Stock Market Stinks (Down -800 points Today) - Real Estate Great
Specialist · Paradise Valley, AZ · Member since 2018 · 3k+ posts · 2k+ votes
Stock Market Stinks (Down -800 points Today) - Real Estate Great
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I thought I was seeing objects falling from skyscrapers in Manhattan until I realized these were investment bankers jumping out of the windows ....
Just kidding. We had 900 point decline in Feb and we are still standing.
HOWEVER, clouds are on the horizon
a) International markets have been routed - from 50% down in Asia and Russia to 15% down in Europe
b) Interest rates are climbing, 30 year mortgage hit -- shock, horror -- 5% again
c) Real estate markets in some regions are showing seasonal cooling down
d) Tariff wars
e) Oil prices rising
f) Employers cannot find employees
The next 12 months should be interesting ....
When the credit markets sneeze, the real estate market will catch a cold ....
193 Replies
@Account Closed 2.92% dividend yield on top of doubling your money if you held for 10 years, with zero work on your end, isn't good enough for you? That's fine, don't invest in WFC. But that doesn't make your statement that stocks don't provide cash flow any less incorrect. Saying stocks don't provide cash flow is simply not true. Someone else might have enough WFC that they collect more than enough in just dividends to cover their expenses, and they would laugh at your headache-laden RE investments, which they could never scale big enough fast enough to cover their expenses, whereas the click of a button get's them plenty of dividend income to live off very comfortably while compounding the rest. Probably 99% of the people on here buying property they think will return $100/door are actually unknowingly losing money, while if they had bought WFC at least they'd be making 2.92% dividend yield on top of appreciation.
It takes a lot of work to build a strong portfolio of cash flowing rentals. Stocks are so much easier to acquire by comparison. On top of that, what if all of a sudden you need a new roof, or windows, or a sewer line, or the irrigation system freezes, leaks and floods the basement, or a fire guts the place and your insurance only covers some of the vacancy/rebuild costs, or a flood washes it away and you didn't have flood insurance, or your tenant stops paying and their estranged lover/stiffed drug dealer breaks in and destroys the place, or any one of a myriad possible bad things happens because you have an investment that hinges upon human behavior, and therefor needs constant baby sitting, and 5 years of your glorious $500/month is wiped out in one afternoon, and the bank takes the property? None of that happens in stocks. Sometimes companies go out of business, but look up how many aristocrat stocks have gone to zero recently compared to the number of foreclosures.
I personally would never have been able to invest in RE if I didn't have dividend income from stock investments first because I work in sales and lenders hate fluctuating, commission-based income, even if the commissions are substantial. So for me having dividend stocks was a critical piece of getting into RE. Why do you think lenders love seeing a strong history of dividend income? Because dividend income is consistent and reliable. Arguably more reliable than rental income. Saying only one is the answer for all investors is like saying people should only invest in Pokemon, Bitcoin, or 90's baseball cards, it's just bad investing advice.
Look, I can't get into a back and forth argument with you. It seems you have convinced yourself that only one form of investing makes sense, and you're only going to accept data points that support your point of view, while discrediting any facts pointing in a different direction than your narrow minded beliefs. I don't think anything anyone says will convince you, which doesn't matter because you're all set with your RE investments, and kudos to you for that.
Most people agree that both stocks and RE have their advantages and disadvantages. Each strategy makes sense for someone's personal situation and individual investment goals. For the majority of people, the answer is both. In my experience most successful people, millionaires, billionaires, whatever, will have some sort of mix of stocks and RE or at least REIT's in their portfolio.
One of the main reasons there is opportunity in rental property is because less people want to do it than investing in stocks, and there's a good reason for that.
- Specialist · Paradise Valley, AZ · Member since 2018 · 3k+ posts · 2k+ votes8y
@Steve K. I agree with your basic premise in theory but you don't take a couple of things into account
Your Comment: "Probably 99% of the people on here buying property they think will return $100/door are actually unknowingly losing money"
I make a minimum of $500 a door and up to $1,000 a month on some and everything in between on the others. I don't have responsibility for maintenance or repairs and I get depreciation write offs and interest write offs while someone else pays down my principal.
