The Cost of Waiting - A Different Way to Look at It

Denver, Colorado
General Real Estate Investing
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The Cost of Waiting - A Different Way to Look at It

Brady MullenPro Member
Denver, CO · Member since 2021 · 61 posts · 100 votes

You've probably heard the "would you rather" scenario about being offered $1M or a penny that doubles every day for a month, right?

Well, consider this little twist…

So, in case you haven't heard, a penny that doubles 30 times is much more than $1M. It's $5.4M!

Hopefully we've experienced enough compounding "aha" moments that we know to not trust our instincts - compounding regularly defies our intuitions.

What if instead of starting the penny today, you put it off until tomorrow? Maybe your kid needs a ride to soccer tonight, or you're going to Scott's house for dinner, or you got sucked into some funny social media videos. It can wait until tomorrow.

If you start the penny tomorrow, then tomorrow, you'll only be behind by 1 penny, right?

But on the 30th day, you're behind by $2.7M!

By waiting, we give up what happens at the end of the compounding equation, not at the beginning. The difference in the beginning is always unnoticeable (or at least unimpressive), but it's the end we're sacrificing.

You may object by saying, "I'll just have to invest a little longer to make up." But that's not really what's on offer here. If there were more time, then you'd be even further behind! You'd have one more day to double the $5.4M to $10.8M!

Now, I don't know an investment that will double your money every day, but it helps align our intuitions with reality.

Waiting to do something that is financially smart (and therefore usually involves compounding) costs much more than our intuitions would indicate. We sacrifice what happens at the end!

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Randall AlanPro Member
Investor · Lakeland, FL · Member since 2017 · 1k+ posts · 1k+ votes
3y
Quote from @Brady Mullen:

You've probably heard the "would you rather" scenario about being offered $1M or a penny that doubles every day for a month, right?

Well, consider this little twist…

So, in case you haven't heard, a penny that doubles 30 times is much more than $1M. It's $5.4M!

Hopefully we've experienced enough compounding "aha" moments that we know to not trust our instincts - compounding regularly defies our intuitions.

What if instead of starting the penny today, you put it off until tomorrow? Maybe your kid needs a ride to soccer tonight, or you're going to Scott's house for dinner, or you got sucked into some funny social media videos. It can wait until tomorrow.

If you start the penny tomorrow, then tomorrow, you'll only be behind by 1 penny, right?

But on the 30th day, you're behind by $2.7M!

By waiting, we give up what happens at the end of the compounding equation, not at the beginning. The difference in the beginning is always unnoticeable (or at least unimpressive), but it's the end we're sacrificing.

You may object by saying, "I'll just have to invest a little longer to make up." But that's not really what's on offer here. If there were more time, then you'd be even further behind! You'd have one more day to double the $5.4M to $10.8M!

Now, I don't know an investment that will double your money every day, but it helps align our intuitions with reality.

Waiting to do something that is financially smart (and therefore usually involves compounding) costs much more than our intuitions would indicate. We sacrifice what happens at the end!

@Brady Mullen

I’m all about investing in real estate. We have 37 units that we required mostly from 2018 to 2020.  We have seen or equity, triple in that amount of time. But if your argument is that the new investor  should be investing in real estate today, I might go against that somewhat.  All that is compounding today is your interest rate it seems… in the sense that it has tripled over the past 18 months. That combined with real estate prices that remain very high I think make for a sound argument that presently it is not a favorable environment to be pulling the trigger on most real estate investment opportunities.

As soon as rates and prices settle back down, I would be all on board with your premise that sooner is better than later. If you can find a great deal that will cash flow today, that would be reason enough to do it. But very little is cash flowing at 7-8% interest.

Randy

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  • Randall AlanPro Member
    Investor · Lakeland, FL · Member since 2017 · 1k+ posts · 1k+ votes
    3y
    Quote from @Brady Mullen:

    You've probably heard the "would you rather" scenario about being offered $1M or a penny that doubles every day for a month, right?

    Well, consider this little twist…

    So, in case you haven't heard, a penny that doubles 30 times is much more than $1M. It's $5.4M!

    Hopefully we've experienced enough compounding "aha" moments that we know to not trust our instincts - compounding regularly defies our intuitions.

    What if instead of starting the penny today, you put it off until tomorrow? Maybe your kid needs a ride to soccer tonight, or you're going to Scott's house for dinner, or you got sucked into some funny social media videos. It can wait until tomorrow.

    If you start the penny tomorrow, then tomorrow, you'll only be behind by 1 penny, right?

    But on the 30th day, you're behind by $2.7M!

    By waiting, we give up what happens at the end of the compounding equation, not at the beginning. The difference in the beginning is always unnoticeable (or at least unimpressive), but it's the end we're sacrificing.

    You may object by saying, "I'll just have to invest a little longer to make up." But that's not really what's on offer here. If there were more time, then you'd be even further behind! You'd have one more day to double the $5.4M to $10.8M!

    Now, I don't know an investment that will double your money every day, but it helps align our intuitions with reality.

    Waiting to do something that is financially smart (and therefore usually involves compounding) costs much more than our intuitions would indicate. We sacrifice what happens at the end!

    @Brady Mullen

    I’m all about investing in real estate. We have 37 units that we required mostly from 2018 to 2020.  We have seen or equity, triple in that amount of time. But if your argument is that the new investor  should be investing in real estate today, I might go against that somewhat.  All that is compounding today is your interest rate it seems… in the sense that it has tripled over the past 18 months. That combined with real estate prices that remain very high I think make for a sound argument that presently it is not a favorable environment to be pulling the trigger on most real estate investment opportunities.

    As soon as rates and prices settle back down, I would be all on board with your premise that sooner is better than later. If you can find a great deal that will cash flow today, that would be reason enough to do it. But very little is cash flowing at 7-8% interest.

    Randy

    3Reply
  • Brady MullenPro Member
    OP
    Denver, CO · Member since 2021 · 61 posts · 100 votes
    3y

    Thanks, Randy.  I am not making that argument.  I'm just making the point about the important relationship of time in compounding.

    However, I'm curious about something else now...  I notice people all over the internet pointing out imperfections in every investment strategy, but I always want to ask what they do recommend?  Because doing nothing is not an option.

    I've heard people say things like "staying on the sidelines", but what I think they usually mean is keeping cash.  But that is still an asset choice.  There is no real way of opting out, once you have wealth, right?

    If rates are too high, and prices remain "very high", what asset class are you recommending?  Stocks?  Bonds?  Cash?  And I really mean something that the masses can use, not something specifically available to people with particular skills like hard money lending, flipping properties, etc.  Those can be great, of course, but they are not typically something a busy adult can access without any experience.

    If this is coming across as confrontational, that is the furthest thing from my intention.  I am sincerely asking your opinion and hoping to have a productive dialog.

    2Reply
  • Mike Dymski
    Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
    3y

    Most of us agree with your thesis.  What matters though is what we are doing.  Maybe walk through your purchases for the past year, made with your own money.  That's the convincing information...and it can be actionable for others.

    2Reply
  • Zachary Ware
    Member since 2022 · 405 posts · 455 votes
    3y

    Truly the 8th wonder of the world. 

    0Reply
  • Randall AlanPro Member
    Investor · Lakeland, FL · Member since 2017 · 1k+ posts · 1k+ votes
    3y
    Quote from @Brady Mullen:

    Thanks, Randy.  I am not making that argument.  I'm just making the point about the important relationship of time in compounding.

    However, I'm curious about something else now...  I notice people all over the internet pointing out imperfections in every investment strategy, but I always want to ask what they do recommend?  Because doing nothing is not an option.

    I've heard people say things like "staying on the sidelines", but what I think they usually mean is keeping cash.  But that is still an asset choice.  There is no real way of opting out, once you have wealth, right?

    If rates are too high, and prices remain "very high", what asset class are you recommending?  Stocks?  Bonds?  Cash?  And I really mean something that the masses can use, not something specifically available to people with particular skills like hard money lending, flipping properties, etc.  Those can be great, of course, but they are not typically something a busy adult can access without any experience.

    If this is coming across as confrontational, that is the furthest thing from my intention.  I am sincerely asking your opinion and hoping to have a productive dialog.

    @Brady Mullen

    A 5% return on your money in a high-yield savings account beats a $200 per month return on the $50,000 it would take to buy a $200,000 house today ( on a yearly basis).  So in that sense, yes, cash is a better place to be if you can’t get a better return on real estate.

    As interest rates drop, so will cash returns, and real estate will once again be in favor over cash. Our saying is that you do with the markets tell you to do. Right now the real estate market is saying stay put.

    Randy 


    1Reply
  • James Hamling
    Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes
    3y
    Quote from @Randall Alan:
    Quote from @Brady Mullen:

    You've probably heard the "would you rather" scenario about being offered $1M or a penny that doubles every day for a month, right?

    Well, consider this little twist…

    So, in case you haven't heard, a penny that doubles 30 times is much more than $1M. It's $5.4M!

    Hopefully we've experienced enough compounding "aha" moments that we know to not trust our instincts - compounding regularly defies our intuitions.

    What if instead of starting the penny today, you put it off until tomorrow? Maybe your kid needs a ride to soccer tonight, or you're going to Scott's house for dinner, or you got sucked into some funny social media videos. It can wait until tomorrow.

    If you start the penny tomorrow, then tomorrow, you'll only be behind by 1 penny, right?

    But on the 30th day, you're behind by $2.7M!

    By waiting, we give up what happens at the end of the compounding equation, not at the beginning. The difference in the beginning is always unnoticeable (or at least unimpressive), but it's the end we're sacrificing.

    You may object by saying, "I'll just have to invest a little longer to make up." But that's not really what's on offer here. If there were more time, then you'd be even further behind! You'd have one more day to double the $5.4M to $10.8M!

    Now, I don't know an investment that will double your money every day, but it helps align our intuitions with reality.

    Waiting to do something that is financially smart (and therefore usually involves compounding) costs much more than our intuitions would indicate. We sacrifice what happens at the end!

    @Brady Mullen

    I’m all about investing in real estate. We have 37 units that we required mostly from 2018 to 2020.  We have seen or equity, triple in that amount of time. But if your argument is that the new investor  should be investing in real estate today, I might go against that somewhat.  All that is compounding today is your interest rate it seems… in the sense that it has tripled over the past 18 months. That combined with real estate prices that remain very high I think make for a sound argument that presently it is not a favorable environment to be pulling the trigger on most real estate investment opportunities.

    As soon as rates and prices settle back down, I would be all on board with your premise that sooner is better than later. If you can find a great deal that will cash flow today, that would be reason enough to do it. But very little is cash flowing at 7-8% interest.

    Randy

    But that's the rub Randy, your using completely wrong assumptions in your waiting vs action thoughts. 

    This may get a bit complex at first but I assure it's a simplification and if follow along, comprehend each step, it just may be a complete "ah-ha" moment. 

    Todays prices, reflect todays rates. 

    This a paramount, let me say again, TODAYS prices, reflect TODAYS rates. What is being bought and sold today, is at TODAYS rates. Really soak that in. At these "high" rates, everything being bought and sold now is in full knowledge and acceptance of this fact. Because there is no getting around it right. 

    So, what your arguing is (a) today's prices are too high. And/or (b) todays rates are also too high. And that (c) when rates come down it will be "better". Or when prices "come down" it will be better. 

    That is a total mirage. I get why you'd think it, but it's exactly the same as thinking if you could flap your arms up and down fast enough, you'll fly. It just isn't so in reality. 

    When RATES Come down: 

    Prices will SURGE! Yes, with 100% certainty, notice I did NOT say "may" or "could", I am that absolutely certain of the factuality that here I am saying it for the whole world that; when rates come down prices will SURGE UP!

    We have fundamental facts that we have housing SHORTAGE, it's why homes are still being bought at levels they are. AND we have PENT-UP-DEMAND being created. What that? Volume has fallen off a cliff, by more than 50% in general and volume as a whole is VERY low vs most any time. Now keep in mind there is MORE people. people didn't just decide they don't want to live in a home, they simply can't afford to buy. That's peent up demand. 

    So, when rates decline, making it more affordable to buy, people WILL! That is MORE demand, and that additional demand will do exactly as it does of driving UP prices. 

    The lower the rate, the more purchasing power (whole $ sales total) for the same monthly payment. 

    Every month rents go UP, guess what happens? The price motive point for a person to buy a home at goes UP. Rents are leading and creating what the fair market value of buying a home will be tomorrow. It's mathematical. 

    If a markets average rent is $1,500 mnth, why would people buy a home, the same home, for an average cost of $2k per month? They have a PRICE MOTIVE to rent vs buy.     In exact same paradigm, as market rents press too $2k per month, when rates drop to make is feasible for a person to buy a similar home, at or near a monthly price of that $2k, THEY WILL BUY. 

    The rates dictate how much the sale price is, the buyer is focused on that $2k per month. Buyers care little if the $2k per month buys $170k or $240k, actually if anything human ego comes into play and they feel more achieving with the HIGHER not lower amount because again, budgets are on the PAYMENT not the purchase price. 

    So your premise that rates are "too high" to buy is backwards! NOW is when you SHOULD be buying, because as rates drop, prices WILL, with absolute certainty, go UP! That is what we coin an "equity investment". 

    Now, for PRICES going down. 

    Exactly how are prices going to come down? Are tax's going to be reduced to make all the items that go into making a home cheaper? Are millions of people going to choose to go live in tents and just give up there home? Remember every person selling a home needs a new one to put over their head. 

    Are builders going to stop throttling supply and collectively choose to build homes to sell at a net loss? 

    And again, pent up demand. We have WAY more people with pressure to buy today there 1 limiter is affordability. You start lowering price and that makes it MORE affordable, opening up MORE buyers and "POW" it's gone. That is what's insulating from a sizable decline in prices. 

    The ONLY way you get the buying opportunity your thinking, where rents day 1 are 8-cap+, is 30 million Americans roll-over and die, or you drop rates while removing everyone's capacity to buy, like 30 million put on unemployment tomorrow. 

    The math is clear. We have near 8% interest rates and the "crash' is still NOT happening. Every street is still  lined with "hiring" signs. Any job lost has 20 ready to take them up tomorrow. 

    If WWIII pop's off there will be MORE work demand, MORE employment and LESS people. How do we get to dropping rates and LESS employment? 

    That's simply NOT realistic. 

    The market you bought in was a post COLLAPSE economy, that is NOT normal, it's not regular, and it's G-O-N-E!. People need to wrap there head's around this fact, '08' is over, done, gone. This is a more normal market now, where you can't buy a paycheck, you have to actually INVEST. yes, it's difficult to get it right, just like any NORMAL investing is. It requires advanced knowledge, strategy, effort, timing, placement, it's NOT simple. And it requires TIME. 

    It is called INVESTING, what other investing does not require time? What other investing is a paycheck month 1? Yet for some reason there is a perverse thought that Real Estate INVESTING should be a universe apart. it's NOT. 

    Opportunity is NOT dead and gone, it's just different. Yes, it's harder, it looks different, welcome to investing. 

    If you are not finding the opportunity, maybe your looking with the wrong eyes? There is a long list of people doing AMAZING right now today, at todays rates. That is the difference from those looking back vs those living in the now. 

    The only thing that could make another buying potential it was last decade, will put you in a place you couldn't buy if you wanted to. So the false idea that everything can burn to the ground but your Teflon and will buy the ashes, is a self-lie unless your last name is Hilton or Heinz. 

    2Reply
  • Randall AlanPro Member
    Investor · Lakeland, FL · Member since 2017 · 1k+ posts · 1k+ votes
    3y
    Quote from @James Hamling:
    Quote from @Randall Alan:
    Quote from @Brady Mullen:

    You've probably heard the "would you rather" scenario about being offered $1M or a penny that doubles every day for a month, right?

    Well, consider this little twist…

    So, in case you haven't heard, a penny that doubles 30 times is much more than $1M. It's $5.4M!

    Hopefully we've experienced enough compounding "aha" moments that we know to not trust our instincts - compounding regularly defies our intuitions.

