asset class? For me -- a 36 year old who plans to keep working for the next several decades -- there's no doubt in my mind. I will gladly take on the extra work of owning RE, given that, even with more difficult conditions, RE still has a very high probability of delivering me outsized returns over my investing career. 

What do you all think? 

HARD MONEY QUESTION:

I'm looking at purchasing a townhouse in Houston. It is vacant, requires some flooring work (2nd floor has no floors laid) along with other cosmetic related needs. I plan on buying, rehabbing, and living in the home for at least 2 yrs.

I want to know, would it make sense to use hard money on the rehab, then refinance into a conventional if I am planning to owner occupy the deal? What would this process look like?

 Send them our way. Let's put some eyeballs on them.

It seems to me that despite the near-constant protests to the contrary from certain people in the dark recesses of the internet, the tendency of large countries with powerful militaries is that they do not collapse. 

However, when I have conversations with perhaps the vast majority of other people in my friends group, and certainly in recesses of internet forums, subreddits, and facebook groups, the prevailing consensus is that I am crazy. 

I am told that the US debt creates imminent collapse. That political turmoil will result in a civil war. That income inequality will have see societal overhaul. That war in other parts of the world will trigger deglobalization and collapse. Etc. Etc. 

People literally believe this and plan their lives and investment approaches around it. 

These people who argue for collapse often point out things like: 

- Real Wages, adjusted for inflation, are going down over the decades. People today can't buy the same stuff they did 50 years ago (This is totally false).

- The US national debt is at some number that makes it untenable. (The US national debt is high, but not past the point of no return at a 5-6:1 debt to income ratio). 

- Income Inequality is spiraling (Income inequality rose substantially from 2000-2020. In the last few years, income inequality has actually decreased. I believe that this is due to (finally) rising interest rates deflating asset values, which is highly correlated to the exponential increases in income for top earners like CEOs, executives, money managers, RE investors, and Private Equity Groups.

To me, the only logical stance is "rational optimism" (I heard this term from Morgan Housel). There's always going to be a war, pestilence, famine, political power struggle, uprising, strike, terrorist threat, meteor, volcano, tusnami, or other disaster looming on the horizon - and it's impossible to state what the next cataclysm will be. But, at the same time, society marches on. People invent. People find creative new solutions. People optimize. Society finds solutions. Capitalism, and the United States, tends to see the standard of living of it's people increase over time. 

People will protest, scream, stamp, and tell me how wrong and privileged I am. How life is not better today than it was in 1950. 

That's fine. Maybe they are right and I'm missing something. 

But, I will continue to bet on a continued trajectory of progress in quality of life for most people in this country over the ensuing decades. While making sure my position in the near-term is well-fortified against near-term threats that can stop me from realizing the bounty that I believe is inevitable as we march into the future.

I look forward to being told I'm crazy. Tell me about it!