Along with that on the 2.92% dividend from WFC you would need $2,500,000 invested to arrive at $73,000 a year income (about $6,000 a month) which is taxed.
I can take that same $2,500,000 and for $50,000 each take over financing and buy enough houses that give me $500 per month with a total income for a yearly of $300,000 and a monthly of $25,000. That's a little better than 2.92% I hire a PM to take care of the properties and I move to Arizona (where taxes are low) and I play. ;-)
- Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes8y
No worries from me. When stock market goes down it makes my phone ring more from potential clients who can no longer stomach the ups and downs of the stock market. They would rather plow into passive commercial real estate assets for ownership and know what they are getting in rent and rental increases year over year.
My friends who do own a lot of stocks simply buy more when it goes down and let the herds do the panic selling.
@Account Closed So you’d have to buy 12 houses that cash flow $500/month reliably. Not easy to do. In fact completely unrealistic in most areas of the country currently. Plus don’t forget closing costs on each not to mention most properties need at least a little work and additional cap ex to turn into performing assets. So much more time invested and room for error than clicking a few buttons or making a call to your stock broker. Also the tax benefits aren’t so hot when depreciation recapture is accounted for. I like RE because I can fix stuff with my hands, but if an RE investor doesn’t bring a special set of skills to the table such as being able to source discounted properties, force appreciation through sweat equity, consistently making deals like the one you described in your other post, etc., they may be better off focusing on their day job and loading up on dividend stocks. $500/month cash flow and $70k profit on a single subject to deal is not the norm.
- Specialist · Paradise Valley, AZ · Member since 2018 · 3k+ posts · 2k+ votes8y
Originally posted by @Steve K.:
@Account Closed So you’d have to buy 12 houses that cash flow $500/month reliably. Not easy to do. In fact completely unrealistic in most areas of the country currently. Plus don’t forget closing costs on each not to mention most properties need at least a little work and additional cap ex to turn into performing assets. So much more time invested and room for error than clicking a few buttons or making a call to your stock broker. Also the tax benefits aren’t so hot when depreciation recapture is accounted for. I like RE because I can fix stuff with my hands, but if an RE investor doesn’t bring a special set of skills to the table such as being able to source discounted properties, force appreciation through sweat equity, consistently making deals like the one you described in your other post, etc., they may be better off focusing on their day job and loading up on dividend stocks. $500/month cash flow and $70k profit on a single subject to deal is not the norm.
Your Comment: "the tax benefits aren’t so hot when depreciation recapture is accounted for" There isn't any recapture since my heirs will inherit the properties a a stepped up cost bases (IRS rule) I don't need the equity so I don't need to sell. I have Greeeeaaaaatttt Cash Flow.
You are overthinking things, here is a post that shows how it is done, with real estate, by anyone, if they have "ears to hear" & "eyes to see"
- Investor · Houston, TX · Member since 2017 · 1k+ posts · 871 votes8y
Originally posted by @Vitaly Adler:
@Mark SewellTechnical analysis of stock charts is a waste of time. It was probably made up by people who make their money on commissions of traders.
Have you done any technical trades? Really it is simply looking at patterns, using sound risk management rules, sticking to them and removing the emotion. If you trade on emotion, then you are simply going to the casino, nothing more.
I am just a beginner, but I do think that it makes a lot more sense than any kind of reasonable analysis of fundamentals right now. There is just a lot of money in the market and it is driving prices up.
Plus you have to use a range of positions -- you need 10 or 20 positions. 10 go the right away, 10 go the wrong way. But your stop-loss mechanisms save you on the trades you lose, and your profit happens on the trades that go the right way. Finding good setups is hard, obviously, and good traders run in herds -- just like RE investors do.
- Dallas, GA · Member since 2017 · 10 posts · 3 votes8y
Eliminating all debt and living below your means negates the majority of concerns listed here. And having cash reserves to pull from to avoid over-depleting long-term investments when markets are down (for retirees), is also wise. For those of us still grinding, the same principles apply, only now that extra cash can result in opportunities to buy companies at a discount.