    What if instead of starting the penny today, you put it off until tomorrow? Maybe your kid needs a ride to soccer tonight, or you're going to Scott's house for dinner, or you got sucked into some funny social media videos. It can wait until tomorrow.

    If you start the penny tomorrow, then tomorrow, you'll only be behind by 1 penny, right?

    But on the 30th day, you're behind by $2.7M!

    By waiting, we give up what happens at the end of the compounding equation, not at the beginning. The difference in the beginning is always unnoticeable (or at least unimpressive), but it's the end we're sacrificing.

    You may object by saying, "I'll just have to invest a little longer to make up." But that's not really what's on offer here. If there were more time, then you'd be even further behind! You'd have one more day to double the $5.4M to $10.8M!

    Now, I don't know an investment that will double your money every day, but it helps align our intuitions with reality.

    Waiting to do something that is financially smart (and therefore usually involves compounding) costs much more than our intuitions would indicate. We sacrifice what happens at the end!

    @Brady Mullen

    I’m all about investing in real estate. We have 37 units that we required mostly from 2018 to 2020.  We have seen or equity, triple in that amount of time. But if your argument is that the new investor  should be investing in real estate today, I might go against that somewhat.  All that is compounding today is your interest rate it seems… in the sense that it has tripled over the past 18 months. That combined with real estate prices that remain very high I think make for a sound argument that presently it is not a favorable environment to be pulling the trigger on most real estate investment opportunities.

    As soon as rates and prices settle back down, I would be all on board with your premise that sooner is better than later. If you can find a great deal that will cash flow today, that would be reason enough to do it. But very little is cash flowing at 7-8% interest.

    Randy

    But that's the rub Randy, your using completely wrong assumptions in your waiting vs action thoughts. 

    This may get a bit complex at first but I assure it's a simplification and if follow along, comprehend each step, it just may be a complete "ah-ha" moment. 

    Todays prices, reflect todays rates. 

    This a paramount, let me say again, TODAYS prices, reflect TODAYS rates. What is being bought and sold today, is at TODAYS rates. Really soak that in. At these "high" rates, everything being bought and sold now is in full knowledge and acceptance of this fact. Because there is no getting around it right. 

    So, what your arguing is (a) today's prices are too high. And/or (b) todays rates are also too high. And that (c) when rates come down it will be "better". Or when prices "come down" it will be better. 

    That is a total mirage. I get why you'd think it, but it's exactly the same as thinking if you could flap your arms up and down fast enough, you'll fly. It just isn't so in reality. 

    When RATES Come down: 

    Prices will SURGE! Yes, with 100% certainty, notice I did NOT say "may" or "could", I am that absolutely certain of the factuality that here I am saying it for the whole world that; when rates come down prices will SURGE UP!

    We have fundamental facts that we have housing SHORTAGE, it's why homes are still being bought at levels they are. AND we have PENT-UP-DEMAND being created. What that? Volume has fallen off a cliff, by more than 50% in general and volume as a whole is VERY low vs most any time. Now keep in mind there is MORE people. people didn't just decide they don't want to live in a home, they simply can't afford to buy. That's peent up demand. 

    So, when rates decline, making it more affordable to buy, people WILL! That is MORE demand, and that additional demand will do exactly as it does of driving UP prices. 

    The lower the rate, the more purchasing power (whole $ sales total) for the same monthly payment. 

    Every month rents go UP, guess what happens? The price motive point for a person to buy a home at goes UP. Rents are leading and creating what the fair market value of buying a home will be tomorrow. It's mathematical. 

    If a markets average rent is $1,500 mnth, why would people buy a home, the same home, for an average cost of $2k per month? They have a PRICE MOTIVE to rent vs buy.     In exact same paradigm, as market rents press too $2k per month, when rates drop to make is feasible for a person to buy a similar home, at or near a monthly price of that $2k, THEY WILL BUY. 

    The rates dictate how much the sale price is, the buyer is focused on that $2k per month. Buyers care little if the $2k per month buys $170k or $240k, actually if anything human ego comes into play and they feel more achieving with the HIGHER not lower amount because again, budgets are on the PAYMENT not the purchase price. 

    So your premise that rates are "too high" to buy is backwards! NOW is when you SHOULD be buying, because as rates drop, prices WILL, with absolute certainty, go UP! That is what we coin an "equity investment". 

    Now, for PRICES going down. 

    Exactly how are prices going to come down? Are tax's going to be reduced to make all the items that go into making a home cheaper? Are millions of people going to choose to go live in tents and just give up there home? Remember every person selling a home needs a new one to put over their head. 

    Are builders going to stop throttling supply and collectively choose to build homes to sell at a net loss? 

    And again, pent up demand. We have WAY more people with pressure to buy today there 1 limiter is affordability. You start lowering price and that makes it MORE affordable, opening up MORE buyers and "POW" it's gone. That is what's insulating from a sizable decline in prices. 

    The ONLY way you get the buying opportunity your thinking, where rents day 1 are 8-cap+, is 30 million Americans roll-over and die, or you drop rates while removing everyone's capacity to buy, like 30 million put on unemployment tomorrow. 

    The math is clear. We have near 8% interest rates and the "crash' is still NOT happening. Every street is still  lined with "hiring" signs. Any job lost has 20 ready to take them up tomorrow. 

    If WWIII pop's off there will be MORE work demand, MORE employment and LESS people. How do we get to dropping rates and LESS employment? 

    That's simply NOT realistic. 

    The market you bought in was a post COLLAPSE economy, that is NOT normal, it's not regular, and it's G-O-N-E!. People need to wrap there head's around this fact, '08' is over, done, gone. This is a more normal market now, where you can't buy a paycheck, you have to actually INVEST. yes, it's difficult to get it right, just like any NORMAL investing is. It requires advanced knowledge, strategy, effort, timing, placement, it's NOT simple. And it requires TIME. 

    It is called INVESTING, what other investing does not require time? What other investing is a paycheck month 1? Yet for some reason there is a perverse thought that Real Estate INVESTING should be a universe apart. it's NOT. 

    Opportunity is NOT dead and gone, it's just different. Yes, it's harder, it looks different, welcome to investing. 

    If you are not finding the opportunity, maybe your looking with the wrong eyes? There is a long list of people doing AMAZING right now today, at todays rates. That is the difference from those looking back vs those living in the now. 

    The only thing that could make another buying potential it was last decade, will put you in a place you couldn't buy if you wanted to. So the false idea that everything can burn to the ground but your Teflon and will buy the ashes, is a self-lie unless your last name is Hilton or Heinz. 

    @James Hamling

    James,

    You may totally know more than me... But I would argue that housing prices have already surged, and that they will not surge again like they did before when rates come down.  Likewise, today's prices do not reflect today's rates as you suggest.  Today's rates are what have completely thrown the brakes on the housing market.  If today's prices reflected today's rates, everyone would be transacting like they did 3 years ago... and they are not - AT ALL!  Today's rates are inflated (by the Fed's design) to slow down the economy.  The problem in the real estate market is that there is a double edged sword the Fed is running into... which is the years of low rates has everyone holding onto their cheap mortgages and choosing to sit put and not list their house.  So while the Fed raised rates to curtail activity... which the Fed would usually hope would increase supply and lower prices, they were offset by everyone holding onto their low rates, which in effect had the opposite effect the Fed wanted.... supply remains constrained.  Housing is somewhat unique compared to other areas of the economy... so the Fed is having to make trade-offs with what is their biggest tool in the shed (interest rates).  

    Think about what that would mean for rents and / or profits for investors if housing prices massively surged again when rates came down.  If you take today as a reference point... investors can't earn dollar one at 7-8% interest at the current housing prices.  Likewise, year over year sales are way way off due to everyone holding onto their low rates.  I think when rates slowly drop, you will see both investors and homebuyers actually rejoin the 'conversation' (ie transacting in the market), but that housing prices will not skyrocket again because the supply will increase due to homeowners becoming a part of the supply side.  Will housing prices still go up... sure... but I think it will be more like the 3-5% per year that you would expect in a normally functioning economy, versus the 20-30%+ we got during the inflation run-up.

    Randy

    1Reply
  • Brady MullenPro Member
    OP
    Denver, CO · Member since 2021 · 61 posts · 100 votes
    3y
    Quote from @Randall Alan:
    Quote from @Brady Mullen:

    Thanks, Randy.  I am not making that argument.  I'm just making the point about the important relationship of time in compounding.

    However, I'm curious about something else now...  I notice people all over the internet pointing out imperfections in every investment strategy, but I always want to ask what they do recommend?  Because doing nothing is not an option.

    I've heard people say things like "staying on the sidelines", but what I think they usually mean is keeping cash.  But that is still an asset choice.  There is no real way of opting out, once you have wealth, right?

    If rates are too high, and prices remain "very high", what asset class are you recommending?  Stocks?  Bonds?  Cash?  And I really mean something that the masses can use, not something specifically available to people with particular skills like hard money lending, flipping properties, etc.  Those can be great, of course, but they are not typically something a busy adult can access without any experience.

    If this is coming across as confrontational, that is the furthest thing from my intention.  I am sincerely asking your opinion and hoping to have a productive dialog.

    @Brady Mullen

    A 5% return on your money in a high-yield savings account beats a $200 per month return on the $50,000 it would take to buy a $200,000 house today ( on a yearly basis).  So in that sense, yes, cash is a better place to be if you can’t get a better return on real estate.

    As interest rates drop, so will cash returns, and real estate will once again be in favor over cash. Our saying is that you do with the markets tell you to do. Right now the real estate market is saying stay put.

    Randy 



    Respectfully, I'd rather get $200/mo from a $50k investment in real estate (a down payment on a $200k asset) than 5% from a savings account.  Because I also have a leveraged asset.  If it appreciates by 3% ($200,000 x 3% = $6,000), then I got another 12% on my $50k investment ($6,000/$50,000 = 12%) PLUS the cash flow AND some debt paydown AND tax benefits.

    I'd even be willing to achieve a net $0 cash flow before I'd keep my money in cash, even at 5% savings rate. In the REI, I'd still expect some appreciation (eventually), equity through debt paydown, and tax benefits. All of which I'd expect to produce more than 5% annually.

    Cash flow is important (especially when I want to stop working), but the majority of wealth in real estate comes from building equity (leveraged appreciation and debt paydown).

    I will hold cash for the benefits it offers (liquidity), but I just can't get comfortable holding it as an investment.

    I also don't see an asset class as basic to human needs as real estate meaningfully dropping in price when there is a national inventory shortage.

    I'll be the first to admit that I don't KNOW what the future brings, but until someone talks me out of it, I'm going to keep acquiring real estate.  In an unknowable future, I'd rather have an asset than a currency.

    2Reply
  • Brady MullenPro Member
    OP
    Denver, CO · Member since 2021 · 61 posts · 100 votes
    3y
    Quote from @James Hamling:
    Quote from @Randall Alan:
    Quote from @Brady Mullen:

    You've probably heard the "would you rather" scenario about being offered $1M or a penny that doubles every day for a month, right?

    Well, consider this little twist…

    So, in case you haven't heard, a penny that doubles 30 times is much more than $1M. It's $5.4M!

    Hopefully we've experienced enough compounding "aha" moments that we know to not trust our instincts - compounding regularly defies our intuitions.

    What if instead of starting the penny today, you put it off until tomorrow? Maybe your kid needs a ride to soccer tonight, or you're going to Scott's house for dinner, or you got sucked into some funny social media videos. It can wait until tomorrow.

    If you start the penny tomorrow, then tomorrow, you'll only be behind by 1 penny, right?

    But on the 30th day, you're behind by $2.7M!

    By waiting, we give up what happens at the end of the compounding equation, not at the beginning. The difference in the beginning is always unnoticeable (or at least unimpressive), but it's the end we're sacrificing.

    You may object by saying, "I'll just have to invest a little longer to make up." But that's not really what's on offer here. If there were more time, then you'd be even further behind! You'd have one more day to double the $5.4M to $10.8M!

    Now, I don't know an investment that will double your money every day, but it helps align our intuitions with reality.

    Waiting to do something that is financially smart (and therefore usually involves compounding) costs much more than our intuitions would indicate. We sacrifice what happens at the end!

    I’m all about investing in real estate. We have 37 units that we required mostly from 2018 to 2020.  We have seen or equity, triple in that amount of time. But if your argument is that the new investor  should be investing in real estate today, I might go against that somewhat.  All that is compounding today is your interest rate it seems… in the sense that it has tripled over the past 18 months. That combined with real estate prices that remain very high I think make for a sound argument that presently it is not a favorable environment to be pulling the trigger on most real estate investment opportunities.

    As soon as rates and prices settle back down, I would be all on board with your premise that sooner is better than later. If you can find a great deal that will cash flow today, that would be reason enough to do it. But very little is cash flowing at 7-8% interest.

    Randy

    But that's the rub Randy, your using completely wrong assumptions in your waiting vs action thoughts. 

    This may get a bit complex at first but I assure it's a simplification and if follow along, comprehend each step, it just may be a complete "ah-ha" moment. 

    Todays prices, reflect todays rates. 

    This a paramount, let me say again, TODAYS prices, reflect TODAYS rates. What is being bought and sold today, is at TODAYS rates. Really soak that in. At these "high" rates, everything being bought and sold now is in full knowledge and acceptance of this fact. Because there is no getting around it right. 

    So, what your arguing is (a) today's prices are too high. And/or (b) todays rates are also too high. And that (c) when rates come down it will be "better". Or when prices "come down" it will be better. 

    That is a total mirage. I get why you'd think it, but it's exactly the same as thinking if you could flap your arms up and down fast enough, you'll fly. It just isn't so in reality. 

    When RATES Come down: 

    Prices will SURGE! Yes, with 100% certainty, notice I did NOT say "may" or "could", I am that absolutely certain of the factuality that here I am saying it for the whole world that; when rates come down prices will SURGE UP!

    We have fundamental facts that we have housing SHORTAGE, it's why homes are still being bought at levels they are. AND we have PENT-UP-DEMAND being created. What that? Volume has fallen off a cliff, by more than 50% in general and volume as a whole is VERY low vs most any time. Now keep in mind there is MORE people. people didn't just decide they don't want to live in a home, they simply can't afford to buy. That's peent up demand. 

    So, when rates decline, making it more affordable to buy, people WILL! That is MORE demand, and that additional demand will do exactly as it does of driving UP prices. 

    The lower the rate, the more purchasing power (whole $ sales total) for the same monthly payment. 

    Every month rents go UP, guess what happens? The price motive point for a person to buy a home at goes UP. Rents are leading and creating what the fair market value of buying a home will be tomorrow. It's mathematical. 

    If a markets average rent is $1,500 mnth, why would people buy a home, the same home, for an average cost of $2k per month? They have a PRICE MOTIVE to rent vs buy.     In exact same paradigm, as market rents press too $2k per month, when rates drop to make is feasible for a person to buy a similar home, at or near a monthly price of that $2k, THEY WILL BUY. 

    The rates dictate how much the sale price is, the buyer is focused on that $2k per month. Buyers care little if the $2k per month buys $170k or $240k, actually if anything human ego comes into play and they feel more achieving with the HIGHER not lower amount because again, budgets are on the PAYMENT not the purchase price. 

    So your premise that rates are "too high" to buy is backwards! NOW is when you SHOULD be buying, because as rates drop, prices WILL, with absolute certainty, go UP! That is what we coin an "equity investment". 

    Now, for PRICES going down. 

    Exactly how are prices going to come down? Are tax's going to be reduced to make all the items that go into making a home cheaper? Are millions of people going to choose to go live in tents and just give up there home? Remember every person selling a home needs a new one to put over their head. 

    Are builders going to stop throttling supply and collectively choose to build homes to sell at a net loss? 

    And again, pent up demand. We have WAY more people with pressure to buy today there 1 limiter is affordability. You start lowering price and that makes it MORE affordable, opening up MORE buyers and "POW" it's gone. That is what's insulating from a sizable decline in prices. 

