Where are YOU looking to park your money?

64 Replies

For those of you that think we are back in a bubble:  Have you sold any of your places into the 'increase'?  If so, where did you 'park' your cash?

My issue is that between my wife & I we have sold 3 houses this year.  They were the 'dogs' of the portfolio, but we made good money.  We are prepared to hold any properties we presently have thru the next downturn/recession.  

Now we are sitting on some cash and no where to really put it to work. Stock market is overpriced, real estate is overpriced, dont really care for becoming a HML (hard money lender) due to risk.

I feel this won't 'end' well.  @Jay Hinrichs has stated that it is a good thing that prices are eclipsing the highs prior to the 'Great Recession'.  And generally speaking, I agree.  However, what I am seeing is unaffordability across the country.  And because of the lack of affordability, I am concerned.  Most of the new builds I am seeing are NOT 'everyman' houses, they are "McMansions", with high price tags.  We appear to truly be going towards a 'have' vs 'have not' society.  Our kids, saddled with zillions of $$$ of student loan debt, may NEVER be able to buy.

So, with that said, what is everyone investing in?  I know PM is not the answer (yet).

Thanks,

Great real estate deals. Not good deals, and certainly not average deals. Great deals that will still be good deals after any coming crash.

@Ned Carey , my experience is there are not many of those running around right now.  :-(  It might be easier to find Bigfoot.  

I buy A- to A SFRs in good school districts.  Those properties are not going for cheap.  They don't cash flow AND may be as much as 30% overpriced.  My 'competition' is people who DO want to overpay.  :-( 

I'm sitting and waiting, knowing I might have a long wait.  Or I even could be WRONG, LOL.  ;-)

But I look at the incomes of my tenants and possible tenants.  They can't continue to get 'squeezed' by everyone and everywhere they turn.  I would think there has to be a slowdown of some kind.

Hey Alan.  Everyone is wrestling with this question (or at least they should be or they are going to miss the fact that their property strategy has already been executed/achieved).

You invest in appreciating assets; so, market cycles and timing matters for that strategy.  You will have cycles of buying and cycles of sitting on the sidelines.  Or, you will need to pivot markets or strategies.  I am doing both.  I am redeploying capital into cash flowing assets...primarily mobile home parks (affordable), self storage (recession resistant), and B class multifamily (affordable)...and always adding value.

@Alan Grobmeier This is a challenge I have been wrestling with lately. After unwinding a headache property for a solid profit, the plan was plug that cash into another deal. Well those deals are tough to come by lately.

We have more tied up in cash than typical, but when opportunities come up we can move quickly. Online checking accounts are paying 1.75% (which is poor but reasonable for liquid access and 0 risk).

Right now MLS listings in our market are a waste of time. The market is hot and deals go quick if you can even find one. Opportunities lie in buildings that need more work than typical and having the foresight and ability to accurately estimate realistic costs for improvement. Patience is your best bet right now (even though it's hard to sit tight haha).

Originally posted by @Mike Dymski :

Hey Alan.  Everyone is wrestling with this question (or at least they should be or they are going to miss the fact that their property strategy has already been executed/achieved).

You invest in appreciating assets; so, market cycles and timing matters for that strategy.  You will have cycles of buying and cycles of sitting on the sidelines.  Or, you will need to pivot markets or strategies.  I am doing both.  I am redeploying capital into cash flowing assets...primarily mobile home parks (affordable), self storage (recession resistant), and B class multifamily (affordable)...and always adding value.

 Hey Mike I was looking at some storage and I asked my banker about them for financing etc.. He was of the opinion that in a economic downturn that those get hit pretty hard as people wont want to spend extra cash just storing their stuff when they need it for basic needs and housing.. Again I don't really know and I suspect like all things regional..  I did have a 44 unit mixed use during the crash of office and storage but it was unique in that the storage was all rented by folks that lived on house boats within 1 mile  :)  MHP though I have owned 4 of those and they are for sure solid in the right locations no matter what.. All though on the west coast they trade at very low cap rates for quality ones but rock solid. So like that play your making .

@Alan Grobmeier   I am not saying that rising prices are a good thing.. I am just observing that markets make new highs at least on the west coast every decade or so and have for the years I have been alive.. 

