"Hot" markets explained + why you should Buy Now!

"Hot" markets explained + why you should Buy Now!

Investor · Berkeley, CA · Member since 2015 · 1k+ posts · 713 votes

Now is the time to BUY!

Here is what is occurring in virtually all "hot" real estate markets nationally:

"Hot" = strong population and job growth markets and therefore increasing price trend line 

This applies to San Jose, San Francisco, Los Angeles, Seattle, Denver, Dallas, Austin, San Antonio, Houston, Charlotte, Raleigh, Atlanta, Ft. Lauderdale and many other markets on the list below...  

This specifically is a chart of market price, as it moves through real estate market cycles in a "hot" market that has an increasing price trend line.  Once prices surpass the point in the center, your ability to cash-flow disappears (though there are a few exceptions). Again, although there are a few exceptions.... Generally... for SFRS with 4 bedroom / 2 baths, once price moves beyond $120/125K, generating cash-flow becomes difficult if not impossible.   With 3 bedroom / 2 baths, once price moves beyond $100/110K, generating cash-flow becomes difficult or impossible. In "hot" markets, although market cycles are continuously occurring and prices rise a fall... there is an increasing trend line and therefore the next bottom will have market prices that are higher than the last bottom. Market prices rise at a faster rate than market rents, so... your ability to generate cash-flow eventually disappears.  In this chart, that is the point in the center.   Exceptions: Though unusual, it is possible for these situations to occur: Markets where rents are rising at the same rate as market prices.  Dallas MSA might apply, but although rents are rising quickly, I think prices are rising at a quicker rate. Fixers Acquired at Deep Discount.  Properties that you can acquire at a severe discount to market price because there is a significant problem with the problem and you're able to fix it for less than the discount you were able to negotiate on the purchase price. Other exceptions? Thoughts?

Hot Markets

Here is a list of states ranked by population growth percentage (column 3). For purposes of this post, I would define a "hot" market as markets that are in the top 20 in this chart.

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Investor · Dallas TX, United States · Member since 2014 · 1k+ posts · 1k+ votes
9y

This is a fantastic time to buy real estate, but not in the hot markets.  Hot market get hot because people speculate into them and drive the prices beyond sustainable cash flow levels.  IF you invest with this model you will get you *** handed to you eventually.  Those of us who learned this lesson in 2008, invest for cash flow not appreciation. My market of Pittsburgh is a great cash flow market. Our rent to price ratio is much better than anything you will find in CA.  Find a market that looks like mine does and invest for the long term.  

See this reply in the discussion

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  • Investor · Indianapolis, IN · Member since 2017 · 47 posts · 80 votes
    9y
    Originally posted by @Jon Q.:
    Originally posted by @Account Closed:
    Originally posted by @Jon Q.:
    Originally posted by @Account Closed:
    Originally posted by @Jon Q.:
    Originally posted by @Account Closed:
    Originally posted by @Jon Q.:
    Originally posted by @Account Closed:

    > In "hot" markets, although market cycles are continuously occurring and prices rise a fall... there is an increasing trend line and therefore the next bottom will have market prices that are higher than the last bottom.

    This is nonsense.

    I like your napkin drawing, but is it based on any actual data? Because according to the Case-Shiller index, real estate has not appreciated historically at much more than the rate of inflation.

    > Market prices rise at a faster rate than market rents, so... your ability to generate cash-flow eventually disappears.

    So what you're saying is, home prices will outpace rents, forever. Real estate will become more and more expensive until no one can afford to buy a house. It will be cheaper to rent, from a landlord, but it will also be impossible for landlords to buy rentals at any price that will allow them to turn a profit.

    Right.

    No, I am not saying that. Please read what I wrote.  Yes, it is based on over 15 years of experience investing in 5+ markets nationally.  And guess what, prices are sufficiently high in some markets making cash flow very difficult.  My point is that cash-flow gets increasingly difficult as prices increase at a faster rate than rental rates.  This is happening in many markets nationally right now.

    Right, and many of those markets are vastly overvalued and are as likely to correct as anything else that is vastly overvalued.

    Your long term diagonal trend line is overoptimistic and unsupported by historical precedent.

    Real estate does not appreciate over the long long term, nor would logic dictate that it should.

    I'll grant that certain areas do improve and therefore show an increase in intrinsic value but 1. this should be supported by incomes and 2. predicting this type of change is extremely difficult.

