All Forum Posts by: Steve K.

We’re seeing inventory pick up a little bit and time on the market increase slightly in the $1.5M and up range here in Boulder. But entry level $600k-$1M segment is still red hot with bidding wars and homes selling for more than list price. Same for MF investment properties. Sellers are still in control. There was recently a $1M price drop on a $10M listing, not sure that indicates a buyers market unless you’re shopping for a $9M mansion though lol.

@Account Closed

You've stated that you make your living by solving people's problems. Problems that began when they bought real estate. They're stuck with an illiquid asset and don't have time or for whatever reason are unable to offload it for what it's actually worth, so you capitalize on that. Meanwhile the S&P is up 10% YTD and savvy traders have easily made 20%. If they needed to liquidate their stocks they could do so with the click of a button. We see so many people on here desperate to park their money in RE: investing blindly in out of state turnkeys, negative cash flow appreciation gambles, overpriced dilapidated money pits, quitting perfectly good jobs to try wholesaling, etc., so many of them would be better off buying high dividend yield ETFs IMO. 

Personally I try to avoid over simplified binary thinking like "Real Estate good so Stock Market bad". I do see your point however that REI has an advantage in being able to use other people's money, sweat equity, subject-to or other various niche expertise to build wealth from nothing. That seems to be the case for you personally, and congrats btw. But that doesn't mean that techniques don't exist to build wealth from nothing with other methods, including stocks. Essentially what you've done is built a business and RE happens to be your market. Why compare what you've done with investing in stocks when anyone can start a business in any field that they're uniquely qualified in and be successful even with a small initial investment?

You've had success in RE, but it didn't happen in 12 hours. You have probably invested many hours perfecting your craft with deals that broke even or even lost money. If you'd spent that time learning about stocks and ways to invest with little cash, you'd likely have found a way to be successful in stocks too. 

If we're truly looking to compare stocks with real estate, every study I've ever seen has shown stocks beating real estate in average returns. Of course nobody wants to be average, everyone wants to hit the home run and beat the market. This is where people get in trouble, thinking they can out compete all the other sharks in RE or computers that run algorithms to trade stocks. With this in mind and knowing that RE is a lot more hands on, which is both more room for error and more time spent, then logic tells us that if one wanted to limit themselves to one or the other for whatever reason, and the goal was return on time invested, then stocks clearly win. I prefer both: 70% aristocrat stocks for truly passive income, 30% value-add long term buy and hold RE that has basically become my job. For people new to investing or looking for a truly passive investment I always recommend stocks first because buying an ETF is a lot harder to screw up than buying real property, as evidenced by the deals you're finding which you source from people who screwed up RE deals. 

I guess I'm the yin to your yang: I don't think most people should jump in to REI unless they already have a robust stock portfolio providing substantial dividends and/or vast cash reserves so they can afford to dig themselves out when a sewage line clogs, a deranged tenant trashes a unit and has to be evicted, they miscalculate the ARV by more than their profit margin because they forgot to double their back of the napkin rehab budget, tariffs cause the price of lumber to double during permitting, or something expensive and unexpected inevitably goes wrong. Owning real estate is more expensive and prone to catastrophic failure than owning dividend stocks hands down in my experience.

Your post provides examples of how RE can be risky (all the people selling to you at a huge discount), and demonstrates how the investment class has become more exclusive over time (ability to buy the market/ save up for a down payment becoming less achievable using average wages), but you have not built a case for how investing in the stock market saps your wealth. Maybe the moderators can edit the title to "How investing in real estate saps your wealth". 

That said, thanks for sharing your story and some of your secret sauce. This thread has been provocative which I suspect was your underlying intention. 

@Avee-Ashanti Shabazz Have you thought about cohousing as a solution to affordable housing? 

There are many case studies of successful cohousing communities going back decades now and they are growing in popularity. For those unfamiliar with the concept, cohousing is an intentional community of private residences clustered around shared space such as a large community kitchen/dining area, community garden, laundry, parking, open space/recreation area, workshop, sometimes even a common house used for events, etc. Residents pool resources and live collaboratively to save money, such as by working in and eating from the communal garden, buying things in bulk, organizing child and elder care, carpooling, sharing meals, sharing tools, sharing transportation, etc. 

The legal structure is typically an HOA or Coop. Denmark is credited with being a pioneer of cohousing development in the 60's. The fact that Denmark has been listed many times among the happiest countries has been linked in part to successful cohousing programs.

I have a friend who lives in a cohousing community here in CO called Nyland. It's an interesting place to say the least. Residents absolutely love it. Several similar developments have been built here recently using the same model (condos/townhomes with shared space owned by an HOA). There is a strong demand and long waiting list to buy in to these communities. They're not exactly low income units, but they're comparable in price to local "affordable housing". I believe there are examples especially in Denmark, other places in Europe and also China where this concept has worked well for truly low income housing.

I haven't researched a business plan for developing a cohousing community or anything but it would be interesting to learn more and potentially partner with other investors on such a project down the road, if nothing else just for the sake of doing something a little more interesting and psychologically rewarding than traditional REI. It seems like the many efficiencies gained from intentional communal living could provide a very practical solution to the shortage of (quality) affordable housing.

@Stephen Barnabei sorry to basically echo what you said. We must have been writing at the same time, I could have saved some time if I'd refreshed the page lol. 