    The ONLY way you get the buying opportunity your thinking, where rents day 1 are 8-cap+, is 30 million Americans roll-over and die, or you drop rates while removing everyone's capacity to buy, like 30 million put on unemployment tomorrow. 

    The math is clear. We have near 8% interest rates and the "crash' is still NOT happening. Every street is still  lined with "hiring" signs. Any job lost has 20 ready to take them up tomorrow. 

    If WWIII pop's off there will be MORE work demand, MORE employment and LESS people. How do we get to dropping rates and LESS employment? 

    That's simply NOT realistic. 

    The market you bought in was a post COLLAPSE economy, that is NOT normal, it's not regular, and it's G-O-N-E!. People need to wrap there head's around this fact, '08' is over, done, gone. This is a more normal market now, where you can't buy a paycheck, you have to actually INVEST. yes, it's difficult to get it right, just like any NORMAL investing is. It requires advanced knowledge, strategy, effort, timing, placement, it's NOT simple. And it requires TIME. 

    It is called INVESTING, what other investing does not require time? What other investing is a paycheck month 1? Yet for some reason there is a perverse thought that Real Estate INVESTING should be a universe apart. it's NOT. 

    Opportunity is NOT dead and gone, it's just different. Yes, it's harder, it looks different, welcome to investing. 

    If you are not finding the opportunity, maybe your looking with the wrong eyes? There is a long list of people doing AMAZING right now today, at todays rates. That is the difference from those looking back vs those living in the now. 

    The only thing that could make another buying potential it was last decade, will put you in a place you couldn't buy if you wanted to. So the false idea that everything can burn to the ground but your Teflon and will buy the ashes, is a self-lie unless your last name is Hilton or Heinz. 

    I like how @James Hamling put it: you can't just buy a paycheck.  Well said.

    It's true that it was that way, but holding out for that environment to return with a significant portion of assets in cash seems unwise to me.

    0Reply
  • James Hamling
    Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes
    3y
    Quote from @Randall Alan:
    Quote from @James Hamling:
    Quote from @Randall Alan:
    Quote from @Brady Mullen:

    You've probably heard the "would you rather" scenario about being offered $1M or a penny that doubles every day for a month, right?

    Well, consider this little twist…

    So, in case you haven't heard, a penny that doubles 30 times is much more than $1M. It's $5.4M!

    Hopefully we've experienced enough compounding "aha" moments that we know to not trust our instincts - compounding regularly defies our intuitions.

    What if instead of starting the penny today, you put it off until tomorrow? Maybe your kid needs a ride to soccer tonight, or you're going to Scott's house for dinner, or you got sucked into some funny social media videos. It can wait until tomorrow.

    If you start the penny tomorrow, then tomorrow, you'll only be behind by 1 penny, right?

    But on the 30th day, you're behind by $2.7M!

    By waiting, we give up what happens at the end of the compounding equation, not at the beginning. The difference in the beginning is always unnoticeable (or at least unimpressive), but it's the end we're sacrificing.

    You may object by saying, "I'll just have to invest a little longer to make up." But that's not really what's on offer here. If there were more time, then you'd be even further behind! You'd have one more day to double the $5.4M to $10.8M!

    Now, I don't know an investment that will double your money every day, but it helps align our intuitions with reality.

    Waiting to do something that is financially smart (and therefore usually involves compounding) costs much more than our intuitions would indicate. We sacrifice what happens at the end!

    @Brady Mullen

    I’m all about investing in real estate. We have 37 units that we required mostly from 2018 to 2020.  We have seen or equity, triple in that amount of time. But if your argument is that the new investor  should be investing in real estate today, I might go against that somewhat.  All that is compounding today is your interest rate it seems… in the sense that it has tripled over the past 18 months. That combined with real estate prices that remain very high I think make for a sound argument that presently it is not a favorable environment to be pulling the trigger on most real estate investment opportunities.

    As soon as rates and prices settle back down, I would be all on board with your premise that sooner is better than later. If you can find a great deal that will cash flow today, that would be reason enough to do it. But very little is cash flowing at 7-8% interest.

    Randy

    But that's the rub Randy, your using completely wrong assumptions in your waiting vs action thoughts. 

    This may get a bit complex at first but I assure it's a simplification and if follow along, comprehend each step, it just may be a complete "ah-ha" moment. 

    Todays prices, reflect todays rates. 

    This a paramount, let me say again, TODAYS prices, reflect TODAYS rates. What is being bought and sold today, is at TODAYS rates. Really soak that in. At these "high" rates, everything being bought and sold now is in full knowledge and acceptance of this fact. Because there is no getting around it right. 

    So, what your arguing is (a) today's prices are too high. And/or (b) todays rates are also too high. And that (c) when rates come down it will be "better". Or when prices "come down" it will be better. 

    That is a total mirage. I get why you'd think it, but it's exactly the same as thinking if you could flap your arms up and down fast enough, you'll fly. It just isn't so in reality. 

    When RATES Come down: 

    Prices will SURGE! Yes, with 100% certainty, notice I did NOT say "may" or "could", I am that absolutely certain of the factuality that here I am saying it for the whole world that; when rates come down prices will SURGE UP!

    We have fundamental facts that we have housing SHORTAGE, it's why homes are still being bought at levels they are. AND we have PENT-UP-DEMAND being created. What that? Volume has fallen off a cliff, by more than 50% in general and volume as a whole is VERY low vs most any time. Now keep in mind there is MORE people. people didn't just decide they don't want to live in a home, they simply can't afford to buy. That's peent up demand. 

    So, when rates decline, making it more affordable to buy, people WILL! That is MORE demand, and that additional demand will do exactly as it does of driving UP prices. 

    The lower the rate, the more purchasing power (whole $ sales total) for the same monthly payment. 

    Every month rents go UP, guess what happens? The price motive point for a person to buy a home at goes UP. Rents are leading and creating what the fair market value of buying a home will be tomorrow. It's mathematical. 

    If a markets average rent is $1,500 mnth, why would people buy a home, the same home, for an average cost of $2k per month? They have a PRICE MOTIVE to rent vs buy.     In exact same paradigm, as market rents press too $2k per month, when rates drop to make is feasible for a person to buy a similar home, at or near a monthly price of that $2k, THEY WILL BUY. 

    The rates dictate how much the sale price is, the buyer is focused on that $2k per month. Buyers care little if the $2k per month buys $170k or $240k, actually if anything human ego comes into play and they feel more achieving with the HIGHER not lower amount because again, budgets are on the PAYMENT not the purchase price. 

    So your premise that rates are "too high" to buy is backwards! NOW is when you SHOULD be buying, because as rates drop, prices WILL, with absolute certainty, go UP! That is what we coin an "equity investment". 

    Now, for PRICES going down. 

    Exactly how are prices going to come down? Are tax's going to be reduced to make all the items that go into making a home cheaper? Are millions of people going to choose to go live in tents and just give up there home? Remember every person selling a home needs a new one to put over their head. 

    Are builders going to stop throttling supply and collectively choose to build homes to sell at a net loss? 

    And again, pent up demand. We have WAY more people with pressure to buy today there 1 limiter is affordability. You start lowering price and that makes it MORE affordable, opening up MORE buyers and "POW" it's gone. That is what's insulating from a sizable decline in prices. 

    The ONLY way you get the buying opportunity your thinking, where rents day 1 are 8-cap+, is 30 million Americans roll-over and die, or you drop rates while removing everyone's capacity to buy, like 30 million put on unemployment tomorrow. 

    The math is clear. We have near 8% interest rates and the "crash' is still NOT happening. Every street is still  lined with "hiring" signs. Any job lost has 20 ready to take them up tomorrow. 

    If WWIII pop's off there will be MORE work demand, MORE employment and LESS people. How do we get to dropping rates and LESS employment? 

    That's simply NOT realistic. 

    The market you bought in was a post COLLAPSE economy, that is NOT normal, it's not regular, and it's G-O-N-E!. People need to wrap there head's around this fact, '08' is over, done, gone. This is a more normal market now, where you can't buy a paycheck, you have to actually INVEST. yes, it's difficult to get it right, just like any NORMAL investing is. It requires advanced knowledge, strategy, effort, timing, placement, it's NOT simple. And it requires TIME. 

    It is called INVESTING, what other investing does not require time? What other investing is a paycheck month 1? Yet for some reason there is a perverse thought that Real Estate INVESTING should be a universe apart. it's NOT. 

    Opportunity is NOT dead and gone, it's just different. Yes, it's harder, it looks different, welcome to investing. 

    If you are not finding the opportunity, maybe your looking with the wrong eyes? There is a long list of people doing AMAZING right now today, at todays rates. That is the difference from those looking back vs those living in the now. 

    The only thing that could make another buying potential it was last decade, will put you in a place you couldn't buy if you wanted to. So the false idea that everything can burn to the ground but your Teflon and will buy the ashes, is a self-lie unless your last name is Hilton or Heinz. 

    @James Hamling

    James,

    You may totally know more than me... But I would argue that housing prices have already surged, and that they will not surge again like they did before when rates come down.  Likewise, today's prices do not reflect today's rates as you suggest.  Today's rates are what have completely thrown the brakes on the housing market.  If today's prices reflected today's rates, everyone would be transacting like they did 3 years ago... and they are not - AT ALL!  Today's rates are inflated (by the Fed's design) to slow down the economy.  The problem in the real estate market is that there is a double edged sword the Fed is running into... which is the years of low rates has everyone holding onto their cheap mortgages and choosing to sit put and not list their house.  So while the Fed raised rates to curtail activity... which the Fed would usually hope would increase supply and lower prices, they were offset by everyone holding onto their low rates, which in effect had the opposite effect the Fed wanted.... supply remains constrained.  Housing is somewhat unique compared to other areas of the economy... so the Fed is having to make trade-offs with what is their biggest tool in the shed (interest rates).  

    Think about what that would mean for rents and / or profits for investors if housing prices massively surged again when rates came down.  If you take today as a reference point... investors can't earn dollar one at 7-8% interest at the current housing prices.  Likewise, year over year sales are way way off due to everyone holding onto their low rates.  I think when rates slowly drop, you will see both investors and homebuyers actually rejoin the 'conversation' (ie transacting in the market), but that housing prices will not skyrocket again because the supply will increase due to homeowners becoming a part of the supply side.  Will housing prices still go up... sure... but I think it will be more like the 3-5% per year that you would expect in a normally functioning economy, versus the 20-30%+ we got during the inflation run-up.

    Randy


    Your entire response is contradictory. 

    You point out how prices surged. Why did they surge? Not excuses or "feelings", facts, why did they surge? Because many buyers were fighting for properties, supply - demand, correct? Yes, demand for those homes. 

    And home sellers will sell for the maximum price the market will allow. 

    So, your arguing Randy that as rates go down, buyers will NOT buy, as cost of buying goes down! How does that make any sense what so ever? As homes get MORE affordable, people will NOT buy. 

    Let me be clear, it is MATHEMATICAL certainty that home prices WILL SURGE, yet again, in connection to a falling interest rate. Home buying WILL SURGE in related proportion to the size and speed to rates declining.    This is not theory it is absolute CERTAINTY. 

    It is an OBVIOUS fact that todays purchases reflect todays rates. Your arguing such only indicates your refusal to accept any fact, and instead choose to live in fiction.     What rates do you think todays transactions reflect? Are they getting yester-years mortgage for todays purchase?     There mortgage is being given a rate TODAY. 

    To some of us this is just as obvious as saying grass is green, the sky blue and the sun is yellow, but here we are proof in hand that some are so deep in denial they refuse to admit ANYONE is buying at todays rates simply because they are not. 

    Todays purchases reflect todays rates.  This is an undeniable FACT. With this fact we know EXACTLY what people will do at what todays rates are vs 1 yr ago, because we have transactional data from 1yr ago and today. FACTS! 

    So, simple REVERSE things, what would happen if TODAYS RATES, were changed to rates of 2 yrs ago? We know exactly what people did off rates 2yrs ago, we know exactly the numbers of persons selling to buy-up. That is exactly what would happen tomorrow, another SURGE. 

    People who have been stuck renting the last year would jump on their "opportunity" to buy, Fear Of Missing Out, FOMO is a STRONG emotion and being stuck renting for time person have they will press HARD to get out of that renting situation. That drives heavy bidding competition, persons bidding with emotional motive. 

    Just because we saw emotional motive bidding wars does not mean it hit is allocating of reoccurrence, it will happen every time you create pent up demand and then crack the lid open, it SURGES out. 

    Home prices will go up in proportion to DEMAND surge's financial capacity. It's not complicated, if you think it is go give one group on 10yr olds $10 each and see what happens, give another $20 each and see what happens. Each will spend it all, what changes is how expensive the items each group buys is, not quantity. 

    Prices are holding strong in the vast majority of country, so what happens with a surge of buyers in #'s, and increase in there affordability? Again, this is simple mathematics: 

    If Johnny apple seller come to market with 5 apples to sell, and 20 people are at market to buy apples with $5.00 each, how much can Johnny sell his apples for?    Now instead have 50 people at market to buy Johnnys apples each with $10 dollars, what happens to the price of apples? They don't stay $5.00!

    0Reply
  • James Hamling
    Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes
    3y
    Quote from @Brady Mullen:
    Quote from @James Hamling:
    Quote from @Randall Alan:
    Quote from @Brady Mullen:

    You've probably heard the "would you rather" scenario about being offered $1M or a penny that doubles every day for a month, right?

    Well, consider this little twist…

    So, in case you haven't heard, a penny that doubles 30 times is much more than $1M. It's $5.4M!

    Hopefully we've experienced enough compounding "aha" moments that we know to not trust our instincts - compounding regularly defies our intuitions.

    What if instead of starting the penny today, you put it off until tomorrow? Maybe your kid needs a ride to soccer tonight, or you're going to Scott's house for dinner, or you got sucked into some funny social media videos. It can wait until tomorrow.

    If you start the penny tomorrow, then tomorrow, you'll only be behind by 1 penny, right?

    But on the 30th day, you're behind by $2.7M!

    By waiting, we give up what happens at the end of the compounding equation, not at the beginning. The difference in the beginning is always unnoticeable (or at least unimpressive), but it's the end we're sacrificing.

    You may object by saying, "I'll just have to invest a little longer to make up." But that's not really what's on offer here. If there were more time, then you'd be even further behind! You'd have one more day to double the $5.4M to $10.8M!

    Now, I don't know an investment that will double your money every day, but it helps align our intuitions with reality.

    Waiting to do something that is financially smart (and therefore usually involves compounding) costs much more than our intuitions would indicate. We sacrifice what happens at the end!

    I’m all about investing in real estate. We have 37 units that we required mostly from 2018 to 2020.  We have seen or equity, triple in that amount of time. But if your argument is that the new investor  should be investing in real estate today, I might go against that somewhat.  All that is compounding today is your interest rate it seems… in the sense that it has tripled over the past 18 months. That combined with real estate prices that remain very high I think make for a sound argument that presently it is not a favorable environment to be pulling the trigger on most real estate investment opportunities.

    As soon as rates and prices settle back down, I would be all on board with your premise that sooner is better than later. If you can find a great deal that will cash flow today, that would be reason enough to do it. But very little is cash flowing at 7-8% interest.

    Randy

    But that's the rub Randy, your using completely wrong assumptions in your waiting vs action thoughts. 

    This may get a bit complex at first but I assure it's a simplification and if follow along, comprehend each step, it just may be a complete "ah-ha" moment. 

    Todays prices, reflect todays rates. 

    This a paramount, let me say again, TODAYS prices, reflect TODAYS rates. What is being bought and sold today, is at TODAYS rates. Really soak that in. At these "high" rates, everything being bought and sold now is in full knowledge and acceptance of this fact. Because there is no getting around it right. 

    So, what your arguing is (a) today's prices are too high. And/or (b) todays rates are also too high. And that (c) when rates come down it will be "better". Or when prices "come down" it will be better. 

    That is a total mirage. I get why you'd think it, but it's exactly the same as thinking if you could flap your arms up and down fast enough, you'll fly. It just isn't so in reality. 