    Chris,

    If you think properties are overvalue, don't buy!  But I'm still acquiring properties for below market value that are cash-flowing.  Even if there is a drop in pricing, I'm still generating returns of over 10% from cash-flow and that works for me.  I just don't see a big drop in pricing coming to these "hot" markets.  There is strong demand and most of these market are significantly supply constrained.

     So am I, but I'm not posting on BP saying "this is the time to buy" because while it may be A time to buy it sure as hell isn't THE time to buy.

    Okay :-)  My belief is that the time to buy is always NOW, so long as you can locate deals and achieve your target return.

     Well I never disagreed with that, I just don't like your napkin.

    That's cool man. We can agree to disagree. I'm fine with that.

    This is just what I'm seeing in many markets nationally that I'm invested in. 

    The question is not whether we are "seeing" it, the question is whether or not it is sustainable in the long run. The historical data would indicate that this is an aberration and to bet on it continuing is a hell of a gamble. This whole thing reads like "buy now or be priced out forever" which for something like real estate does not make sense.

  • Investor · Berkeley, CA · Member since 2015 · 1k+ posts · 713 votes
    9y

    The past does not always predicate future results.  There are many new variables in place that where not in place in the past.  Although each market is unique, there are new variables that will have long-term affects (ex. cities that are focusing on providing long-term incentives and rewarding companies for building a presence and relocating jobs into their market).

    I'm not sure I agree with your comment.  Do you think that you will ever being able to acquire a property in San Francisco for $100,000?  I think not.   That's not something I'd ever bet on.  So, sometimes... it does "make sense".

  • Investor · Berkeley, CA · Member since 2015 · 1k+ posts · 713 votes
    9y
    Originally posted by @Account Closed:
    Originally posted by @Jon Q.:
    Originally posted by @Account Closed:
    Originally posted by @Jon Q.:
    Originally posted by @Account Closed:
    Originally posted by @Jon Q.:
    Originally posted by @Account Closed:
    Originally posted by @Jon Q.:
    Originally posted by @Account Closed:

    > In "hot" markets, although market cycles are continuously occurring and prices rise a fall... there is an increasing trend line and therefore the next bottom will have market prices that are higher than the last bottom.

    This is nonsense.

    I like your napkin drawing, but is it based on any actual data? Because according to the Case-Shiller index, real estate has not appreciated historically at much more than the rate of inflation.

    > Market prices rise at a faster rate than market rents, so... your ability to generate cash-flow eventually disappears.

    So what you're saying is, home prices will outpace rents, forever. Real estate will become more and more expensive until no one can afford to buy a house. It will be cheaper to rent, from a landlord, but it will also be impossible for landlords to buy rentals at any price that will allow them to turn a profit.

    Right.

    No, I am not saying that. Please read what I wrote.  Yes, it is based on over 15 years of experience investing in 5+ markets nationally.  And guess what, prices are sufficiently high in some markets making cash flow very difficult.  My point is that cash-flow gets increasingly difficult as prices increase at a faster rate than rental rates.  This is happening in many markets nationally right now.

    Right, and many of those markets are vastly overvalued and are as likely to correct as anything else that is vastly overvalued.

    Your long term diagonal trend line is overoptimistic and unsupported by historical precedent.

    Real estate does not appreciate over the long long term, nor would logic dictate that it should.

    I'll grant that certain areas do improve and therefore show an increase in intrinsic value but 1. this should be supported by incomes and 2. predicting this type of change is extremely difficult.

    Chris,

    If you think properties are overvalue, don't buy!  But I'm still acquiring properties for below market value that are cash-flowing.  Even if there is a drop in pricing, I'm still generating returns of over 10% from cash-flow and that works for me.  I just don't see a big drop in pricing coming to these "hot" markets.  There is strong demand and most of these market are significantly supply constrained.

     So am I, but I'm not posting on BP saying "this is the time to buy" because while it may be A time to buy it sure as hell isn't THE time to buy.

    Okay :-)  My belief is that the time to buy is always NOW, so long as you can locate deals and achieve your target return.

     Well I never disagreed with that, I just don't like your napkin.

    That's cool man. We can agree to disagree. I'm fine with that.

    This is just what I'm seeing in many markets nationally that I'm invested in. 

    The question is not whether we are "seeing" it, the question is whether or not it is sustainable in the long run. The historical data would indicate that this is an aberration and to bet on it continuing is a hell of a gamble. This whole thing reads like "buy now or be priced out forever" which for something like real estate does not make sense.

    The challenge is: 

    How can you predict the future, when the future has never happened before and when the future will not be like the past?