People who know what they are doing won't panic regardless of which side of the stock market/real estate investment strategy they live by. They know they can gain back any losses with the same strategies they built their current stash, as their approach is principle-based and will stand the test of time.
I don't know whether we're near another bear market or not. I just know my strategy is for the long-term and won't change much, regardless of what the market does for the foreseeable future.
Here's hoping that whatever happens doesn't negatively impact those of you (and others) beyond what you can quickly recover from, regardless of which side you argue.
A house built on sand....
- Investor · Houston, TX · Member since 2017 · 129 posts · 62 votes8y
Originally posted by @Vitaly Adler:
@Mark SewellTechnical analysis of stock charts is a waste of time. It was probably made up by people who make their money on commissions of traders. When the market is moving based on emotion and news headlines all those technicals mean nothing. The companies who are moving large volume of stocks have computers trading of an algorithm.
It's really interesting reading all the comments. One big pissing contest... Bottom line is that nobody wants to see their portfolio down 40 or 50 percent, even if they represent only paper losses. Sure it takes a lot of discipline not to panic and sell during a major market rout but more importantly it takes financial security and knowing that you are not investing money you will need to pay your bills next week.
Technical Analysis was invented hundreds of years ago. Those companies trading with algo's have huge trading budgets allocated specifically to technical analysis. Many of those algo's even use technical analysis for their trade execution. If you want to be a profitable short-term trader (which i DO NOT advise), then 99% of your trading will be based off of technical analysis.
@Account Closed If I were your heir, I’d prefer to inherit passive dividend yielding stocks over aging physical structures that require constant influx of capital and effort to maintain. Poor kids better know the business end of a sewer snake!
- Kansas City, MO · Member since 2014 · 8 posts · 3 votes8y
Age 54, looking to retire in the next 12 months. I have two single family rentals paid for and have been looking for a multi-family property in Kansas City for months. The cap rate on A/B class properties is around 5-6 today. Is the market just too hot? I don't know how to make the cash flow work at these levels and to top it off the market appreciation from these levels seems very limited. Do I need to find an off market deal? I'm looking to acquire 100 units over the next 12 months and have the cash to fund this plan. Any thoughts or feedback would be appreciated.
Thanks
John
- Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes8y
John Buckley on larger properties my clients buying class A to B used to buy 5 caps and now with rising interest rates want 6 caps.
They use Fannie/Freddie debt so if a property has almost no upside left but just regular rental increases they want at least 100 basis point spread going in between debt and existing cap rate. That way over a 5 year hold they could blend into the 7's.
If the cap rate is going to be 5 or in the 5's then there has to be a compelling story like it's class A with 300 units but the rents are at 800 and market is 1,100 a unit etc. There has to be value drivers to blend the cap rate up at an accelerated pace on then regular yearly increases to justify the starting lower cap rate purchase compared to debt rates.
These are family offices who own lot's of multifamily over a billion dollars worth. They have very high net worth families in the family office from 9 figures to 10 figures. I can tell you I see what appears to be thousands of companies trying to buy multifamily now. Hardest thing is not even the low cap rates it is getting any of these companies to sell ANYTHING of quality. Most are just in buy mode.
Where I think investors need to use extreme caution is buying out of state and the sellers are passing off a C asset building and location at best as a B Asset class building and location for a low cap. Those when a down turn happens can get into trouble as the income of those tenants is tight. If the extra hours at the job or second job hours are reduced then the credit card debt they tend to carry can really hurt their ability to pay the rent. The strong suburban to urban core higher income markets tend to hold up best in a down turn. Those areas tend to be the last to drop and the first to rise whereas the weak suburban to rural areas tend to be more one economy to 5 business type towns and are first to fall and last to recover.
- Member since 2018 · 1 post · 0 votes8y@Mike M. Five years from now it will be higher.
- Rental Property Investor · Fort Collins, CO · Member since 2015 · 273 posts · 127 votes8y@Jared Skov thanks for this perspective.