    When RATES Come down: 

    Prices will SURGE! Yes, with 100% certainty, notice I did NOT say "may" or "could", I am that absolutely certain of the factuality that here I am saying it for the whole world that; when rates come down prices will SURGE UP!

    We have fundamental facts that we have housing SHORTAGE, it's why homes are still being bought at levels they are. AND we have PENT-UP-DEMAND being created. What that? Volume has fallen off a cliff, by more than 50% in general and volume as a whole is VERY low vs most any time. Now keep in mind there is MORE people. people didn't just decide they don't want to live in a home, they simply can't afford to buy. That's peent up demand. 

    So, when rates decline, making it more affordable to buy, people WILL! That is MORE demand, and that additional demand will do exactly as it does of driving UP prices. 

    The lower the rate, the more purchasing power (whole $ sales total) for the same monthly payment. 

    Every month rents go UP, guess what happens? The price motive point for a person to buy a home at goes UP. Rents are leading and creating what the fair market value of buying a home will be tomorrow. It's mathematical. 

    If a markets average rent is $1,500 mnth, why would people buy a home, the same home, for an average cost of $2k per month? They have a PRICE MOTIVE to rent vs buy.     In exact same paradigm, as market rents press too $2k per month, when rates drop to make is feasible for a person to buy a similar home, at or near a monthly price of that $2k, THEY WILL BUY. 

    The rates dictate how much the sale price is, the buyer is focused on that $2k per month. Buyers care little if the $2k per month buys $170k or $240k, actually if anything human ego comes into play and they feel more achieving with the HIGHER not lower amount because again, budgets are on the PAYMENT not the purchase price. 

    So your premise that rates are "too high" to buy is backwards! NOW is when you SHOULD be buying, because as rates drop, prices WILL, with absolute certainty, go UP! That is what we coin an "equity investment". 

    Now, for PRICES going down. 

    Exactly how are prices going to come down? Are tax's going to be reduced to make all the items that go into making a home cheaper? Are millions of people going to choose to go live in tents and just give up there home? Remember every person selling a home needs a new one to put over their head. 

    Are builders going to stop throttling supply and collectively choose to build homes to sell at a net loss? 

    And again, pent up demand. We have WAY more people with pressure to buy today there 1 limiter is affordability. You start lowering price and that makes it MORE affordable, opening up MORE buyers and "POW" it's gone. That is what's insulating from a sizable decline in prices. 

    The ONLY way you get the buying opportunity your thinking, where rents day 1 are 8-cap+, is 30 million Americans roll-over and die, or you drop rates while removing everyone's capacity to buy, like 30 million put on unemployment tomorrow. 

    The math is clear. We have near 8% interest rates and the "crash' is still NOT happening. Every street is still  lined with "hiring" signs. Any job lost has 20 ready to take them up tomorrow. 

    If WWIII pop's off there will be MORE work demand, MORE employment and LESS people. How do we get to dropping rates and LESS employment? 

    That's simply NOT realistic. 

    The market you bought in was a post COLLAPSE economy, that is NOT normal, it's not regular, and it's G-O-N-E!. People need to wrap there head's around this fact, '08' is over, done, gone. This is a more normal market now, where you can't buy a paycheck, you have to actually INVEST. yes, it's difficult to get it right, just like any NORMAL investing is. It requires advanced knowledge, strategy, effort, timing, placement, it's NOT simple. And it requires TIME. 

    It is called INVESTING, what other investing does not require time? What other investing is a paycheck month 1? Yet for some reason there is a perverse thought that Real Estate INVESTING should be a universe apart. it's NOT. 

    Opportunity is NOT dead and gone, it's just different. Yes, it's harder, it looks different, welcome to investing. 

    If you are not finding the opportunity, maybe your looking with the wrong eyes? There is a long list of people doing AMAZING right now today, at todays rates. That is the difference from those looking back vs those living in the now. 

    The only thing that could make another buying potential it was last decade, will put you in a place you couldn't buy if you wanted to. So the false idea that everything can burn to the ground but your Teflon and will buy the ashes, is a self-lie unless your last name is Hilton or Heinz. 

    I like how @James Hamling put it: you can't just buy a paycheck.  Well said.

    It's true that it was that way, but holding out for that environment to return with a significant portion of assets in cash seems unwise to me.


    Inflation eat's your purchasing power of your dollar EVERY DAY it sit's around waiting to be nibbled upon. 

    Every book written on Real Estate and REI for the past century has said" Real Estate is the #1 hedge against inflation. 

    So for those people preaching sit and wait, please explain to me why when you wake up to a high inflation world, your response is to avoid real estate! To instead do what all those writings said is the WORST thing to do in an inflation situation, sit on rotting cash!!!! WTF?! It's literally doing the exact opposite of arguably the most repeated, most universally concurred, cited, written financial advice in the history of advice!!!!

    How about this, send me your bank statement with rate, your bond statement, I will take ALL capital and I will give you exact matching rate AND I will do you one better, I will secure it backed by assets! Your savings and bond are back by NOTHING but a promise to repay, if they can, don't believe me just ask depositors at ____(insert insolvent bank/bond entity here)____ . Or maybe look at how treasuries and bonds are getting DOWN graded, not exactly confidence beacon. 

    Seriously, I dare people to take me up on this. Q3 '22' I wrote how all the talk of crash was not only incorrect but that prices would go UP. I posted that I would give any/all an option to purchase on there property at full market value if they thought a crash was eminent. Not a 1 ponied up. I put out a $10k challenge, bet me! 1 took me up, he has yet to pay. Still waiting Greg. 

    Hell, I'll even do it 100% in your name and control alone with 1 Cavet that I keep every cent of revenue above and beyond that rate your currently getting. 

    Volume will decline more, high end/luxury segment will continue to bleed in this python economy, until the "cure" is introduced. The 1% down 40yr mortgage is coming. And with it, price surges. Rate drop is inevitable, only matter of time and with it, price surge. 

    Welcome to a more normal real estate market, where properties DON'T sell for a 12 cap, that it takes time to make sizable cash-flows, and those who do smart investing bouncing equity plays to pump into LT cash-flow positions, the streets are gold lined. 

    You don't buy cash-cows in this more-normal economy, you make em!

    0Reply
  • Randall AlanPro Member
    Investor · Lakeland, FL · Member since 2017 · 1k+ posts · 1k+ votes
    3y
    Quote from @James Hamling:
    Quote from @Randall Alan:
    Quote from @James Hamling:
    Quote from @Randall Alan:
    Quote from @Brady Mullen:

    You've probably heard the "would you rather" scenario about being offered $1M or a penny that doubles every day for a month, right?

    Well, consider this little twist…

    So, in case you haven't heard, a penny that doubles 30 times is much more than $1M. It's $5.4M!

    Hopefully we've experienced enough compounding "aha" moments that we know to not trust our instincts - compounding regularly defies our intuitions.

    What if instead of starting the penny today, you put it off until tomorrow? Maybe your kid needs a ride to soccer tonight, or you're going to Scott's house for dinner, or you got sucked into some funny social media videos. It can wait until tomorrow.

    If you start the penny tomorrow, then tomorrow, you'll only be behind by 1 penny, right?

    But on the 30th day, you're behind by $2.7M!

    By waiting, we give up what happens at the end of the compounding equation, not at the beginning. The difference in the beginning is always unnoticeable (or at least unimpressive), but it's the end we're sacrificing.

    You may object by saying, "I'll just have to invest a little longer to make up." But that's not really what's on offer here. If there were more time, then you'd be even further behind! You'd have one more day to double the $5.4M to $10.8M!

    Now, I don't know an investment that will double your money every day, but it helps align our intuitions with reality.

    Waiting to do something that is financially smart (and therefore usually involves compounding) costs much more than our intuitions would indicate. We sacrifice what happens at the end!

    @Brady Mullen

    I’m all about investing in real estate. We have 37 units that we required mostly from 2018 to 2020.  We have seen or equity, triple in that amount of time. But if your argument is that the new investor  should be investing in real estate today, I might go against that somewhat.  All that is compounding today is your interest rate it seems… in the sense that it has tripled over the past 18 months. That combined with real estate prices that remain very high I think make for a sound argument that presently it is not a favorable environment to be pulling the trigger on most real estate investment opportunities.

    As soon as rates and prices settle back down, I would be all on board with your premise that sooner is better than later. If you can find a great deal that will cash flow today, that would be reason enough to do it. But very little is cash flowing at 7-8% interest.

    Randy

    But that's the rub Randy, your using completely wrong assumptions in your waiting vs action thoughts. 

    This may get a bit complex at first but I assure it's a simplification and if follow along, comprehend each step, it just may be a complete "ah-ha" moment. 

    Todays prices, reflect todays rates. 

    This a paramount, let me say again, TODAYS prices, reflect TODAYS rates. What is being bought and sold today, is at TODAYS rates. Really soak that in. At these "high" rates, everything being bought and sold now is in full knowledge and acceptance of this fact. Because there is no getting around it right. 

    So, what your arguing is (a) today's prices are too high. And/or (b) todays rates are also too high. And that (c) when rates come down it will be "better". Or when prices "come down" it will be better. 

    That is a total mirage. I get why you'd think it, but it's exactly the same as thinking if you could flap your arms up and down fast enough, you'll fly. It just isn't so in reality. 

    When RATES Come down: 

    Prices will SURGE! Yes, with 100% certainty, notice I did NOT say "may" or "could", I am that absolutely certain of the factuality that here I am saying it for the whole world that; when rates come down prices will SURGE UP!

    We have fundamental facts that we have housing SHORTAGE, it's why homes are still being bought at levels they are. AND we have PENT-UP-DEMAND being created. What that? Volume has fallen off a cliff, by more than 50% in general and volume as a whole is VERY low vs most any time. Now keep in mind there is MORE people. people didn't just decide they don't want to live in a home, they simply can't afford to buy. That's peent up demand. 

    So, when rates decline, making it more affordable to buy, people WILL! That is MORE demand, and that additional demand will do exactly as it does of driving UP prices. 

    The lower the rate, the more purchasing power (whole $ sales total) for the same monthly payment. 

    Every month rents go UP, guess what happens? The price motive point for a person to buy a home at goes UP. Rents are leading and creating what the fair market value of buying a home will be tomorrow. It's mathematical. 

    If a markets average rent is $1,500 mnth, why would people buy a home, the same home, for an average cost of $2k per month? They have a PRICE MOTIVE to rent vs buy.     In exact same paradigm, as market rents press too $2k per month, when rates drop to make is feasible for a person to buy a similar home, at or near a monthly price of that $2k, THEY WILL BUY. 

    The rates dictate how much the sale price is, the buyer is focused on that $2k per month. Buyers care little if the $2k per month buys $170k or $240k, actually if anything human ego comes into play and they feel more achieving with the HIGHER not lower amount because again, budgets are on the PAYMENT not the purchase price. 

    So your premise that rates are "too high" to buy is backwards! NOW is when you SHOULD be buying, because as rates drop, prices WILL, with absolute certainty, go UP! That is what we coin an "equity investment". 

    Now, for PRICES going down. 

    Exactly how are prices going to come down? Are tax's going to be reduced to make all the items that go into making a home cheaper? Are millions of people going to choose to go live in tents and just give up there home? Remember every person selling a home needs a new one to put over their head. 

    Are builders going to stop throttling supply and collectively choose to build homes to sell at a net loss? 

    And again, pent up demand. We have WAY more people with pressure to buy today there 1 limiter is affordability. You start lowering price and that makes it MORE affordable, opening up MORE buyers and "POW" it's gone. That is what's insulating from a sizable decline in prices. 

    The ONLY way you get the buying opportunity your thinking, where rents day 1 are 8-cap+, is 30 million Americans roll-over and die, or you drop rates while removing everyone's capacity to buy, like 30 million put on unemployment tomorrow. 

    The math is clear. We have near 8% interest rates and the "crash' is still NOT happening. Every street is still  lined with "hiring" signs. Any job lost has 20 ready to take them up tomorrow. 

    If WWIII pop's off there will be MORE work demand, MORE employment and LESS people. How do we get to dropping rates and LESS employment? 

    That's simply NOT realistic. 

    The market you bought in was a post COLLAPSE economy, that is NOT normal, it's not regular, and it's G-O-N-E!. People need to wrap there head's around this fact, '08' is over, done, gone. This is a more normal market now, where you can't buy a paycheck, you have to actually INVEST. yes, it's difficult to get it right, just like any NORMAL investing is. It requires advanced knowledge, strategy, effort, timing, placement, it's NOT simple. And it requires TIME. 

    It is called INVESTING, what other investing does not require time? What other investing is a paycheck month 1? Yet for some reason there is a perverse thought that Real Estate INVESTING should be a universe apart. it's NOT. 

    Opportunity is NOT dead and gone, it's just different. Yes, it's harder, it looks different, welcome to investing. 

    If you are not finding the opportunity, maybe your looking with the wrong eyes? There is a long list of people doing AMAZING right now today, at todays rates. That is the difference from those looking back vs those living in the now. 

    The only thing that could make another buying potential it was last decade, will put you in a place you couldn't buy if you wanted to. So the false idea that everything can burn to the ground but your Teflon and will buy the ashes, is a self-lie unless your last name is Hilton or Heinz. 

    @James Hamling

    James,

    You may totally know more than me... But I would argue that housing prices have already surged, and that they will not surge again like they did before when rates come down.  Likewise, today's prices do not reflect today's rates as you suggest.  Today's rates are what have completely thrown the brakes on the housing market.  If today's prices reflected today's rates, everyone would be transacting like they did 3 years ago... and they are not - AT ALL!  Today's rates are inflated (by the Fed's design) to slow down the economy.  The problem in the real estate market is that there is a double edged sword the Fed is running into... which is the years of low rates has everyone holding onto their cheap mortgages and choosing to sit put and not list their house.  So while the Fed raised rates to curtail activity... which the Fed would usually hope would increase supply and lower prices, they were offset by everyone holding onto their low rates, which in effect had the opposite effect the Fed wanted.... supply remains constrained.  Housing is somewhat unique compared to other areas of the economy... so the Fed is having to make trade-offs with what is their biggest tool in the shed (interest rates).  

    Think about what that would mean for rents and / or profits for investors if housing prices massively surged again when rates came down.  If you take today as a reference point... investors can't earn dollar one at 7-8% interest at the current housing prices.  Likewise, year over year sales are way way off due to everyone holding onto their low rates.  I think when rates slowly drop, you will see both investors and homebuyers actually rejoin the 'conversation' (ie transacting in the market), but that housing prices will not skyrocket again because the supply will increase due to homeowners becoming a part of the supply side.  Will housing prices still go up... sure... but I think it will be more like the 3-5% per year that you would expect in a normally functioning economy, versus the 20-30%+ we got during the inflation run-up.

    Randy


    Your entire response is contradictory. 

    You point out how prices surged. Why did they surge? Not excuses or "feelings", facts, why did they surge? Because many buyers were fighting for properties, supply - demand, correct? Yes, demand for those homes. 

    And home sellers will sell for the maximum price the market will allow. 

    So, your arguing Randy that as rates go down, buyers will NOT buy, as cost of buying goes down! How does that make any sense what so ever? As homes get MORE affordable, people will NOT buy. 

    Let me be clear, it is MATHEMATICAL certainty that home prices WILL SURGE, yet again, in connection to a falling interest rate. Home buying WILL SURGE in related proportion to the size and speed to rates declining.    This is not theory it is absolute CERTAINTY. 

    It is an OBVIOUS fact that todays purchases reflect todays rates. Your arguing such only indicates your refusal to accept any fact, and instead choose to live in fiction.     What rates do you think todays transactions reflect? Are they getting yester-years mortgage for todays purchase?     There mortgage is being given a rate TODAY. 

    To some of us this is just as obvious as saying grass is green, the sky blue and the sun is yellow, but here we are proof in hand that some are so deep in denial they refuse to admit ANYONE is buying at todays rates simply because they are not. 

    Todays purchases reflect todays rates.  This is an undeniable FACT. With this fact we know EXACTLY what people will do at what todays rates are vs 1 yr ago, because we have transactional data from 1yr ago and today. FACTS! 