  • Investor · Dallas, TX · Member since 2015 · 446 posts · 197 votes
    9y
    Jon S. a remember a year ago you were whistling a very different tune, saying we're approaching top of the cycle. What changed?
  • Investor · Berkeley, CA · Member since 2015 · 1k+ posts · 713 votes
    9y
    Originally posted by @Marco G.:

    Jon S. a remember a year ago you were whistling a very different tune, saying we're approaching top of the cycle. What changed?

    What was the tune? It hasn't changed my friend.  All markets will go through real estate cycles.  Most peaked in 2016, and most are/will soften a bit, but long-term I'm confident certain markets like Austin, Dallas, San Francisco, Seattle, Charlotte, Phoenix etc. won't see a big price hit/deep bottom.

  • Specialist · Honolulu, HI · Member since 2014 · 1k+ posts · 1k+ votes
    9y

    So much rationalization on this thead from "cash flow" investors.

    So the year over year, long term 9% annual appreciation and 6% annual rent growth over the last 40+ years in Honolulu is speculation and irrational exuberance? Similar numbers are found in Sam Francisco, San Jose, and to a slightly less extent LA and Sam Diego.

    I've said this in another thread. The proponderance of investors on BP who have attained 7 figures of PROFITs from rental have all been from coastal markets such as LA, SF, SD, Bay Area, NYC, Seattle, and Hawaii. This is nothing more than simple observation.

    Why? Because cash flow is not profit. How long do you think it will take you to net $1M in profit from buying cash-flowing rentals in non-appreciating markets, hoping a CapEx expense doesn't wipe 2 years of their cash flow?

    Of course people from Indy, Michigan, Tennessee, etc. will bring up Case-Shiller, but ignore the last 40 years of actual data. I think my high six figures in profit balance sheet investing in HI, is so irrationally exuberant!! I mean, Case-Shiller knows better. I think I should just chalk it up to a Christmas miracle. Prices are high in these locations for a reason, folks.

  • Investor · Berkeley, CA · Member since 2015 · 1k+ posts · 713 votes
    9y

    Those if you investing in cities in Texas, Arizona, California, Washington, Arizona, Florida and other high-population/growth markets:

    What specific cities are you invested in?

    How long have you invested?

    What are your thoughts about the market?

    What variables are in place and what trends are you seeing?

    Do you believe that these trends are short-term or long-term? Why?

    @Andrey Y.

  • Investor · Berkeley, CA · Member since 2015 · 1k+ posts · 713 votes
    9y
    Originally posted by @Andrey Y.:

    So much rationalization on this thead from "cash flow" investors.

    So the year over year, long term 9% annual appreciation and 6% annual rent growth over the last 40+ years in Honolulu is speculation and irrational exuberance? Similar numbers are found in Sam Francisco, San Jose, and to a slightly less extent LA and Sam Diego.

    I've said this in another thread. The proponderance of investors on BP who have attained 7 figures of PROFITs from rental have all been from coastal markets such as LA, SF, SD, Bay Area, NYC, Seattle, and Hawaii. This is nothing more than simple observation.

    Why? Because cash flow is not profit. How long do you think it will take you to net $1M in profit from buying cash-flowing rentals in non-appreciating markets, hoping a CapEx expense doesn't wipe 2 years of their cash flow?

    Of course people from Indy, Michigan, Tennessee, etc. will bring up Case-Shiller, but ignore the last 40 years of actual data. I think my high six figures in profit balance sheet investing in HI, is so irrationally exuberant!! I mean, Case-Shiller knows better. I think I should just chalk it up to a Christmas miracle. Prices are high in these locations for a reason, folks.

    Andrey,

    Who cares which is better?  No one is ever going to win that argument and each of us have our own specific reasons why we'd like income or appreciation or both.  Not relevant.  I think we all agree that so long as we're making $ and achieving our individual investment goals, it's all good.  Investors can make money many ways, which is why I love investing.

  • Investor · Fridley, MN · Member since 2017 · 35 posts · 10 votes
    9y
    I'm new to this RE stuff, but I can already see the polarity of opinions happening here. IMO we should not be comparing "markets" geographically, but more so each "individual" deal. It's either good or bad. OR Really good or really bad
  • Investor · Indianapolis, IN · Member since 2017 · 47 posts · 80 votes
    9y
    Originally posted by @Andrey Y.:

    So much rationalization on this thead from "cash flow" investors.

    So the year over year, long term 9% annual appreciation and 6% annual rent growth over the last 40+ years in Honolulu is speculation and irrational exuberance? Similar numbers are found in Sam Francisco, San Jose, and to a slightly less extent LA and Sam Diego.