- Rental Property Investor · Dayton, OH · Member since 2015 · 79 posts · 85 votes8y
@Jeff Ronningen, (from page 6) I understand the mortgage part. Here's what I don't understand. If you look at the BRRRR strategy, you are getting as much as a Refinance amount as you can, incurring a debt on each property. What is the risk with debt? It is that you will not be able to pay back your loan and your creditors will foreclose on you. If you own apartment complex with a $2M loan at 5.5%, your monthly payment is $9,166. Say your complex has 25 doors (cost of $80,000 per door) and you get $900/month. That's $22,500 income from rent. Expenses (taxes and insurance, mowing and property management, some capX saving, etc.) take a $9,000 leaving you $4,334/mo. OK, there is a downturn in the economy, a nearby factory shuts down and you've got 4 families that didn't make their payment. But there are restaurants around the factory, a Seven-Eleven, a drug store, a Dollar General and a gas station. Two months later those businesses are laying off workers and you loose another 4 families. You've got all 4 of the first 4 families out. You hire a work crew to clean, paint and repair the 4 units. You are now only making $15,300 a month in rents. And you have abnormal expenses. There is a problem with evicting one of the new batch of families, her husband is active military, and their making rent depended on her employment. Jobs are hard to find and there is now little demand for housing. You can only find one new renter for the renovated apartments. Blaa, blaa, blaa. Now your not earning enough to cover expenses.
So does anybody have a formula that they use to protect the expenses incurred by their mortgaged property. Does anyone try to pay off a few properties or hold a certain amount of cash?
Mark
Originally posted by @Account Closed:
Here we go - it's just the beginning . . . Is your Broker returning your calls?
"This Is The Tipping Point": One Bank Is Calling For A 30% Market CorrectionMike it wasn't the "beginning" . It was a dip that lasted for 2 days and returned to where it was after 5. I hope you picked up some good shares while they were cheap. This was a fun one!
- Specialist · Paradise Valley, AZ · Member since 2018 · 3k+ posts · 2k+ votes8y
Originally posted by @Max T.:
Originally posted by @Account Closed:
Here we go - it's just the beginning . . . Is your Broker returning your calls?
"This Is The Tipping Point": One Bank Is Calling For A 30% Market CorrectionMike it wasn't the "beginning" . It was a dip that lasted for 2 days and returned to where it was after 5. I hope you picked up some good shares while they were cheap. This was a fun one!
We will see what monday and the rest of October bring. ;-)
- ARRT, RT(R) / Rental Property Investor · Newport Beach, CA · Member since 2017 · 360 posts · 242 votes8y@Max Tanenbaum~It's always a good day to invest in Index Funds. 🤓
Personally, I've knocked two Rs off of my "BRR" strategy at this stage. Mostly unleveraged on my SFRs, going for section 8 to max out cashflow on the government's reliable dime. Reduced potential for near-term growth but indefinite defensibility. Intend to 1031 into max-leveraged Class A if we hit a recession and prices come down.
What a lot of people don't talk about is that the economy is cyclical. You've got times like 2009 until around 2012 when lending was super tight, values of most assets were severely depressed (or still falling) and only people with balls and great asset management were buying. Six more years into a bull market later and liquidity is splashing around with too much money looking for too few deals. 4.5 cap is the new 6 cap, private placements are getting more and more daring and early bearish signs are coming from the stock market.
This year, specifically this past week, I think we've seen the first of the smart money locking in their multi year gains and getting more defensive. I've been getting pretty defensive myself, focusing on low-leverage, high cashflow SFHs, sold half my stocks 9 months ago into hedge assets and am stockpiling cash reserves for the "reset."
We are near the end of this economic cycle, and a "reset" is due any time now. When it comes, prices of many assets will likely fall, creating buying opportunities. Smart money will be ready to buy depressed assets for pennies on the dollar when the next cycle begins.
Imagine if you had capital ready to deploy in 2009. Real estate, stocks... pick your poison. You'd have made a killing. Like my buddy who was buying in Atlanta in 2013 and rapidly scaled up to 25 SFRs. He was buying $35k-$40k properties that cashflowed $800 that now appraise at $150k. That's serious wealth creation. That's what we should all be preparing for to whatever capacity we're able. Not that we'll see another R.E. decline like 2008, but there will be opportunities for sure.