There are some markets that peaked in the 80s and mid 90s and really never came back or will come back.. think towns were industry left.. My main point is that just because we are at 2007 levels does not mean we cant have a new peak that becomes the all time high before we have a correction / recession..  Also curious when you say things are over priced by 30% as compared to what ????  SFRs in A areas generally speaking were never meant or used much for rentals.. as they are worth more money to a homeowner who wants to live there  not a landlord looking for cash flow.. 

are you comparing prices maybe to when you might have bought in 2010 or 2012 in the deepest trough in history ?

nothing wrong in my mind with taking cash profits when they present themselves  at least to my way of thinking.

Originally posted by @Jay Hinrichs :
Originally posted by @Mike Dymski:

Hey Alan.  Everyone is wrestling with this question (or at least they should be or they are going to miss the fact that their property strategy has already been executed/achieved).

You invest in appreciating assets; so, market cycles and timing matters for that strategy.  You will have cycles of buying and cycles of sitting on the sidelines.  Or, you will need to pivot markets or strategies.  I am doing both.  I am redeploying capital into cash flowing assets...primarily mobile home parks (affordable), self storage (recession resistant), and B class multifamily (affordable)...and always adding value.

 Hey Mike I was looking at some storage and I asked my banker about them for financing etc.. He was of the opinion that in a economic downturn that those get hit pretty hard as people wont want to spend extra cash just storing their stuff when they need it for basic needs and housing.. Again I don't really know and I suspect like all things regional..  I did have a 44 unit mixed use during the crash of office and storage but it was unique in that the storage was all rented by folks that lived on house boats within 1 mile  :)  MHP though I have owned 4 of those and they are for sure solid in the right locations no matter what.. All though on the west coast they trade at very low cap rates for quality ones but rock solid. So like that play your making .

People downsize, move in together, move back home, etc. during downturns and it's a lot more affordable to pay for a storage facility than for the whole apartment or mortgage by yourself.  Transitions create opportunity for the SS asset class.

Originally posted by @Mike Dymski :
Originally posted by @Jay Hinrichs:
Originally posted by @Mike Dymski:

Hey Alan.  Everyone is wrestling with this question (or at least they should be or they are going to miss the fact that their property strategy has already been executed/achieved).

You invest in appreciating assets; so, market cycles and timing matters for that strategy.  You will have cycles of buying and cycles of sitting on the sidelines.  Or, you will need to pivot markets or strategies.  I am doing both.  I am redeploying capital into cash flowing assets...primarily mobile home parks (affordable), self storage (recession resistant), and B class multifamily (affordable)...and always adding value.

 Hey Mike I was looking at some storage and I asked my banker about them for financing etc.. He was of the opinion that in a economic downturn that those get hit pretty hard as people wont want to spend extra cash just storing their stuff when they need it for basic needs and housing.. Again I don't really know and I suspect like all things regional..  I did have a 44 unit mixed use during the crash of office and storage but it was unique in that the storage was all rented by folks that lived on house boats within 1 mile  :)  MHP though I have owned 4 of those and they are for sure solid in the right locations no matter what.. All though on the west coast they trade at very low cap rates for quality ones but rock solid. So like that play your making .

People downsize, move in together, move back home, etc. during downturns and it's a lot more affordable to pay for a storage facility than for an apartment or mortgage.  Transitions create opportunity for the SS asset class.

 that's what I was thinking there was a lot across from one of the communities I was building out and I thought I would maybe buy it and develop a SS on it and start to build that business for my Son to run.. that lead me to the conversation with my banker and his comments.. So I  really never looked much past that.. in our area the new storage developments going in are the multi story HIGH dollar buildings that are self contained.. Nice looking stuff.. So someone is doing deep research and financing those..

If today house price is year 2003 price, and if we “know” it will be peak 3 years later - 2006, would you still buying more houses today?

I would buy more houses today, because the appreciation rate between 2003 and 2006 is high.  

If I sit on sideline today, I may miss the appreciation profit from 2003 to 2006, which is a lot of money.  

@Alan Grobmeier You mentioned that you buy properties in good school districts in Arizona. Do think, as prices rise, that the desirability to buy a house in "good school districts" will be as high with so many alternative schooling options in Arizona such as charter school, Montessori schools, or different academies?  I ask this because I have so many clients who take their kids to either a charter school or get a boundary exemption to go to their preferred school that I don't know if buying in "good school districts" will continue to be such an important need to parents when they can save money on buying a house and then just drive their kids to the school they choose.  What do you think?

@Shiloh Lundahl , I see it being even more important as affordability is squashed.  I go for 'everyman' houses.  If you go for more affluent houses and people, you have one HUGE issue:  Smaller pool of possible renters.