    I've said this in another thread. The proponderance of investors on BP who have attained 7 figures of PROFITs from rental have all been from coastal markets such as LA, SF, SD, Bay Area, NYC, Seattle, and Hawaii. This is nothing more than simple observation.

    Why? Because cash flow is not profit. How long do you think it will take you to net $1M in profit from buying cash-flowing rentals in non-appreciating markets, hoping a CapEx expense doesn't wipe 2 years of their cash flow?

    Of course people from Indy, Michigan, Tennessee, etc. will bring up Case-Shiller, but ignore the last 40 years of actual data. I think my high six figures in profit balance sheet investing in HI, is so irrationally exuberant!! I mean, Case-Shiller knows better. I think I should just chalk it up to a Christmas miracle. Prices are high in these locations for a reason, folks.

    You're obviously referring to me.

    I buy properties that DO appreciate. I'm not a "cash flow" investor. I'm also not a degenerate gambler who thinks that buying in freaking Hawaii and California is a great idea now because "it always goes up".

    Real estate overall does not go up in the long term. That's just a fact.

    "Prices are high in these locations for a reason, folks."

    Right, and high prices mean that prices will go even higher. That's just how it works. Right?

    The prices in most of the areas you mentioned are unsustainable and unsupported by incomes. Be a speculator all you want but know that the only thing underpinning those prices is other speculators. Or as I call them, greater fools.

    Your entire argument is that since these areas have appreciated in the past, outpacing local incomes, they will continue to do so, indefinitely. Good luck.

  • Anthony GaydenPro Member
    Rental Property Investor · Omaha, NE · Member since 2014 · 2k+ posts · 3k+ votes
    9y

    @Jon Q.

    How do you explain how Nevada and Arizona have the highest population growth in the country, but the cities in those states aren't on your "hot market" list?

  • Investor · Berkeley, CA · Member since 2015 · 1k+ posts · 713 votes
    9y
    Originally posted by @Anthony Gayden:

    @Jon Q.

    How do you explain how Nevada and Arizona have the highest population growth in the country, but the cities in those states aren't on your "hot market" list?

    What are you talking about? What list?

    I made no list. I'm referring to the U.S. Census population projections and Bureau of Labor Statistics cities that are experiencing job growth. All major cities in both NV and AZ are ranked highly for both population and job growth.

  • Anthony GaydenPro Member
    Rental Property Investor · Omaha, NE · Member since 2014 · 2k+ posts · 3k+ votes
    9y
    Originally posted by @Jon Q.:
    Originally posted by @Anthony Gayden:

    @Jon Q.

    How do you explain how Nevada and Arizona have the highest population growth in the country, but the cities in those states aren't on your "hot market" list?

    What are you talking about? What list?

    I made no list. I'm referring to the U.S. Census population projections and Bureau of Labor Statistics cities that are experiencing job growth. All major cities in both NV and AZ are ranked highly for both population and job growth.

     This list:

    "This applies to San Jose, San Francisco, Los Angeles, Seattle, Denver, Dallas, Austin, San Antonio, Houston, Charlotte, Raleigh, Atlanta, Ft. Lauderdale and many other markets on the list below... "

  • Investor · Berkeley, CA · Member since 2015 · 1k+ posts · 713 votes
    9y
    Originally posted by @Anthony Gayden:
    Originally posted by @Jon Q.:
    Originally posted by @Anthony Gayden:

    @Jon Q.

    How do you explain how Nevada and Arizona have the highest population growth in the country, but the cities in those states aren't on your "hot market" list?

    What are you talking about? What list?

    I made no list. I'm referring to the U.S. Census population projections and Bureau of Labor Statistics cities that are experiencing job growth. All major cities in both NV and AZ are ranked highly for both population and job growth.

     This list:

    "This applies to San Jose, San Francisco, Los Angeles, Seattle, Denver, Dallas, Austin, San Antonio, Houston, Charlotte, Raleigh, Atlanta, Ft. Lauderdale and many other markets on the list below... "

     ..."many other markets on the list below".

    Do you not see AZ and NV listed as #1 and 2 on the list??

  • Specialist · Honolulu, HI · Member since 2014 · 1k+ posts · 1k+ votes
    9y
    Originally posted by @Account Closed:
    Originally posted by @Andrey Y.:

    So much rationalization on this thead from "cash flow" investors.