@Alex Smith In my experience sellers have been willing to upgrade electrical issues or discount the price to cover the cost because it is a safety/insurability issue and one that most buyers are going to ask for. Replacing K&T can be relatively easy if the walls are open, or a real pain if its all covered up with lath and plaster, so cost will vary quite a bit depending on the situation but Stephen gave you a good ballpark. $10k was the cost to upgrade to new 200A service on our last purchase which had 1950's electrical, and the seller ate it. Good luck!

At the very least you should have a very experienced electrician take a good hard look at the entire system. Knob and tube wasn't dangerous when it was the common method used. It is seen as dangerous today for two main reasons: one is because there is no ground conductor, only hot and neutral so there is no protection when a fault occurs, and two because most K&T is now at least 70 years old and the age is what makes it dangerous. K&T used rubber insulation which by now is likely to have degraded, causing bare wire to become exposed to air and moisture, increasing the chance of a short or a fire. Increased ampacity of modern loads can also cause K&T wiring to become brittle. Additionally a lot of K&T systems have been modified because original systems only allowed for 12 circuits and maxed out at 60 amps, which is not enough by today's standards. It's common to find that someone over the years has spliced in additional circuits in a way that may overload the system and cause wires to overheat. Also if insulation has been added, that can cause a fire too because K&T systems were designed to use open space as an insulator. Any fiberglass or blown in cellulose touching the wires has a high risk of causing a fire. It may be difficult to insure the home, or you may pay a higher premium to insure it (30-60% more). Many people don't care about K&T if the wire is visible so you can tell it's in good condition and GFCI circuit breakers have been added to take care of the risk of shock in bathrooms and kitchens or other areas with water present. Personally I would want to rewire the house. If you haven't purchased it yet, and you have an inspection contingency, you may want to ask the seller to upgrade the electrical. This is something the seller should take care of seeing as very few (if any) insurance carriers will insure homes with K&T anymore.  

That would have been good info to have. I think the fact that you never told us how old the fridge was before it entered the shed is creating confusion, not just with me. Still, the fact that it was once a nice fridge, ten or so years ago, doesn't justify charging the tenants full price for it now. Just trying to get you to see it from their perspective. They'll probably argue with you about it, and I don't blame them. 

@Marci Stein Put yourself in the tenant’s shoes for a second. From their perspective, the fridge was crappy to begin with, which is why they replaced it on their own dime, which was REALLY nIce instead of making you replace it. Now you want to charge them for a new fridge when your old one that they had to replace is still there in the shed? If I were the tenant I would definitely feel ripped off if the LL provided a crappy fridge to me and expected ME to provide them with a new one out of my security deposit. That’s not what the security deposit is for. Fridges, like roofs, are squarely the responsibility of the owner, these thIngs wear out and you have to budget for it as an owner, unless the tenant breaks them on purpose or something, but doesn’t sound like that’s the case here.

You probably know this already but just for the sake of anyone reading this thread who doesn't... regarding electrical: that 70A panel will need to be replaced, especially if it's Federal Pacific Electric (FPE) , Zinsco, GTE-Sylvania, Westinghouse, or contains any stab-loc breakers (usually with with red stickers) which fail to trip and are prone to starting fires. 70A is not enough for modern power consumption as it is, 100A is now the minimum per code, or even better upgrade to 150A or even 200A service since you have AC. Price should be in the $1,500-$2,500 range for the main service change. Probably worth having a master electrician check all the electrical including outlets and wiring, as there's a good chance you could be looking at rewiring the whole house if it has aluminum wiring, knob and tube, a fuse box, ungrounded outlets, or any other dangerous outdated stuff.  

@Allyson Edwards No-shows are extremely common so I wouldn’t hold the PM‘s feet to the fire over that. I always try to schedule at least 5 pre-qualifIed tenants whenever I show a unit, if I‘m lucky some of them show up. Have you checked rentometer.com (pulls comps for you, easy way to see if you’re priced right)? Also check out all the big sites like CL, Zillow, hotpads, etc. and look at photos of your competition at that price if you haven‘t already. It’s the first thing we do before running our financial analysis in order to make sure we‘ll hit our net profit minimum prior to checking other criteria. Realtor feedback and feedback from locals is great too but verify their opinions with data. Proof is in the pudding here: if it’s sitting this long you’re priced too high. Only going to get harder after October sorry to say. New construction is hard to forecast performance. I’d look at a multi family in an established area for your next deal; much easier to get positive cash flow with more units, and most will have existing tenants so you are guaranteed a certain amount of rent, less risk that way. Don’t give up though. Maybe you can make a profit using it as a short term rental or find a way to rent it at a premium or totally different strategy altogether.

@Josh Lyons depends on how hands on you plan to be. I am in love with my pickup “Goldie Hawn“ (2006 Tacoma approaching 200,000 miles). She is never neglected because I do most of our carpentry work and landscaping on some of our properties. Wouldn‘t trade her for a lambo. One thing nobody has mentioned yet is that makIng expensIve purchases before you close on a property could have a negative effect on your debt to Income ratio and lower the loan amount you qualify for. So wait until after you close to get the second vehicle if you’re planning to finance. When we were noobs my wife’s Subaru blew up a few days prior to closing on a quad. Without thinking she went out and bought a new Highlander and the sales guy convinced her to take the 0 down, 0% interest option (no braIner, right?). Our mortgage broker thought I was joking with him when I told hIm and then completely lost his mind and thIngs got akward. Don’t do that.