    So, simple REVERSE things, what would happen if TODAYS RATES, were changed to rates of 2 yrs ago? We know exactly what people did off rates 2yrs ago, we know exactly the numbers of persons selling to buy-up. That is exactly what would happen tomorrow, another SURGE. 

    People who have been stuck renting the last year would jump on their "opportunity" to buy, Fear Of Missing Out, FOMO is a STRONG emotion and being stuck renting for time person have they will press HARD to get out of that renting situation. That drives heavy bidding competition, persons bidding with emotional motive. 

    Just because we saw emotional motive bidding wars does not mean it hit is allocating of reoccurrence, it will happen every time you create pent up demand and then crack the lid open, it SURGES out. 

    Home prices will go up in proportion to DEMAND surge's financial capacity. It's not complicated, if you think it is go give one group on 10yr olds $10 each and see what happens, give another $20 each and see what happens. Each will spend it all, what changes is how expensive the items each group buys is, not quantity. 

    Prices are holding strong in the vast majority of country, so what happens with a surge of buyers in #'s, and increase in there affordability? Again, this is simple mathematics: 

    If Johnny apple seller come to market with 5 apples to sell, and 20 people are at market to buy apples with $5.00 each, how much can Johnny sell his apples for?    Now instead have 50 people at market to buy Johnnys apples each with $10 dollars, what happens to the price of apples? They don't stay $5.00!

    @James Hamling

    I would argue that home  sales will surge more than home prices when rates go down).  

    And the point about earning 5% in a high yield savings account was to (what is the alternative at the moment).  My point was that in the short term… short term being defined as until the point you would want to keep the rate you had to pay on your loan long term) that holding off purchasing and holding your cash might be the better solution.  You will lose well over a year’s rental income refinancing any property you buy today to get a rate in the 5’s a year from now.   Buying today how much are you going to cash flow at 7.5% interest?  You’ll be lucky to be positive at all in 90% of the USA.   Appreciation… hopefully there is some over the next year… but I don’t think it is going to shoot up like you think… obviously the Fed is aiming against that, and normal market forces would say things should depreciate… but granted they are not due to short supply.  

    I feel like you aren’t recognizing the incredibly decreased demand for real estate right now (due to high rates) - granted along with decreased supply.  If demand was high still, I would agree with your conjecture that prices will rise again… but instead I think you will see demand return as supply returns with modest price increases.

    Owning 25 properties / 37 units  I’m ok if you are right though!  I’m up $5MM in equity in 6 years already… so no complaints either!   

    I just don’t see the rental market functioning in your scenario where prices (say) double again  when incomes already aren’t keeping up whatsoever.  There is a price point where renters cannot afford a basic rental when prices quadruple in such a short time.  Existing landlords would clean up though if your vision comes true!  

    Randy 

    0Reply
  • Dan H.Pro Member
    Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
    3y
    Quote from @James Hamling:
    Quote from @Randall Alan:
    Quote from @Brady Mullen:

    You've probably heard the "would you rather" scenario about being offered $1M or a penny that doubles every day for a month, right?

    Well, consider this little twist…

    So, in case you haven't heard, a penny that doubles 30 times is much more than $1M. It's $5.4M!

    Hopefully we've experienced enough compounding "aha" moments that we know to not trust our instincts - compounding regularly defies our intuitions.

    What if instead of starting the penny today, you put it off until tomorrow? Maybe your kid needs a ride to soccer tonight, or you're going to Scott's house for dinner, or you got sucked into some funny social media videos. It can wait until tomorrow.

    If you start the penny tomorrow, then tomorrow, you'll only be behind by 1 penny, right?

    But on the 30th day, you're behind by $2.7M!

    By waiting, we give up what happens at the end of the compounding equation, not at the beginning. The difference in the beginning is always unnoticeable (or at least unimpressive), but it's the end we're sacrificing.

    You may object by saying, "I'll just have to invest a little longer to make up." But that's not really what's on offer here. If there were more time, then you'd be even further behind! You'd have one more day to double the $5.4M to $10.8M!

    Now, I don't know an investment that will double your money every day, but it helps align our intuitions with reality.

    Waiting to do something that is financially smart (and therefore usually involves compounding) costs much more than our intuitions would indicate. We sacrifice what happens at the end!

    @Brady Mullen

    I’m all about investing in real estate. We have 37 units that we required mostly from 2018 to 2020.  We have seen or equity, triple in that amount of time. But if your argument is that the new investor  should be investing in real estate today, I might go against that somewhat.  All that is compounding today is your interest rate it seems… in the sense that it has tripled over the past 18 months. That combined with real estate prices that remain very high I think make for a sound argument that presently it is not a favorable environment to be pulling the trigger on most real estate investment opportunities.

    As soon as rates and prices settle back down, I would be all on board with your premise that sooner is better than later. If you can find a great deal that will cash flow today, that would be reason enough to do it. But very little is cash flowing at 7-8% interest.

    Randy

    But that's the rub Randy, your using completely wrong assumptions in your waiting vs action thoughts. 

    This may get a bit complex at first but I assure it's a simplification and if follow along, comprehend each step, it just may be a complete "ah-ha" moment. 

    Todays prices, reflect todays rates. 

    This a paramount, let me say again, TODAYS prices, reflect TODAYS rates. What is being bought and sold today, is at TODAYS rates. Really soak that in. At these "high" rates, everything being bought and sold now is in full knowledge and acceptance of this fact. Because there is no getting around it right. 

    So, what your arguing is (a) today's prices are too high. And/or (b) todays rates are also too high. And that (c) when rates come down it will be "better". Or when prices "come down" it will be better. 

    That is a total mirage. I get why you'd think it, but it's exactly the same as thinking if you could flap your arms up and down fast enough, you'll fly. It just isn't so in reality. 

    When RATES Come down: 

    Prices will SURGE! Yes, with 100% certainty, notice I did NOT say "may" or "could", I am that absolutely certain of the factuality that here I am saying it for the whole world that; when rates come down prices will SURGE UP!

    We have fundamental facts that we have housing SHORTAGE, it's why homes are still being bought at levels they are. AND we have PENT-UP-DEMAND being created. What that? Volume has fallen off a cliff, by more than 50% in general and volume as a whole is VERY low vs most any time. Now keep in mind there is MORE people. people didn't just decide they don't want to live in a home, they simply can't afford to buy. That's peent up demand. 

    So, when rates decline, making it more affordable to buy, people WILL! That is MORE demand, and that additional demand will do exactly as it does of driving UP prices. 

    The lower the rate, the more purchasing power (whole $ sales total) for the same monthly payment. 

    Every month rents go UP, guess what happens? The price motive point for a person to buy a home at goes UP. Rents are leading and creating what the fair market value of buying a home will be tomorrow. It's mathematical. 

    If a markets average rent is $1,500 mnth, why would people buy a home, the same home, for an average cost of $2k per month? They have a PRICE MOTIVE to rent vs buy.     In exact same paradigm, as market rents press too $2k per month, when rates drop to make is feasible for a person to buy a similar home, at or near a monthly price of that $2k, THEY WILL BUY. 

    The rates dictate how much the sale price is, the buyer is focused on that $2k per month. Buyers care little if the $2k per month buys $170k or $240k, actually if anything human ego comes into play and they feel more achieving with the HIGHER not lower amount because again, budgets are on the PAYMENT not the purchase price. 

    So your premise that rates are "too high" to buy is backwards! NOW is when you SHOULD be buying, because as rates drop, prices WILL, with absolute certainty, go UP! That is what we coin an "equity investment". 

    Now, for PRICES going down. 

    Exactly how are prices going to come down? Are tax's going to be reduced to make all the items that go into making a home cheaper? Are millions of people going to choose to go live in tents and just give up there home? Remember every person selling a home needs a new one to put over their head. 

    Are builders going to stop throttling supply and collectively choose to build homes to sell at a net loss? 

    And again, pent up demand. We have WAY more people with pressure to buy today there 1 limiter is affordability. You start lowering price and that makes it MORE affordable, opening up MORE buyers and "POW" it's gone. That is what's insulating from a sizable decline in prices. 

    The ONLY way you get the buying opportunity your thinking, where rents day 1 are 8-cap+, is 30 million Americans roll-over and die, or you drop rates while removing everyone's capacity to buy, like 30 million put on unemployment tomorrow. 

    The math is clear. We have near 8% interest rates and the "crash' is still NOT happening. Every street is still  lined with "hiring" signs. Any job lost has 20 ready to take them up tomorrow. 

    If WWIII pop's off there will be MORE work demand, MORE employment and LESS people. How do we get to dropping rates and LESS employment? 

    That's simply NOT realistic. 

    The market you bought in was a post COLLAPSE economy, that is NOT normal, it's not regular, and it's G-O-N-E!. People need to wrap there head's around this fact, '08' is over, done, gone. This is a more normal market now, where you can't buy a paycheck, you have to actually INVEST. yes, it's difficult to get it right, just like any NORMAL investing is. It requires advanced knowledge, strategy, effort, timing, placement, it's NOT simple. And it requires TIME. 

    It is called INVESTING, what other investing does not require time? What other investing is a paycheck month 1? Yet for some reason there is a perverse thought that Real Estate INVESTING should be a universe apart. it's NOT. 

    Opportunity is NOT dead and gone, it's just different. Yes, it's harder, it looks different, welcome to investing. 

    If you are not finding the opportunity, maybe your looking with the wrong eyes? There is a long list of people doing AMAZING right now today, at todays rates. That is the difference from those looking back vs those living in the now. 

    The only thing that could make another buying potential it was last decade, will put you in a place you couldn't buy if you wanted to. So the false idea that everything can burn to the ground but your Teflon and will buy the ashes, is a self-lie unless your last name is Hilton or Heinz. 


    When rates came down at the Great Recession, it took ~4 years for prices to surge. The prices often do not surge over night or even in a couple years.

    I do not claim to know what the future holds (certainly I do not claim to see the future with 100% certainty), but I know my underwriting is showing large negative cash flow at high LTV. I can see commercial residential cap rates rising in many/most markets. I can see a scenario where commercial residential impacts non-commercial residential. I see more passive investments that beat the return I am showing on newly acquired RE at the current rates.

    Does this mean I guarantee that an RE investment today is not going to do great? No, too many variables for me to guarantee much related to the future (few things in future I would claim with 100% certainty). I use my underwriting to evaluate my RE investments realizing that Residential RE is not passive and for me to choose it, it does not only need to match the expected return of more passive options but beat it to warrant the effort.

    You indicate multiple times when rates drop.  I do not know if rates are going to drop significantly any time soon.  I lean towards not, but again do not claim with 100% certainty.

    As for renting driving sales, there are only a few large city markets were it is initially cheaper to own than to rent.  

    I have not purchased RE since Dec 2021 and have zero regrets on staying on the sidelines.

    This does not imply that I do not look at the plethora of RE that hits my mailbox daily looking for something that meets my criteria. I am not finding purchases that meet my criteria in spite of getting dozens of off market properties sent to my mailbox every day.


    0Reply
  • Brady MullenPro Member
    OP
    Denver, CO · Member since 2021 · 61 posts · 100 votes
    3y
    Quote from @Dan H.:
    Quote from @James Hamling:
    Quote from @Randall Alan:
    Quote from @Brady Mullen:

    You've probably heard the "would you rather" scenario about being offered $1M or a penny that doubles every day for a month, right?

    Well, consider this little twist…

    So, in case you haven't heard, a penny that doubles 30 times is much more than $1M. It's $5.4M!

    Hopefully we've experienced enough compounding "aha" moments that we know to not trust our instincts - compounding regularly defies our intuitions.

    What if instead of starting the penny today, you put it off until tomorrow? Maybe your kid needs a ride to soccer tonight, or you're going to Scott's house for dinner, or you got sucked into some funny social media videos. It can wait until tomorrow.

    If you start the penny tomorrow, then tomorrow, you'll only be behind by 1 penny, right?

    But on the 30th day, you're behind by $2.7M!

    By waiting, we give up what happens at the end of the compounding equation, not at the beginning. The difference in the beginning is always unnoticeable (or at least unimpressive), but it's the end we're sacrificing.

    You may object by saying, "I'll just have to invest a little longer to make up." But that's not really what's on offer here. If there were more time, then you'd be even further behind! You'd have one more day to double the $5.4M to $10.8M!

    Now, I don't know an investment that will double your money every day, but it helps align our intuitions with reality.

    Waiting to do something that is financially smart (and therefore usually involves compounding) costs much more than our intuitions would indicate. We sacrifice what happens at the end!

    @Brady Mullen

    I’m all about investing in real estate. We have 37 units that we required mostly from 2018 to 2020.  We have seen or equity, triple in that amount of time. But if your argument is that the new investor  should be investing in real estate today, I might go against that somewhat.  All that is compounding today is your interest rate it seems… in the sense that it has tripled over the past 18 months. That combined with real estate prices that remain very high I think make for a sound argument that presently it is not a favorable environment to be pulling the trigger on most real estate investment opportunities.

    As soon as rates and prices settle back down, I would be all on board with your premise that sooner is better than later. If you can find a great deal that will cash flow today, that would be reason enough to do it. But very little is cash flowing at 7-8% interest.

    Randy

    But that's the rub Randy, your using completely wrong assumptions in your waiting vs action thoughts. 

    This may get a bit complex at first but I assure it's a simplification and if follow along, comprehend each step, it just may be a complete "ah-ha" moment. 

    Todays prices, reflect todays rates. 

    This a paramount, let me say again, TODAYS prices, reflect TODAYS rates. What is being bought and sold today, is at TODAYS rates. Really soak that in. At these "high" rates, everything being bought and sold now is in full knowledge and acceptance of this fact. Because there is no getting around it right. 

    So, what your arguing is (a) today's prices are too high. And/or (b) todays rates are also too high. And that (c) when rates come down it will be "better". Or when prices "come down" it will be better. 

    That is a total mirage. I get why you'd think it, but it's exactly the same as thinking if you could flap your arms up and down fast enough, you'll fly. It just isn't so in reality. 

    When RATES Come down: 

    Prices will SURGE! Yes, with 100% certainty, notice I did NOT say "may" or "could", I am that absolutely certain of the factuality that here I am saying it for the whole world that; when rates come down prices will SURGE UP!

    We have fundamental facts that we have housing SHORTAGE, it's why homes are still being bought at levels they are. AND we have PENT-UP-DEMAND being created. What that? Volume has fallen off a cliff, by more than 50% in general and volume as a whole is VERY low vs most any time. Now keep in mind there is MORE people. people didn't just decide they don't want to live in a home, they simply can't afford to buy. That's peent up demand. 

    So, when rates decline, making it more affordable to buy, people WILL! That is MORE demand, and that additional demand will do exactly as it does of driving UP prices. 

    The lower the rate, the more purchasing power (whole $ sales total) for the same monthly payment. 

    Every month rents go UP, guess what happens? The price motive point for a person to buy a home at goes UP. Rents are leading and creating what the fair market value of buying a home will be tomorrow. It's mathematical. 

    If a markets average rent is $1,500 mnth, why would people buy a home, the same home, for an average cost of $2k per month? They have a PRICE MOTIVE to rent vs buy.     In exact same paradigm, as market rents press too $2k per month, when rates drop to make is feasible for a person to buy a similar home, at or near a monthly price of that $2k, THEY WILL BUY. 

    The rates dictate how much the sale price is, the buyer is focused on that $2k per month. Buyers care little if the $2k per month buys $170k or $240k, actually if anything human ego comes into play and they feel more achieving with the HIGHER not lower amount because again, budgets are on the PAYMENT not the purchase price. 

    So your premise that rates are "too high" to buy is backwards! NOW is when you SHOULD be buying, because as rates drop, prices WILL, with absolute certainty, go UP! That is what we coin an "equity investment". 

    Now, for PRICES going down. 

    Exactly how are prices going to come down? Are tax's going to be reduced to make all the items that go into making a home cheaper? Are millions of people going to choose to go live in tents and just give up there home? Remember every person selling a home needs a new one to put over their head. 