    So the year over year, long term 9% annual appreciation and 6% annual rent growth over the last 40+ years in Honolulu is speculation and irrational exuberance? Similar numbers are found in Sam Francisco, San Jose, and to a slightly less extent LA and Sam Diego.

    I've said this in another thread. The proponderance of investors on BP who have attained 7 figures of PROFITs from rental have all been from coastal markets such as LA, SF, SD, Bay Area, NYC, Seattle, and Hawaii. This is nothing more than simple observation.

    Why? Because cash flow is not profit. How long do you think it will take you to net $1M in profit from buying cash-flowing rentals in non-appreciating markets, hoping a CapEx expense doesn't wipe 2 years of their cash flow?

    Of course people from Indy, Michigan, Tennessee, etc. will bring up Case-Shiller, but ignore the last 40 years of actual data. I think my high six figures in profit balance sheet investing in HI, is so irrationally exuberant!! I mean, Case-Shiller knows better. I think I should just chalk it up to a Christmas miracle. Prices are high in these locations for a reason, folks.

    You're obviously referring to me.

    I buy properties that DO appreciate. I'm not a "cash flow" investor. I'm also not a degenerate gambler who thinks that buying in freaking Hawaii and California is a great idea now because "it always goes up".

    Real estate overall does not go up in the long term. That's just a fact.

    "Prices are high in these locations for a reason, folks."

    Right, and high prices mean that prices will go even higher. That's just how it works. Right?

    The prices in most of the areas you mentioned are unsustainable and unsupported by incomes. Be a speculator all you want but know that the only thing underpinning those prices is other speculators. Or as I call them, greater fools.

    Your entire argument is that since these areas have appreciated in the past, outpacing local incomes, they will continue to do so, indefinitely. Good luck.

     What is your definition of the "past"? Those appreciation and rental income growth I stated INCLUDE THE DOWN CYCLES. That is important to understand. I am talking about from the 1970s to 2010s .. Do you plan to live to 180 years old? I'm not counting on that. I'd say that time frame is long enough to be sustainable and supported. I guess people that invest for profit are degenerate gamblers.

    A lot of people who have a $60K income are coming in with $500K of appreciation equity. There is little evidence that MEDIAN incomes absolutely dictate the "actual" value of a market or submarket. The value of a property is nothing more, nothing less than what someone is willing to pay.

  • Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes
    9y

    @Jon Q., seems to me, if in "hot" markets we ALREADY can't get positive cash flow (otherwise, it's NOT "hot"), that means that in your (literal) napkin drawing, those markets (while hot) would NEVER be at or below your DOT - but always above - which means that there would ALWAYS be the possibility/probability that the peak, followed by inevitable downturn, would ALWAYS be closer at hand than if you DIDN'T buy in those markets, at THOSE times, right?

    That is, unless you really only buy well below market value at all times after all!

    Hmmm. Plugging THAT virtue would have made for a MUCH better opening post, imho.

    (Aren't bargains hard to come by in "hot" markets? You'd need all the skills of a seasoned Flipper, right?) My 2c...

  • Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes
    9y

    The 'real' data comes from theand Case Shiller quantitative data gathered from markets across the US over a long period of time. The napkin image may be a correct depiction for a short period of time, from like 2013 to now, but it doesn't reflect long term. I encourage everyone to use the actual (not hypothetical) macro data that's out there when talking about macro trends.

  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    9y

    @Account Closed were do you think your indy market would be if turnkey , out of state, foreigners left Indy market and never bought rentals there.. and all SFR rentals were bought and sold organically by locals... would you assume that the market values would hold at say the 2% rule across the board as locals simply would not pay anymore than that for a given cash flow no matter what... other than of course areas of your fine city that are regentrifying ?? Like a fountain and Bates area or the area north of downtown along broadway.. ????

    that's kind of how I see most of the big mid west rust belt cities.. markets driven by foreign influences be it CA  off shore Hedge fund...

    I know in our little slice of the world 90% of real estate is bought by locals.. and most that are not are buying to live in them as they are moving to Orygun for greener pastures  Literally.

  • Investor · Indianapolis, IN · Member since 2017 · 47 posts · 80 votes
    9y
    Originally posted by @Jay Hinrichs:

    @Account Closed were do you think your indy market would be if turnkey , out of state, foreigners left Indy market and never bought rentals there.. and all SFR rentals were bought and sold organically by locals... would you assume that the market values would hold at say the 2% rule across the board as locals simply would not pay anymore than that for a given cash flow no matter what... other than of course areas of your fine city that are regentrifying ?? Like a fountain and Bates area or the area north of downtown along broadway.. ????

    that's kind of how I see most of the big mid west rust belt cities.. markets driven by foreign influences be it CA  off shore Hedge fund...