I don't go for this "real estate vs stocks" banter. Each have a place in one's portfolio. What's more important is to recognize where in the cycle you are and be positioned for it, in my humble opinion.
Personally, I would not be heavily leveraged now, or hold onto property in landlord-unfriendly states as we face at minimum, a correction, and possibly a bear market.
- Rental Property Investor · Dayton, OH · Member since 2015 · 79 posts · 85 votes8y
@Rob Barry. That is the most well thought and intelligent response that I've received (which I've posted in several forums). The higher cash flow of section 8 is a good strategy, but it may also be a little higher amount of hands-on with tenants. It also tends to be lower priced properties, so good. I also noticed that you are not highly leveraged like many using the BRRRR method. I too have a portion of my assets in stocks, but if I had it to do over again, I'm not sure I would pick stocks. I do like real estate better and think it is more stable.
To everyone else... I still haven't heard from someone who is using the BRRRR method and is leveraged. My original question is if you are using BRRRR, is anyone setting some kind of limit in your business? Like payoff one property for every two leveraged. Or hold 7% as a cash reserve.
Mark
- Investor · Houston, TX · Member since 2017 · 1k+ posts · 871 votes8y
I don't think this was intended to be a discussion about which market is better -- capital markets vs. real estate markets. I think everybody here understands that markets go up and down. All markets require some form of solid risk management, and I love the comments made here by @Rob Barry and @Mark Nickoson -- we might not be rolling up on a big cyclical reset anytime soon (or maybe we are), but in any case, we should all be looking hard at our downside scenarios.
And it is probably smart to have multiple investment streams. I wouldn't want to have all my money packed into SPY, no more than I would want it all packed into one SFH over on the other side of Houston (or worse, somewhere in CA or FL or NJ).
Great stuff in this thread. I always learn a ton on BP.
- Rental Property Investor · Dayton, OH · Member since 2015 · 79 posts · 85 votes8y
@Mark Sewell I agree - markets go up and down. We are discussing risk management in a thread on the decline of the stock market but the fact is that main street is looking better than it has in a decade. The FED has injected so much cash into the economy and that liquidity is sloshing around looking for returns. That liquidity is one of the two main reasons why housing has taken off. The other reason of course is the demand. As companies post good earnings the stock prices rise and sometimes they rise too fast and we have corrections. That is all normal.
As the FED slowly takes back the money added from the Quantitative Easing, we will have times of panic. But there will be a point in time when interest rates will rise enough that it will drive out the inefficient or unwise operators. I've asked for feedback from those using BRRRR about whether they have any limits. I'm starting to come to a theory that the BP community may not be weighing the risk and having mitigation strategies. I'm about to take a loan on a free and clear property so I can bring another property up to tip-top condition and raise rent another $200/mo and also look for the next property. But I'm not going to mortgage both free-and-clear properties.
Mark
- Rental Property Investor · Las Vegas, NV · Member since 2018 · 133 posts · 171 votes8y
I like gold miner stocks, my IRA is now loaded up with almost nothing else.
Gold and the gold miners have been poor performers for years now, because the market as been largely in "risk on" mode, while at the same time the Fed has been in QT mode. Double negatives for gold. Eventually however the negatives become positives because rising rates naturally slow the economy, risk will return, and the Fed will start to slow the pace of interest rate hikes. These are all positives for gold.
I might be early, but in my experience once the market switches to risk off mode it happens pretty swiftly and without much notice. Often the masses don't even realize it until it's too late. Seen this movie too many times to ignore....
- Rental Property Investor · Dayton, OH · Member since 2015 · 79 posts · 85 votes8y
@Account Closed I did that once too. The bad thing about gold is that it doesn't do anything. All that it is is a store. The gold stocks that I traded were foreign companies. What I didn't realize is that also rode on the waves of currency differences. And, gold is sold in for jewelry, but in if the economy goes bad, people don't buy jewelry. After I bought, fear went higher, but currency changes had the higher effect and the stock ended up going lower. I realized that I was not really an investor, I was a gambler. About 5 months later, it came back up to the point near where I bought it and I sold for a slight loss, happy to get my money back. I hope you can read the tea leaves better that I did.
Mark
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