    Are builders going to stop throttling supply and collectively choose to build homes to sell at a net loss? 

    And again, pent up demand. We have WAY more people with pressure to buy today there 1 limiter is affordability. You start lowering price and that makes it MORE affordable, opening up MORE buyers and "POW" it's gone. That is what's insulating from a sizable decline in prices. 

    The ONLY way you get the buying opportunity your thinking, where rents day 1 are 8-cap+, is 30 million Americans roll-over and die, or you drop rates while removing everyone's capacity to buy, like 30 million put on unemployment tomorrow. 

    The math is clear. We have near 8% interest rates and the "crash' is still NOT happening. Every street is still  lined with "hiring" signs. Any job lost has 20 ready to take them up tomorrow. 

    If WWIII pop's off there will be MORE work demand, MORE employment and LESS people. How do we get to dropping rates and LESS employment? 

    That's simply NOT realistic. 

    The market you bought in was a post COLLAPSE economy, that is NOT normal, it's not regular, and it's G-O-N-E!. People need to wrap there head's around this fact, '08' is over, done, gone. This is a more normal market now, where you can't buy a paycheck, you have to actually INVEST. yes, it's difficult to get it right, just like any NORMAL investing is. It requires advanced knowledge, strategy, effort, timing, placement, it's NOT simple. And it requires TIME. 

    It is called INVESTING, what other investing does not require time? What other investing is a paycheck month 1? Yet for some reason there is a perverse thought that Real Estate INVESTING should be a universe apart. it's NOT. 

    Opportunity is NOT dead and gone, it's just different. Yes, it's harder, it looks different, welcome to investing. 

    If you are not finding the opportunity, maybe your looking with the wrong eyes? There is a long list of people doing AMAZING right now today, at todays rates. That is the difference from those looking back vs those living in the now. 

    The only thing that could make another buying potential it was last decade, will put you in a place you couldn't buy if you wanted to. So the false idea that everything can burn to the ground but your Teflon and will buy the ashes, is a self-lie unless your last name is Hilton or Heinz. 


    When rates came down at the Great Recession, it took ~4 years for prices to surge. The prices often do not surge over night or even in a couple years.

    I do not claim to know what the future holds (certainly I do not claim to see the future with 100% certainty), but I know my underwriting is showing large negative cash flow at high LTV. I can see commercial residential cap rates rising in many/most markets. I can see a scenario where commercial residential impacts non-commercial residential. I see more passive investments that beat the return I am showing on newly acquired RE at the current rates.

    Does this mean I guarantee that an RE investment today is not going to do great? No, too many variables for me to guarantee much related to the future (few things in future I would claim with 100% certainty). I use my underwriting to evaluate my RE investments realizing that Residential RE is not passive and for me to choose it, it does not only need to match the expected return of more passive options but beat it to warrant the effort.

    You indicate multiple times when rates drop.  I do not know if rates are going to drop significantly any time soon.  I lean towards not, but again do not claim with 100% certainty.

    As for renting driving sales, there are only a few large city markets were it is initially cheaper to own than to rent.  

    I have not purchased RE since Dec 2021 and have zero regrets on staying on the sidelines.

    This does not imply that I do not look at the plethora of RE that hits my mailbox daily looking for something that meets my criteria. I am not finding purchases that meet my criteria in spite of getting dozens of off market properties sent to my mailbox every day.



    I have two challenges here.  And I mean all of this with sincere respect.  I'm writing here to help sharpen my tools and have an open conversation.

    First, I don't think we can compare what's happening today to the 2008 RE crash.  It is so different in fundamental ways.  There is not 100% financing on stated income loans for everyone, first of all.  And inventory is in a completely different state.  Although those things are related, they are also different.

    Second, and this is my more fundamental question, is this - why do people use the term "sitting on the sidelines?"  There is no such thing.  I know that what people mean is "cash", but that is not the sidelines.  This is a cage match - once you have wealth, you're in a ring, not a football field.  There are no sidelines.

    You seem to have done well, which is commendable, so I'm not challenging that.  What I am bringing to light is that cash, while it doesn't "lose" value on statements, has lost tremendous value in the real world.

    And interest on savings accounts is, by design, almost always less than inflation.

    I guess my point is that while buying real estate is not what it used to be, and I don't think it ever will be again in my lifetime, it is still a valid option.  And you can always find reasons not to do something because there is no such thing as a risk-free investment.

    What I want to hear when anyone says "don't invest in this" is their recommendation for what they think I should be investing in.  The sidelines is not an option.  Cash is an investment choice that I am not comfortable with for large amounts of my capital.

    1Reply
  • James Hamling
    Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes
    3y
    Quote from @Randall Alan:
    Quote from @James Hamling:
    Quote from @Randall Alan:
    Quote from @James Hamling:
    Quote from @Randall Alan:
    Quote from @Brady Mullen:

    You've probably heard the "would you rather" scenario about being offered $1M or a penny that doubles every day for a month, right?

    Well, consider this little twist…

    So, in case you haven't heard, a penny that doubles 30 times is much more than $1M. It's $5.4M!

    Hopefully we've experienced enough compounding "aha" moments that we know to not trust our instincts - compounding regularly defies our intuitions.

    What if instead of starting the penny today, you put it off until tomorrow? Maybe your kid needs a ride to soccer tonight, or you're going to Scott's house for dinner, or you got sucked into some funny social media videos. It can wait until tomorrow.

    If you start the penny tomorrow, then tomorrow, you'll only be behind by 1 penny, right?

    But on the 30th day, you're behind by $2.7M!

    By waiting, we give up what happens at the end of the compounding equation, not at the beginning. The difference in the beginning is always unnoticeable (or at least unimpressive), but it's the end we're sacrificing.

    You may object by saying, "I'll just have to invest a little longer to make up." But that's not really what's on offer here. If there were more time, then you'd be even further behind! You'd have one more day to double the $5.4M to $10.8M!

    Now, I don't know an investment that will double your money every day, but it helps align our intuitions with reality.

    Waiting to do something that is financially smart (and therefore usually involves compounding) costs much more than our intuitions would indicate. We sacrifice what happens at the end!

    @Brady Mullen

    I’m all about investing in real estate. We have 37 units that we required mostly from 2018 to 2020.  We have seen or equity, triple in that amount of time. But if your argument is that the new investor  should be investing in real estate today, I might go against that somewhat.  All that is compounding today is your interest rate it seems… in the sense that it has tripled over the past 18 months. That combined with real estate prices that remain very high I think make for a sound argument that presently it is not a favorable environment to be pulling the trigger on most real estate investment opportunities.

    As soon as rates and prices settle back down, I would be all on board with your premise that sooner is better than later. If you can find a great deal that will cash flow today, that would be reason enough to do it. But very little is cash flowing at 7-8% interest.

    Randy

    But that's the rub Randy, your using completely wrong assumptions in your waiting vs action thoughts. 

    This may get a bit complex at first but I assure it's a simplification and if follow along, comprehend each step, it just may be a complete "ah-ha" moment. 

    Todays prices, reflect todays rates. 

    This a paramount, let me say again, TODAYS prices, reflect TODAYS rates. What is being bought and sold today, is at TODAYS rates. Really soak that in. At these "high" rates, everything being bought and sold now is in full knowledge and acceptance of this fact. Because there is no getting around it right. 

    So, what your arguing is (a) today's prices are too high. And/or (b) todays rates are also too high. And that (c) when rates come down it will be "better". Or when prices "come down" it will be better. 

    That is a total mirage. I get why you'd think it, but it's exactly the same as thinking if you could flap your arms up and down fast enough, you'll fly. It just isn't so in reality. 

    When RATES Come down: 

    Prices will SURGE! Yes, with 100% certainty, notice I did NOT say "may" or "could", I am that absolutely certain of the factuality that here I am saying it for the whole world that; when rates come down prices will SURGE UP!

    We have fundamental facts that we have housing SHORTAGE, it's why homes are still being bought at levels they are. AND we have PENT-UP-DEMAND being created. What that? Volume has fallen off a cliff, by more than 50% in general and volume as a whole is VERY low vs most any time. Now keep in mind there is MORE people. people didn't just decide they don't want to live in a home, they simply can't afford to buy. That's peent up demand. 

    So, when rates decline, making it more affordable to buy, people WILL! That is MORE demand, and that additional demand will do exactly as it does of driving UP prices. 

    The lower the rate, the more purchasing power (whole $ sales total) for the same monthly payment. 

    Every month rents go UP, guess what happens? The price motive point for a person to buy a home at goes UP. Rents are leading and creating what the fair market value of buying a home will be tomorrow. It's mathematical. 

    If a markets average rent is $1,500 mnth, why would people buy a home, the same home, for an average cost of $2k per month? They have a PRICE MOTIVE to rent vs buy.     In exact same paradigm, as market rents press too $2k per month, when rates drop to make is feasible for a person to buy a similar home, at or near a monthly price of that $2k, THEY WILL BUY. 

    The rates dictate how much the sale price is, the buyer is focused on that $2k per month. Buyers care little if the $2k per month buys $170k or $240k, actually if anything human ego comes into play and they feel more achieving with the HIGHER not lower amount because again, budgets are on the PAYMENT not the purchase price. 

    So your premise that rates are "too high" to buy is backwards! NOW is when you SHOULD be buying, because as rates drop, prices WILL, with absolute certainty, go UP! That is what we coin an "equity investment". 

    Now, for PRICES going down. 

    Exactly how are prices going to come down? Are tax's going to be reduced to make all the items that go into making a home cheaper? Are millions of people going to choose to go live in tents and just give up there home? Remember every person selling a home needs a new one to put over their head. 

    Are builders going to stop throttling supply and collectively choose to build homes to sell at a net loss? 

    And again, pent up demand. We have WAY more people with pressure to buy today there 1 limiter is affordability. You start lowering price and that makes it MORE affordable, opening up MORE buyers and "POW" it's gone. That is what's insulating from a sizable decline in prices. 

    The ONLY way you get the buying opportunity your thinking, where rents day 1 are 8-cap+, is 30 million Americans roll-over and die, or you drop rates while removing everyone's capacity to buy, like 30 million put on unemployment tomorrow. 

    The math is clear. We have near 8% interest rates and the "crash' is still NOT happening. Every street is still  lined with "hiring" signs. Any job lost has 20 ready to take them up tomorrow. 

    If WWIII pop's off there will be MORE work demand, MORE employment and LESS people. How do we get to dropping rates and LESS employment? 

    That's simply NOT realistic. 

    The market you bought in was a post COLLAPSE economy, that is NOT normal, it's not regular, and it's G-O-N-E!. People need to wrap there head's around this fact, '08' is over, done, gone. This is a more normal market now, where you can't buy a paycheck, you have to actually INVEST. yes, it's difficult to get it right, just like any NORMAL investing is. It requires advanced knowledge, strategy, effort, timing, placement, it's NOT simple. And it requires TIME. 

    It is called INVESTING, what other investing does not require time? What other investing is a paycheck month 1? Yet for some reason there is a perverse thought that Real Estate INVESTING should be a universe apart. it's NOT. 

    Opportunity is NOT dead and gone, it's just different. Yes, it's harder, it looks different, welcome to investing. 

    If you are not finding the opportunity, maybe your looking with the wrong eyes? There is a long list of people doing AMAZING right now today, at todays rates. That is the difference from those looking back vs those living in the now. 

    The only thing that could make another buying potential it was last decade, will put you in a place you couldn't buy if you wanted to. So the false idea that everything can burn to the ground but your Teflon and will buy the ashes, is a self-lie unless your last name is Hilton or Heinz. 

    @James Hamling

    James,

    You may totally know more than me... But I would argue that housing prices have already surged, and that they will not surge again like they did before when rates come down.  Likewise, today's prices do not reflect today's rates as you suggest.  Today's rates are what have completely thrown the brakes on the housing market.  If today's prices reflected today's rates, everyone would be transacting like they did 3 years ago... and they are not - AT ALL!  Today's rates are inflated (by the Fed's design) to slow down the economy.  The problem in the real estate market is that there is a double edged sword the Fed is running into... which is the years of low rates has everyone holding onto their cheap mortgages and choosing to sit put and not list their house.  So while the Fed raised rates to curtail activity... which the Fed would usually hope would increase supply and lower prices, they were offset by everyone holding onto their low rates, which in effect had the opposite effect the Fed wanted.... supply remains constrained.  Housing is somewhat unique compared to other areas of the economy... so the Fed is having to make trade-offs with what is their biggest tool in the shed (interest rates).  

    Think about what that would mean for rents and / or profits for investors if housing prices massively surged again when rates came down.  If you take today as a reference point... investors can't earn dollar one at 7-8% interest at the current housing prices.  Likewise, year over year sales are way way off due to everyone holding onto their low rates.  I think when rates slowly drop, you will see both investors and homebuyers actually rejoin the 'conversation' (ie transacting in the market), but that housing prices will not skyrocket again because the supply will increase due to homeowners becoming a part of the supply side.  Will housing prices still go up... sure... but I think it will be more like the 3-5% per year that you would expect in a normally functioning economy, versus the 20-30%+ we got during the inflation run-up.

    Randy


    Your entire response is contradictory. 

    You point out how prices surged. Why did they surge? Not excuses or "feelings", facts, why did they surge? Because many buyers were fighting for properties, supply - demand, correct? Yes, demand for those homes. 

    And home sellers will sell for the maximum price the market will allow. 

    So, your arguing Randy that as rates go down, buyers will NOT buy, as cost of buying goes down! How does that make any sense what so ever? As homes get MORE affordable, people will NOT buy. 

    Let me be clear, it is MATHEMATICAL certainty that home prices WILL SURGE, yet again, in connection to a falling interest rate. Home buying WILL SURGE in related proportion to the size and speed to rates declining.    This is not theory it is absolute CERTAINTY. 

    It is an OBVIOUS fact that todays purchases reflect todays rates. Your arguing such only indicates your refusal to accept any fact, and instead choose to live in fiction.     What rates do you think todays transactions reflect? Are they getting yester-years mortgage for todays purchase?     There mortgage is being given a rate TODAY. 

    To some of us this is just as obvious as saying grass is green, the sky blue and the sun is yellow, but here we are proof in hand that some are so deep in denial they refuse to admit ANYONE is buying at todays rates simply because they are not. 

    Todays purchases reflect todays rates.  This is an undeniable FACT. With this fact we know EXACTLY what people will do at what todays rates are vs 1 yr ago, because we have transactional data from 1yr ago and today. FACTS! 

    So, simple REVERSE things, what would happen if TODAYS RATES, were changed to rates of 2 yrs ago? We know exactly what people did off rates 2yrs ago, we know exactly the numbers of persons selling to buy-up. That is exactly what would happen tomorrow, another SURGE. 

    People who have been stuck renting the last year would jump on their "opportunity" to buy, Fear Of Missing Out, FOMO is a STRONG emotion and being stuck renting for time person have they will press HARD to get out of that renting situation. That drives heavy bidding competition, persons bidding with emotional motive. 

    Just because we saw emotional motive bidding wars does not mean it hit is allocating of reoccurrence, it will happen every time you create pent up demand and then crack the lid open, it SURGES out. 

    Home prices will go up in proportion to DEMAND surge's financial capacity. It's not complicated, if you think it is go give one group on 10yr olds $10 each and see what happens, give another $20 each and see what happens. Each will spend it all, what changes is how expensive the items each group buys is, not quantity. 

    Prices are holding strong in the vast majority of country, so what happens with a surge of buyers in #'s, and increase in there affordability? Again, this is simple mathematics: 

    If Johnny apple seller come to market with 5 apples to sell, and 20 people are at market to buy apples with $5.00 each, how much can Johnny sell his apples for?    Now instead have 50 people at market to buy Johnnys apples each with $10 dollars, what happens to the price of apples? They don't stay $5.00!

    @James Hamling

    I would argue that home  sales will surge more than home prices when rates go down).  