    I know in our little slice of the world 90% of real estate is bought by locals.. and most that are not are buying to live in them as they are moving to Orygun for greener pastures  Literally.

    Indy would be dirt cheap if it weren't for guys from California coming over here paying ridiculously high prices for every piece of crap that comes on the market.

    1 in 8 houses in Indy is sold to an out of state buyer. Up from 1 in 25 ten years ago.

    But those people will exit the market as soon as they came once they realize their dreams of passive cash flow in rust belt ghettos is a complete and total fantasy. Which is only a matter of time.

    And for the record I wish they would get the hell out of here because they've ruined the market.

    Everything I own is in a "gentrifying" area of Indy.

  • Investor · Indianapolis, IN · Member since 2017 · 47 posts · 80 votes
    9y
    Originally posted by @Andrey Y.:
    Originally posted by @Account Closed:
    Originally posted by @Andrey Y.:

    So much rationalization on this thead from "cash flow" investors.

    So the year over year, long term 9% annual appreciation and 6% annual rent growth over the last 40+ years in Honolulu is speculation and irrational exuberance? Similar numbers are found in Sam Francisco, San Jose, and to a slightly less extent LA and Sam Diego.

    I've said this in another thread. The proponderance of investors on BP who have attained 7 figures of PROFITs from rental have all been from coastal markets such as LA, SF, SD, Bay Area, NYC, Seattle, and Hawaii. This is nothing more than simple observation.

    Why? Because cash flow is not profit. How long do you think it will take you to net $1M in profit from buying cash-flowing rentals in non-appreciating markets, hoping a CapEx expense doesn't wipe 2 years of their cash flow?

    Of course people from Indy, Michigan, Tennessee, etc. will bring up Case-Shiller, but ignore the last 40 years of actual data. I think my high six figures in profit balance sheet investing in HI, is so irrationally exuberant!! I mean, Case-Shiller knows better. I think I should just chalk it up to a Christmas miracle. Prices are high in these locations for a reason, folks.

    You're obviously referring to me.

    I buy properties that DO appreciate. I'm not a "cash flow" investor. I'm also not a degenerate gambler who thinks that buying in freaking Hawaii and California is a great idea now because "it always goes up".

    Real estate overall does not go up in the long term. That's just a fact.

    "Prices are high in these locations for a reason, folks."

    Right, and high prices mean that prices will go even higher. That's just how it works. Right?

    The prices in most of the areas you mentioned are unsustainable and unsupported by incomes. Be a speculator all you want but know that the only thing underpinning those prices is other speculators. Or as I call them, greater fools.

    Your entire argument is that since these areas have appreciated in the past, outpacing local incomes, they will continue to do so, indefinitely. Good luck.

     What is your definition of the "past"? Those appreciation and rental income growth I stated INCLUDE THE DOWN CYCLES. That is important to understand. I am talking about from the 1970s to 2010s .. Do you plan to live to 180 years old? I'm not counting on that. I'd say that time frame is long enough to be sustainable and supported. I guess people that invest for profit are degenerate gamblers.

    A lot of people who have a $60K income are coming in with $500K of appreciation equity. There is little evidence that MEDIAN incomes absolutely dictate the "actual" value of a market or submarket. The value of a property is nothing more, nothing less than what someone is willing to pay.

    And I would say it's not long enough to be sustainable. That means absolutely nothing. Especially when the very long term trend line in general is flat.

    There's zero reason to believe you're going to continue seeing that type of appreciation. Real estate should not outpace local incomes. The only reason it has is that this country has been on a drunken binge of higher debt and lower interest rates for 30 years. Combined with hordes of people pouring into "real estate investing" over the last couple of decades.

    But hey if you think that since your property has gone from 50K to 500K over the last 40 years that means it will go from 500K to 5M over the next 40 that's on you.

    Again your entire argument is that appreciation begets more appreciation. Which is nonsense, especially in something like housing which I don't care what BP thinks, will pretty much always revert to the end user fundamentals.

    Real estate should not appreciate.

  • Inspector · Raleigh, NC · Member since 2017 · 55 posts · 25 votes
    9y

    Market values are averages at best. My best guess would be that a standard deviation or two standard deviation would be a more accurate model to predict your risk. I have some experience with modeling markets. Anyone who banks on appreciation is asking for bankruptcy. Everything is cyclical in this world. You must consider the chances of a mean reversion during a correction. How much COULD you lose?

    "Hot" markets right now are a combination of many factors. Have you considered inflation over the last several years? $100 bucks only buys $86 worth of goods. The cost to build new? Real Estate is just a safer option for many investors to park cash. 

    You're not necessarily wrong just not convincing me. My point is there are not " hot" times to buy as an investor. Its a mindset that create opportunities. Even in a correction many investors were left with little cash to buy up any low hanging fruit. Although it may be easier to buy real estate you are also not investing in everything else that is a good deal. Real Estate is a play that represents a calculation of money and time in a particular area. 

    Those that did have capital during any corrections took advantage certainly. They took advantage because they were not overleveraged, had capital to spend, and had many investor friends that needed to sell. 

  • Investor · Berkeley, CA · Member since 2015 · 1k+ posts · 713 votes
    9y
    Originally posted by @Brent Coombs:

    @Jon Q., seems to me, if in "hot" markets we ALREADY can't get positive cash flow (otherwise, it's NOT "hot"), that means that in your (literal) napkin drawing, those markets (while hot) would NEVER be at or below your DOT - but always above - which means that there would ALWAYS be the possibility/probability that the peak, followed by inevitable downturn, would ALWAYS be closer at hand than if you DIDN'T buy in those markets, at THOSE times, right?

    That is, unless you really only buy well below market value at all times after all!

    Hmmm. Plugging THAT virtue would have made for a MUCH better opening post, imho.

    (Aren't bargains hard to come by in "hot" markets? You'd need all the skills of a seasoned Flipper, right?) My 2c...

    Thanks Brent.  Not necessarily. I just acquired three properties in these markets that are all cash flowing.

    Also, read what I wrote about exceptions.  And no, I'm not a flipper and flipping property is not investing.

  • Investor · Berkeley, CA · Member since 2015 · 1k+ posts · 713 votes
    9y
    Originally posted by @Account Closed:
    Originally posted by @Andrey Y.:
    Originally posted by @Account Closed:
    Originally posted by @Andrey Y.:

    So much rationalization on this thead from "cash flow" investors.

    So the year over year, long term 9% annual appreciation and 6% annual rent growth over the last 40+ years in Honolulu is speculation and irrational exuberance? Similar numbers are found in Sam Francisco, San Jose, and to a slightly less extent LA and Sam Diego.

    I've said this in another thread. The proponderance of investors on BP who have attained 7 figures of PROFITs from rental have all been from coastal markets such as LA, SF, SD, Bay Area, NYC, Seattle, and Hawaii. This is nothing more than simple observation.

    Why? Because cash flow is not profit. How long do you think it will take you to net $1M in profit from buying cash-flowing rentals in non-appreciating markets, hoping a CapEx expense doesn't wipe 2 years of their cash flow?

    Of course people from Indy, Michigan, Tennessee, etc. will bring up Case-Shiller, but ignore the last 40 years of actual data. I think my high six figures in profit balance sheet investing in HI, is so irrationally exuberant!! I mean, Case-Shiller knows better. I think I should just chalk it up to a Christmas miracle. Prices are high in these locations for a reason, folks.

    You're obviously referring to me.

    I buy properties that DO appreciate. I'm not a "cash flow" investor. I'm also not a degenerate gambler who thinks that buying in freaking Hawaii and California is a great idea now because "it always goes up".

    Real estate overall does not go up in the long term. That's just a fact.

    "Prices are high in these locations for a reason, folks."

    Right, and high prices mean that prices will go even higher. That's just how it works. Right?

    The prices in most of the areas you mentioned are unsustainable and unsupported by incomes. Be a speculator all you want but know that the only thing underpinning those prices is other speculators. Or as I call them, greater fools.

    Your entire argument is that since these areas have appreciated in the past, outpacing local incomes, they will continue to do so, indefinitely. Good luck.

     What is your definition of the "past"? Those appreciation and rental income growth I stated INCLUDE THE DOWN CYCLES. That is important to understand. I am talking about from the 1970s to 2010s .. Do you plan to live to 180 years old? I'm not counting on that. I'd say that time frame is long enough to be sustainable and supported. I guess people that invest for profit are degenerate gamblers.

    A lot of people who have a $60K income are coming in with $500K of appreciation equity. There is little evidence that MEDIAN incomes absolutely dictate the "actual" value of a market or submarket. The value of a property is nothing more, nothing less than what someone is willing to pay.