    And the point about earning 5% in a high yield savings account was to (what is the alternative at the moment).  My point was that in the short term… short term being defined as until the point you would want to keep the rate you had to pay on your loan long term) that holding off purchasing and holding your cash might be the better solution.  You will lose well over a year’s rental income refinancing any property you buy today to get a rate in the 5’s a year from now.   Buying today how much are you going to cash flow at 7.5% interest?  You’ll be lucky to be positive at all in 90% of the USA.   Appreciation… hopefully there is some over the next year… but I don’t think it is going to shoot up like you think… obviously the Fed is aiming against that, and normal market forces would say things should depreciate… but granted they are not due to short supply.  

    I feel like you aren’t recognizing the incredibly decreased demand for real estate right now (due to high rates) - granted along with decreased supply.  If demand was high still, I would agree with your conjecture that prices will rise again… but instead I think you will see demand return as supply returns with modest price increases.

    Owning 25 properties / 37 units  I’m ok if you are right though!  I’m up $5MM in equity in 6 years already… so no complaints either!   

    I just don’t see the rental market functioning in your scenario where prices (say) double again  when incomes already aren’t keeping up whatsoever.  There is a price point where renters cannot afford a basic rental when prices quadruple in such a short time.  Existing landlords would clean up though if your vision comes true!  

    Randy 


    Randy, 

    If you read back what I have posted every time I talk about volume collapse. Volume collapse is what I forecasted for '23' back in Q3 '22', with prices holding AND going up. An avalanche of novices then argued on emotion saying no real estate was going to "crash" because it "had to", because prices were "too high". They were wrong for the exact same reason your wrong, your using emotion to forecast something that is math.   

    You now agree sales will surge, but some how in a surge of sales price won't? How does that make sense? More people surging in to buy something in finite supply and prices won't go up? Supply-Demand Randy, when demand increases for a fixed supply of something prices go UP. 

    If your paying a years rent for a refi Randy, wow are you using the wrong lender. 

    Randy, I went into great detail explaining it's not 2010, those days are long gone and not coming back, you don't buy paychecks anymore. You don't get to buy a big cash-flow day1 anymore, it's a more NORMAL investing world. The last 10 years were a freak anomaly where a person could, as in past tense. 

    So your saying demand for housing has just vanished, by 50% plus. Where'd it go? Why do people not want a home anymore Randy? When people don't make a purchase BECAUSE of cost of that purchase it's called Pent-up Demand, demand to make a purchase but people CAN'T make it because of affordability. Go 4yrs ago, 3yrs ago, 2yrs ago, we literally can graph it out of exactly what demand is and exactly how much was "bottled up" due to rate increase. So we know with mathematical certainty how much will come popping out that jar once more affordability is created. People didn't decide they don't want to own there home, they were priced out. 

     Your argument makes 0 sense. buying will surge, but prices will lay flat. So multiple offers will be offering what, hugs and foot massages? 

    I get it, you bought a bunch of properties in the pit of the Great Recession, now you think the only time a person should buy is after a Great Recession. Only problem there is in 200yrs there has been 2 times to buy then, ever. So the people reading here, just sit the sidelines for between 5 and 50yrs and maybe, someday, maybe, you'll get to start. you may be 87 when you start but hey, it's the only smart time to buy right Randy.... 

    If a person wait's for "perfect" to get going, they might as well get a tombstone ready with the inscription "still waiting...."

    1Reply
  • James Hamling
    Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes
    3y
    Quote from @Brady Mullen:
    Quote from @Dan H.:
    Quote from @James Hamling:
    Quote from @Randall Alan:
    Quote from @Brady Mullen:

    You've probably heard the "would you rather" scenario about being offered $1M or a penny that doubles every day for a month, right?

    Well, consider this little twist…

    So, in case you haven't heard, a penny that doubles 30 times is much more than $1M. It's $5.4M!

    Hopefully we've experienced enough compounding "aha" moments that we know to not trust our instincts - compounding regularly defies our intuitions.

    What if instead of starting the penny today, you put it off until tomorrow? Maybe your kid needs a ride to soccer tonight, or you're going to Scott's house for dinner, or you got sucked into some funny social media videos. It can wait until tomorrow.

    If you start the penny tomorrow, then tomorrow, you'll only be behind by 1 penny, right?

    But on the 30th day, you're behind by $2.7M!

    By waiting, we give up what happens at the end of the compounding equation, not at the beginning. The difference in the beginning is always unnoticeable (or at least unimpressive), but it's the end we're sacrificing.

    You may object by saying, "I'll just have to invest a little longer to make up." But that's not really what's on offer here. If there were more time, then you'd be even further behind! You'd have one more day to double the $5.4M to $10.8M!

    Now, I don't know an investment that will double your money every day, but it helps align our intuitions with reality.

    Waiting to do something that is financially smart (and therefore usually involves compounding) costs much more than our intuitions would indicate. We sacrifice what happens at the end!

    @Brady Mullen

    I’m all about investing in real estate. We have 37 units that we required mostly from 2018 to 2020.  We have seen or equity, triple in that amount of time. But if your argument is that the new investor  should be investing in real estate today, I might go against that somewhat.  All that is compounding today is your interest rate it seems… in the sense that it has tripled over the past 18 months. That combined with real estate prices that remain very high I think make for a sound argument that presently it is not a favorable environment to be pulling the trigger on most real estate investment opportunities.

    As soon as rates and prices settle back down, I would be all on board with your premise that sooner is better than later. If you can find a great deal that will cash flow today, that would be reason enough to do it. But very little is cash flowing at 7-8% interest.

    Randy

    But that's the rub Randy, your using completely wrong assumptions in your waiting vs action thoughts. 

    This may get a bit complex at first but I assure it's a simplification and if follow along, comprehend each step, it just may be a complete "ah-ha" moment. 

    Todays prices, reflect todays rates. 

    This a paramount, let me say again, TODAYS prices, reflect TODAYS rates. What is being bought and sold today, is at TODAYS rates. Really soak that in. At these "high" rates, everything being bought and sold now is in full knowledge and acceptance of this fact. Because there is no getting around it right. 

    So, what your arguing is (a) today's prices are too high. And/or (b) todays rates are also too high. And that (c) when rates come down it will be "better". Or when prices "come down" it will be better. 

    That is a total mirage. I get why you'd think it, but it's exactly the same as thinking if you could flap your arms up and down fast enough, you'll fly. It just isn't so in reality. 

    When RATES Come down: 

    Prices will SURGE! Yes, with 100% certainty, notice I did NOT say "may" or "could", I am that absolutely certain of the factuality that here I am saying it for the whole world that; when rates come down prices will SURGE UP!

    We have fundamental facts that we have housing SHORTAGE, it's why homes are still being bought at levels they are. AND we have PENT-UP-DEMAND being created. What that? Volume has fallen off a cliff, by more than 50% in general and volume as a whole is VERY low vs most any time. Now keep in mind there is MORE people. people didn't just decide they don't want to live in a home, they simply can't afford to buy. That's peent up demand. 

    So, when rates decline, making it more affordable to buy, people WILL! That is MORE demand, and that additional demand will do exactly as it does of driving UP prices. 

    The lower the rate, the more purchasing power (whole $ sales total) for the same monthly payment. 

    Every month rents go UP, guess what happens? The price motive point for a person to buy a home at goes UP. Rents are leading and creating what the fair market value of buying a home will be tomorrow. It's mathematical. 

    If a markets average rent is $1,500 mnth, why would people buy a home, the same home, for an average cost of $2k per month? They have a PRICE MOTIVE to rent vs buy.     In exact same paradigm, as market rents press too $2k per month, when rates drop to make is feasible for a person to buy a similar home, at or near a monthly price of that $2k, THEY WILL BUY. 

    The rates dictate how much the sale price is, the buyer is focused on that $2k per month. Buyers care little if the $2k per month buys $170k or $240k, actually if anything human ego comes into play and they feel more achieving with the HIGHER not lower amount because again, budgets are on the PAYMENT not the purchase price. 

    So your premise that rates are "too high" to buy is backwards! NOW is when you SHOULD be buying, because as rates drop, prices WILL, with absolute certainty, go UP! That is what we coin an "equity investment". 

    Now, for PRICES going down. 

    Exactly how are prices going to come down? Are tax's going to be reduced to make all the items that go into making a home cheaper? Are millions of people going to choose to go live in tents and just give up there home? Remember every person selling a home needs a new one to put over their head. 

    Are builders going to stop throttling supply and collectively choose to build homes to sell at a net loss? 

    And again, pent up demand. We have WAY more people with pressure to buy today there 1 limiter is affordability. You start lowering price and that makes it MORE affordable, opening up MORE buyers and "POW" it's gone. That is what's insulating from a sizable decline in prices. 

    The ONLY way you get the buying opportunity your thinking, where rents day 1 are 8-cap+, is 30 million Americans roll-over and die, or you drop rates while removing everyone's capacity to buy, like 30 million put on unemployment tomorrow. 

    The math is clear. We have near 8% interest rates and the "crash' is still NOT happening. Every street is still  lined with "hiring" signs. Any job lost has 20 ready to take them up tomorrow. 

    If WWIII pop's off there will be MORE work demand, MORE employment and LESS people. How do we get to dropping rates and LESS employment? 

    That's simply NOT realistic. 

    The market you bought in was a post COLLAPSE economy, that is NOT normal, it's not regular, and it's G-O-N-E!. People need to wrap there head's around this fact, '08' is over, done, gone. This is a more normal market now, where you can't buy a paycheck, you have to actually INVEST. yes, it's difficult to get it right, just like any NORMAL investing is. It requires advanced knowledge, strategy, effort, timing, placement, it's NOT simple. And it requires TIME. 

    It is called INVESTING, what other investing does not require time? What other investing is a paycheck month 1? Yet for some reason there is a perverse thought that Real Estate INVESTING should be a universe apart. it's NOT. 

    Opportunity is NOT dead and gone, it's just different. Yes, it's harder, it looks different, welcome to investing. 

    If you are not finding the opportunity, maybe your looking with the wrong eyes? There is a long list of people doing AMAZING right now today, at todays rates. That is the difference from those looking back vs those living in the now. 

    The only thing that could make another buying potential it was last decade, will put you in a place you couldn't buy if you wanted to. So the false idea that everything can burn to the ground but your Teflon and will buy the ashes, is a self-lie unless your last name is Hilton or Heinz. 


    When rates came down at the Great Recession, it took ~4 years for prices to surge. The prices often do not surge over night or even in a couple years.

    I do not claim to know what the future holds (certainly I do not claim to see the future with 100% certainty), but I know my underwriting is showing large negative cash flow at high LTV. I can see commercial residential cap rates rising in many/most markets. I can see a scenario where commercial residential impacts non-commercial residential. I see more passive investments that beat the return I am showing on newly acquired RE at the current rates.

    Does this mean I guarantee that an RE investment today is not going to do great? No, too many variables for me to guarantee much related to the future (few things in future I would claim with 100% certainty). I use my underwriting to evaluate my RE investments realizing that Residential RE is not passive and for me to choose it, it does not only need to match the expected return of more passive options but beat it to warrant the effort.

    You indicate multiple times when rates drop.  I do not know if rates are going to drop significantly any time soon.  I lean towards not, but again do not claim with 100% certainty.

    As for renting driving sales, there are only a few large city markets were it is initially cheaper to own than to rent.  

    I have not purchased RE since Dec 2021 and have zero regrets on staying on the sidelines.

    This does not imply that I do not look at the plethora of RE that hits my mailbox daily looking for something that meets my criteria. I am not finding purchases that meet my criteria in spite of getting dozens of off market properties sent to my mailbox every day.



    I have two challenges here.  And I mean all of this with sincere respect.  I'm writing here to help sharpen my tools and have an open conversation.

    First, I don't think we can compare what's happening today to the 2008 RE crash.  It is so different in fundamental ways.  There is not 100% financing on stated income loans for everyone, first of all.  And inventory is in a completely different state.  Although those things are related, they are also different.

    Second, and this is my more fundamental question, is this - why do people use the term "sitting on the sidelines?"  There is no such thing.  I know that what people mean is "cash", but that is not the sidelines.  This is a cage match - once you have wealth, you're in a ring, not a football field.  There are no sidelines.

    You seem to have done well, which is commendable, so I'm not challenging that.  What I am bringing to light is that cash, while it doesn't "lose" value on statements, has lost tremendous value in the real world.

    And interest on savings accounts is, by design, almost always less than inflation.

    I guess my point is that while buying real estate is not what it used to be, and I don't think it ever will be again in my lifetime, it is still a valid option.  And you can always find reasons not to do something because there is no such thing as a risk-free investment.

    What I want to hear when anyone says "don't invest in this" is their recommendation for what they think I should be investing in.  The sidelines is not an option.  Cash is an investment choice that I am not comfortable with for large amounts of my capital.

    Fantastic point. 

    Let's say someone is a great "saver", and every month they are squireling away $2k. Problem is, it's not $2k in the future. 

    That $2k looses purchasing power month after month, year after year. So if that's what a person does, yes it's very possible that in the end when old and grey, and pulling it out to buy stuff, it has now shazamed into $200 in then current value by it's purchasing power. 

    Now, other option. 

    They could go out and buy a new-con home in a decent area. So many on BP would say "that's dumb, it's got horrible/no cash-flow", yup, buy THAT home. Make that a rental, and instead of putting the $2k into the savings account, put it into that "Bad cash-flow" property. 

    Now, when old and grey, that home is paid off free & clear. AND it's also given you a few hundred thousand additional doolars from it's cash-flow over the years that yes, yr1 was negative $1,500, and yes yr2 was flat. But yr 3 made a few bucks, yr4 a few more, and every year it kept growing a bit more and more until mid-point people started calling it a "cash-cow". 

    And now, needing to "take out $", well you don't have to, the cash-flow from rents every month is covering the cash you'd be taking out from that savings account. AND all those $2k monthly savings you were doing, since it was tied into an appreciating asset, it's moved WITH inflation, and not only do you have that FULL $2k purchasing power still, but it's given you even MORE capital. 

    Now before anyone argues the "virtues" of just doing ScamStre... sorry Wall-Street via something like ETF's or whatever, GO TO WALMART, seriously go to Walmarts and when that elderly person greets you at the door, talk to them, ask them how they got there, ask them if they trusted Wall-Street for retirement. Countless masses of elderly people are sucked back into working BECAUSE they did exactly that for their retirement funds. 

    So yes, GREAT point; you DON'T have to do real estate investing to make bazillions day/week/month 1 to have it be VERY smart a move. Yes, 1,000%, a full retail property, at a price most would argue makes no sense, can absolutely be a $1million dollar+ retirement savings plan that has an amazing monthly dividend payout beyond ANYTHING one can get in stocks or bonds. 

    For me, when I started working, "median" home price was around $120k, today in exact same area it is 3X. I could have bought ANYTHING and I'd be clucking away how insanely loaded I am from that. All I would have needed was 4 to cover a very decent annual income, so were not talking about 50 properties here, 4 can be radically life changing. 

    This is being completely overlooked by so many clucking away about do nothing. It's so easy to say "do nothing" when yourself already has all there properties set. I am thinking about the person looking here who has 0, and wonders what they should do. GET STARTED ON SOMETHING, anything, even if it's just that 1 retirement savings plan property, GET GOING, stop letting your savings rot away to nothing. 

    I buy A-class brand new construction, 0 cap-x, 0 maintenance, and I cash-flow within 3yrs sometimes yr1. I get A-class tenants and don't have squat for issue because I buy nice things and rent to nice people. It doesn't have to be the grand-slam 12cap day 1, cash-cow or bust, to BUILD WEALTH. 

    Keep it simple to start. START building your retirement wealth. 

    If I could go back in time to when I was young and fearful, clueless, following that flawed advice of do nothing unless it's this perfect cash-cow, I'd say "F-that just get one NOW, time will make it a cash-cow, GET GOING". My "wait the sidelines" cost me millions, literally. 