    And I would say it's not long enough to be sustainable. That means absolutely nothing. Especially when the very long term trend line in general is flat.

    There's zero reason to believe you're going to continue seeing that type of appreciation. Real estate should not outpace local incomes. The only reason it has is that this country has been on a drunken binge of higher debt and lower interest rates for 30 years. Combined with hordes of people pouring into "real estate investing" over the last couple of decades.

    But hey if you think that since your property has gone from 50K to 500K over the last 40 years that means it will go from 500K to 5M over the next 40 that's on you.

    Again your entire argument is that appreciation begets more appreciation. Which is nonsense, especially in something like housing which I don't care what BP thinks, will pretty much always revert to the end user fundamentals.

    Real estate should not appreciate.

    " it should not", but it does.  I prefer to live in the real world and make money doing it!

  • Investor · Indianapolis, IN · Member since 2017 · 47 posts · 80 votes
    9y
    Originally posted by @Jon Q.:
    Originally posted by @Account Closed:
    Originally posted by @Andrey Y.:
    Originally posted by @Account Closed:
    Originally posted by @Andrey Y.:

    So much rationalization on this thead from "cash flow" investors.

    So the year over year, long term 9% annual appreciation and 6% annual rent growth over the last 40+ years in Honolulu is speculation and irrational exuberance? Similar numbers are found in Sam Francisco, San Jose, and to a slightly less extent LA and Sam Diego.

    I've said this in another thread. The proponderance of investors on BP who have attained 7 figures of PROFITs from rental have all been from coastal markets such as LA, SF, SD, Bay Area, NYC, Seattle, and Hawaii. This is nothing more than simple observation.

    Why? Because cash flow is not profit. How long do you think it will take you to net $1M in profit from buying cash-flowing rentals in non-appreciating markets, hoping a CapEx expense doesn't wipe 2 years of their cash flow?

    Of course people from Indy, Michigan, Tennessee, etc. will bring up Case-Shiller, but ignore the last 40 years of actual data. I think my high six figures in profit balance sheet investing in HI, is so irrationally exuberant!! I mean, Case-Shiller knows better. I think I should just chalk it up to a Christmas miracle. Prices are high in these locations for a reason, folks.

    You're obviously referring to me.

    I buy properties that DO appreciate. I'm not a "cash flow" investor. I'm also not a degenerate gambler who thinks that buying in freaking Hawaii and California is a great idea now because "it always goes up".

    Real estate overall does not go up in the long term. That's just a fact.

    "Prices are high in these locations for a reason, folks."

    Right, and high prices mean that prices will go even higher. That's just how it works. Right?

    The prices in most of the areas you mentioned are unsustainable and unsupported by incomes. Be a speculator all you want but know that the only thing underpinning those prices is other speculators. Or as I call them, greater fools.

    Your entire argument is that since these areas have appreciated in the past, outpacing local incomes, they will continue to do so, indefinitely. Good luck.

     What is your definition of the "past"? Those appreciation and rental income growth I stated INCLUDE THE DOWN CYCLES. That is important to understand. I am talking about from the 1970s to 2010s .. Do you plan to live to 180 years old? I'm not counting on that. I'd say that time frame is long enough to be sustainable and supported. I guess people that invest for profit are degenerate gamblers.

    A lot of people who have a $60K income are coming in with $500K of appreciation equity. There is little evidence that MEDIAN incomes absolutely dictate the "actual" value of a market or submarket. The value of a property is nothing more, nothing less than what someone is willing to pay.

    And I would say it's not long enough to be sustainable. That means absolutely nothing. Especially when the very long term trend line in general is flat.

    There's zero reason to believe you're going to continue seeing that type of appreciation. Real estate should not outpace local incomes. The only reason it has is that this country has been on a drunken binge of higher debt and lower interest rates for 30 years. Combined with hordes of people pouring into "real estate investing" over the last couple of decades.

    But hey if you think that since your property has gone from 50K to 500K over the last 40 years that means it will go from 500K to 5M over the next 40 that's on you.

    Again your entire argument is that appreciation begets more appreciation. Which is nonsense, especially in something like housing which I don't care what BP thinks, will pretty much always revert to the end user fundamentals.

    Real estate should not appreciate.

    " it should not", but it does.  I prefer to live in the real world and make money doing it!

    No, it doesn't.

  • Investor · Indianapolis, IN · Member since 2017 · 47 posts · 80 votes
    9y

    https://hotelivory.wordpress.com/2010/08/29/a-very-long-view-on-house-prices/

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