    1Reply
  • James Hamling
    Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes
    3y
    Quote from @Brady Mullen:
    Quote from @Dan H.:
    Quote from @James Hamling:
    Quote from @Randall Alan:

    What I want to hear when anyone says "don't invest in this" is their recommendation for what they think I should be investing in.  The sidelines is not an option.  Cash is an investment choice that I am not comfortable with for large amounts of my capital.

    Ok, buckle up everybody were gonna have "Fun With Math Hour" lol. 

    I wanted to lay out, via data and math, what it could look like JUST doing the "Rental Property Retirement Plan" I noted before of nothing special, average-abe all around. 
    So going to the data: 
    From the MLS itself; Twin Cities median home price June 2007 was $229,970. Going exactly 15yrs, June 2022 Median home price is $345k.
    Using exact same dates MEDIAN rents for same market '07' for same br was $1,123, and '22' is $1,916. 
    This data was done for exact same county, in exact same market, exact same months. Getting anal here on exact matchy-matchy data. 

    I than wrote a program to digest all the data and here is what it comes back. Using data records for first 15yrs, and then projecting forward assuming exact same math for later 15yrs as prior 15yrs (because I couldn't get matchy-matchy data for full 30yrs), which gives us a full 30yr vision, which is what "they say" for retirement account, right. 

    We factor annual property value increase of 2.9395%, yeah not some crazy big # right. Annual rent increase of 3.89%, again not some pie in the sky #, because these #'s come from the 15yr historical data-set, that's literally what the #'s are. And notice I STOPPED the data early in the inflation window. 

    On a MEDIAN home purchase of $229,970 made, if all a person did was MEDIAN rents, AFTER debt service on the mortgage, AFTER cost of selling removed, we have a total aggregate total cash in pocket of $697,646.09! A 303.4% Return On Purchase Investment. 

    Now, really want your mind blown. This is done with a 20% down payment assumption, and no added capital brought into it. So, if we want to do correct math, and find our ROI based on the actual capital we brought to it ($49,994), that is a 1,395.46% ROI.....

    And YES, this was done at 7.5% interest rate on mortgage, so yeah chew on that. 

    Yes, your reading that right and if enough people want it I will post the excel program to my page for any to have and tinker with. ONE THOUSAND THREE HUNDRED NINETY FIVE percent return on investment.     Hey wall-street, SUCK-IT! Lol. 

    Ok now the nit-picky stuff. Yup, it doesnt account for cap-x and maintenance etc.. Again, it's MEDIAN purchase price, and MEDIAN rents. Let's assume this is a new built purchase so there, minimum 7yrs NO cap-x or maintenance. And really, your not re-siding that home every 10yrs are you. Nearly $700k, from $50k, leaves a hell of a lot of breathing room for a stove or washer ever so odd often. 
    And point is, were talking done for point of retirement fund vs the other BS out there. 
    Oh stock market, yeah, how great is that going today for those who plunked there $ there the last years? Unless your managing your own portfolio, and know how to, and allocate it correctly, fee's devour returns, poor trades, market shifts, pick-your-crash, etc etc. and that's why Wallmart is staffed with greeters who trusted "the street". 

    The math is clear. 
    If you want to build wealth, INVEST in real estate. Even median across the board will build wealth. $50k invested into $700k. $1,123mnth rents into $3,396.40mnth rents. 

    1Reply
  • Brady MullenPro Member
    OP
    Denver, CO · Member since 2021 · 61 posts · 100 votes
    3y

    @James Hamling

    This is great.  It's tempting to look at today's interest rates as "high".  And it makes sense, since you were born after about 1985, your only experience with interest rates as an adult tells you that they should be below 5%.

    They touched below 5% for the first time ever in 2009, then they plunged below that in 2010 for a little over a decade.  This had NEVER happened before.  There was a glut of inventory on the market, and lowering rates was a good way to sop that up.

    Don't expect this again.  It may never happen in our lifetimes.

    It's now back to investing and working.

    But here's something to consider.  Interest rates are like gasoline.  Do I know how much gasoline costs?  Yes!  I can't help but notice because it's in my face everywhere!  

    And what would happen if I pulled up next to the pump and gasoline cost me $7/gallon (it's currently about $4 where I am)?  Would I sulk and drive away without gasoline?  No way!  Gasoline is worth about $20/gallon to me, give or take.

    So I may not like that they're asking me to pay $7, but in reality, it's so valuable to me to get where I need to go so easily, I'm going to pay it happily and be grateful I can get where I need to go in a comfortable vehicle with air conditioning and a podcast and my phone connected to bluetooth so I can talk to anyone I want.

    Getting the bank to lend me money to purchase a small business (a rental home) is so valuable.  If I insist on cash flowing, I may have to put more than 20% down in Denver, but so be it.  I'm purchasing a small business that will pay itself off.  Would I like lower rates?  Of course I would.  Even if I have 3% financing on a property, I'd like a lower rate.

    But let's not kid ourselves.  The bank financing our purchase of one of the most reliable small businesses that sells a service everyone needs (shelter) is AMAZING!

    This could also be said for purchasing your own residence (instead of renting).  Don't wait for rates to come down.  If they do, refinance, if they up further, you'll be glad you got the rate you got.

    1Reply
  • James Hamling
    Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes
    3y
    Quote from @Brady Mullen:

    @James Hamling

    This is great.  It's tempting to look at today's interest rates as "high".  And it makes sense, since you were born after about 1985, your only experience with interest rates as an adult tells you that they should be below 5%.

    They touched below 5% for the first time ever in 2009, then they plunged below that in 2010 for a little over a decade.  This had NEVER happened before.  There was a glut of inventory on the market, and lowering rates was a good way to sop that up.

    Don't expect this again.  It may never happen in our lifetimes.

    It's now back to investing and working.

    But here's something to consider.  Interest rates are like gasoline.  Do I know how much gasoline costs?  Yes!  I can't help but notice because it's in my face everywhere!  

    And what would happen if I pulled up next to the pump and gasoline cost me $7/gallon (it's currently about $4 where I am)?  Would I sulk and drive away without gasoline?  No way!  Gasoline is worth about $20/gallon to me, give or take.

    So I may not like that they're asking me to pay $7, but in reality, it's so valuable to me to get where I need to go so easily, I'm going to pay it happily and be grateful I can get where I need to go in a comfortable vehicle with air conditioning and a podcast and my phone connected to bluetooth so I can talk to anyone I want.

    Getting the bank to lend me money to purchase a small business (a rental home) is so valuable.  If I insist on cash flowing, I may have to put more than 20% down in Denver, but so be it.  I'm purchasing a small business that will pay itself off.  Would I like lower rates?  Of course I would.  Even if I have 3% financing on a property, I'd like a lower rate.

    But let's not kid ourselves.  The bank financing our purchase of one of the most reliable small businesses that sells a service everyone needs (shelter) is AMAZING!

    This could also be said for purchasing your own residence (instead of renting).  Don't wait for rates to come down.  If they do, refinance, if they up further, you'll be glad you got the rate you got.


    Great analogy, I'm going to borrow that going forward, they are very much the same. 

    You pull up to get gas, and if it's $7gal, yeah you flip, it suck, but your gonna buy it because it's not optional for the vast majority to simply not drive, you gotta. Now, you will rethink your spending, right. Try to be as budget concious as possible, but if ya gotta go 100miles, ya gotta go 100miles, right. 

    A roof over ones head is also not optional for the vast majority. Yeah, the prices suck, so you get really budget focused, but end of day if you NEED a 3br, you find a way to pony up for a 3br. Hence why more and more people are doing multi-gen living. That's not walking away from buying, it's figuring out HOW to buy. 

    Now, in both cases, what happens when the price goes DOWN just 10,15,20%? AND it doesn't have to be because the price went down, let's say you get a coupon for 20% off your gas, what happens? You go fill up right? yeah, and then what? You go make that long drive you've been putting off to visit Mom/ brother, the Dells, whatever. THAT is pent up demand in action. 

    Exact same for housing, price and rate doesn't have to drop for it to become more affordable. A change of terms can be a "coupon" and what will people do? Snatch it up in a second. 

    Imagine giving an entire city a 20% coupon on gas, what happens? A line 3 blocks long at the gas station right. And all those people calling their friends saying "hey, you better hurry up and get in while you can, I don't know how long this will last". FOMO in action. 

    Wait and see, it's coming. 

    1Reply
  • Brady MullenPro Member
    OP
    Denver, CO · Member since 2021 · 61 posts · 100 votes
    3y
    Quote from @James Hamling:
    Quote from @Brady Mullen:

    @James Hamling

    This is great.  It's tempting to look at today's interest rates as "high".  And it makes sense, since you were born after about 1985, your only experience with interest rates as an adult tells you that they should be below 5%.

    They touched below 5% for the first time ever in 2009, then they plunged below that in 2010 for a little over a decade.  This had NEVER happened before.  There was a glut of inventory on the market, and lowering rates was a good way to sop that up.

    Don't expect this again.  It may never happen in our lifetimes.

    It's now back to investing and working.

    But here's something to consider.  Interest rates are like gasoline.  Do I know how much gasoline costs?  Yes!  I can't help but notice because it's in my face everywhere!  

    And what would happen if I pulled up next to the pump and gasoline cost me $7/gallon (it's currently about $4 where I am)?  Would I sulk and drive away without gasoline?  No way!  Gasoline is worth about $20/gallon to me, give or take.

    So I may not like that they're asking me to pay $7, but in reality, it's so valuable to me to get where I need to go so easily, I'm going to pay it happily and be grateful I can get where I need to go in a comfortable vehicle with air conditioning and a podcast and my phone connected to bluetooth so I can talk to anyone I want.

    Getting the bank to lend me money to purchase a small business (a rental home) is so valuable.  If I insist on cash flowing, I may have to put more than 20% down in Denver, but so be it.  I'm purchasing a small business that will pay itself off.  Would I like lower rates?  Of course I would.  Even if I have 3% financing on a property, I'd like a lower rate.

    But let's not kid ourselves.  The bank financing our purchase of one of the most reliable small businesses that sells a service everyone needs (shelter) is AMAZING!

    This could also be said for purchasing your own residence (instead of renting).  Don't wait for rates to come down.  If they do, refinance, if they up further, you'll be glad you got the rate you got.


    Great analogy, I'm going to borrow that going forward, they are very much the same. 

    You pull up to get gas, and if it's $7gal, yeah you flip, it suck, but your gonna buy it because it's not optional for the vast majority to simply not drive, you gotta. Now, you will rethink your spending, right. Try to be as budget concious as possible, but if ya gotta go 100miles, ya gotta go 100miles, right. 

    A roof over ones head is also not optional for the vast majority. Yeah, the prices suck, so you get really budget focused, but end of day if you NEED a 3br, you find a way to pony up for a 3br. Hence why more and more people are doing multi-gen living. That's not walking away from buying, it's figuring out HOW to buy. 

    Now, in both cases, what happens when the price goes DOWN just 10,15,20%? AND it doesn't have to be because the price went down, let's say you get a coupon for 20% off your gas, what happens? You go fill up right? yeah, and then what? You go make that long drive you've been putting off to visit Mom/ brother, the Dells, whatever. THAT is pent up demand in action. 

    Exact same for housing, price and rate doesn't have to drop for it to become more affordable. A change of terms can be a "coupon" and what will people do? Snatch it up in a second. 

    Imagine giving an entire city a 20% coupon on gas, what happens? A line 3 blocks long at the gas station right. And all those people calling their friends saying "hey, you better hurry up and get in while you can, I don't know how long this will last". FOMO in action. 

    Wait and see, it's coming. 


    Good point. It's nearly unbelievable to me when renters say it's not a good time to buy. I want to ask them if they're trying to tell me it's a good time to rent? Cost of goods and services always trickles down to the consumer.  They are paying for it, whether it's to the lender or the landlord.

    If housing is expensive, you don't avoid that because you're renting - you just don't get the equity you're paying for - it belongs to someone else!

    The fact that our children graduate high school having no clue how this works but can probably write out the quadratic equation is mind boggling.

    0Reply
  • Joe Garretson
    Investor · Castle Rock, CO · Member since 2021 · 79 posts · 104 votes
    3y
    Quote from @Randall Alan:
    Quote from @Brady Mullen:

    Thanks, Randy.  I am not making that argument.  I'm just making the point about the important relationship of time in compounding.

    However, I'm curious about something else now...  I notice people all over the internet pointing out imperfections in every investment strategy, but I always want to ask what they do recommend?  Because doing nothing is not an option.

    I've heard people say things like "staying on the sidelines", but what I think they usually mean is keeping cash.  But that is still an asset choice.  There is no real way of opting out, once you have wealth, right?

    If rates are too high, and prices remain "very high", what asset class are you recommending?  Stocks?  Bonds?  Cash?  And I really mean something that the masses can use, not something specifically available to people with particular skills like hard money lending, flipping properties, etc.  Those can be great, of course, but they are not typically something a busy adult can access without any experience.

    If this is coming across as confrontational, that is the furthest thing from my intention.  I am sincerely asking your opinion and hoping to have a productive dialog.

    @Brady Mullen

    A 5% return on your money in a high-yield savings account beats a $200 per month return on the $50,000 it would take to buy a $200,000 house today ( on a yearly basis).  So in that sense, yes, cash is a better place to be if you can’t get a better return on real estate.

    As interest rates drop, so will cash returns, and real estate will once again be in favor over cash. Our saying is that you do with the markets tell you to do. Right now the real estate market is saying stay put.

    Randy 



    Does it though? $50k at 5% compounded daily will pay $2563 in interest over 12 months. For the property, you'd earn $2400 in cash flow. You'll realize about $1360 in principal pay down with an 8% note not to mention potential appreciation and tax benefits. And then there's that nasty inflation number your cash is losing out too...

    Real estate still wins.

    1Reply
  • Randall AlanPro Member
    Investor · Lakeland, FL · Member since 2017 · 1k+ posts · 1k+ votes
    3y
    Quote from @Joe Garretson:
    Quote from @Randall Alan:
    Quote from @Brady Mullen:

    Thanks, Randy.  I am not making that argument.  I'm just making the point about the important relationship of time in compounding.

    However, I'm curious about something else now...  I notice people all over the internet pointing out imperfections in every investment strategy, but I always want to ask what they do recommend?  Because doing nothing is not an option.

    I've heard people say things like "staying on the sidelines", but what I think they usually mean is keeping cash.  But that is still an asset choice.  There is no real way of opting out, once you have wealth, right?

    If rates are too high, and prices remain "very high", what asset class are you recommending?  Stocks?  Bonds?  Cash?  And I really mean something that the masses can use, not something specifically available to people with particular skills like hard money lending, flipping properties, etc.  Those can be great, of course, but they are not typically something a busy adult can access without any experience.

    If this is coming across as confrontational, that is the furthest thing from my intention.  I am sincerely asking your opinion and hoping to have a productive dialog.

    @Brady Mullen

    A 5% return on your money in a high-yield savings account beats a $200 per month return on the $50,000 it would take to buy a $200,000 house today ( on a yearly basis).  So in that sense, yes, cash is a better place to be if you can’t get a better return on real estate.

    As interest rates drop, so will cash returns, and real estate will once again be in favor over cash. Our saying is that you do with the markets tell you to do. Right now the real estate market is saying stay put.

    Randy 



    Does it though? $50k at 5% compounded daily will pay $2563 in interest over 12 months. For the property, you'd earn $2400 in cash flow. You'll realize about $1360 in principal pay down with an 8% note not to mention potential appreciation and tax benefits. And then there's that nasty inflation number your cash is losing out too...

    Real estate still wins.

     @Joe Garretson

    And when you refi that 8% rate in a year for $5,000?

    My only suggestion was that in the SHORT TERM you may want to wait out the highest rates and buy with a lower rate that avoids the cost of Refinancing, which would effectively offset most of the potential gains  you could earn in the first year.  

    Trust me, I’m all in on real estate… have a $700/door monthly cash return on my units.  And if an investor can find a descent cash flowing property at 8% interest, more power to them… go for it.  They are just going to be spending thousands of dollars in a year or two trying to get rid of a crappy rate.  My preference would be to avoid the rate altogether.  To each their own.

    Randy 

    0Reply
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