The affluent won't rent a house for 5+ years.  They will move, probably at the 2 yr mark, to buy their own houses.

And there is the 'neighborhood' thing.  Most PPL dont usually want their kids to be different by not going to the local school.

@Alan Grobmeier Wait. You sold 3 rental properties but are not doing a 1031 exchange? It sounds like you’re about to “park” your money into the IRS coffers. I get the idea of selling your less profitable holdings, but that is a huge tax hit without advanced planning. I am also having trouble finding good deals around here. I was outbid on two multi families this month, and I have no idea how they will cash flow at the price they sold at. My “reserves” are mainly in a Vanguard brokerage account. Yes, it’s the stock market. But since the markets have traditionally returned 7% a year over the last 80 years, I still like that better than keeping in a savings account. A return of less than 1% in savings, plus losing 3% a year buying power to inflation each year? I can’t do that. Stock market doesn’t have to equal super risky. Even a 5% gain in modest investments in bonds and stocks is way better than losing 3% to cash (full disclosure: I do keep cash reserves for capex/vacancies of rentals).

@Anthony Wick , nope, not much to the IRS.  

I didnt 1031 my wife's property because she wanted the money for her son's college fund.  It was once her residence, so there were a LOT of years where the principal was paid down.  

My 2nd property 'stepped up' when my father passed AND wiped out a lot of the 'gains'. 

And the 3rd property was my previous residence.  All of which don't fit my present business model.  I only have depreciation to recapture here.  ;-)

So, I'm taking the money and running.  LOL

Most just put money in the bank for now. Unless there is an indication that overvaluation will go on for years. We live in propriety and uncertainty. Some times unexpected opportunities pop up. 

Oh yeah, I forgot.  I did a $60k renovation on a 'non-dog' in California, wiping out most of the taxable profits, increasing the rent by $800 a month AND not ever having to renovate the property again in my lifetime.  ;-)

@Alan Grobmeier Think about goals for the money. Do you need liquidity? Do you need this cash for another RE purchase in the near term? If you go the stock market route, I’d look for an investment manager that can and does come out of the market from time to time. If you go the real estate route, look for property types that are better insulated to economic downturns and diversify (property type and geographically if possible). If you want to sit it out for a while, grab a money maket fund that’s liquid paying decent yield and wait. You’re not going to make much here, but it can serve a purposes. And if you go this route, don’t lock your money up in something. Food for thought.

@Eric Adobo , THAT is really hard work.  Right now I am a 'button pusher', collect rent and move on.  My average stay is 3-5 years in my rentals.  

I can't imagine trying to turn ppl over in a property on a weekly or monthly basis.  I KNOW you can create systems for it, I'm just not wanting to do that type of work.  And it seems to be too much 'hands on' for me.  And I don't want to hire a PM.  I find them useless in general AND pricey.  

@Joshua Wright , I am wanting cash flow.  I can't see buying a 300k property to make $1200 a month, MAYBE.  :-(  The properties I have 'left' ALL have solid cash flows AND I paid a LOT less.  Maybe I'm greedy or spoiled?  LOL

On the other hand, I feel the 'velocity' of my cash is zero or close to it.  :-(

@Alan Grobmeier whether the stock market is overvalued is primarily related to where you expect interest rates to go. I think your focus shouldn’t be “parking” your money but rather, getting the best return In your investments relative to your risk tolerance that can be adjusted easily if interest rates rise
Originally posted by @Alan Grobmeier :

@Eric Adobo , THAT is really hard work.  Right now I am a 'button pusher', collect rent and move on.  My average stay is 3-5 years in my rentals.  

I can't imagine trying to turn ppl over in a property on a weekly or monthly basis.  I KNOW you can create systems for it, I'm just not wanting to do that type of work.  And it seems to be too much 'hands on' for me.  And I don't want to hire a PM.  I find them useless in general AND pricey.  

@Joshua Wright , I am wanting cash flow.  I can't see buying a 300k property to make $1200 a month, MAYBE.  :-(  The properties I have 'left' ALL have solid cash flows AND I paid a LOT less.  Maybe I'm greedy or spoiled?  LOL

On the other hand, I feel the 'velocity' of my cash is zero or close to it.  :-(

there is a happy medium we have been putting clients in this same stage of their investing life into mid term debt first position at 50 to 65% ARV so plenty of equity cushion and returns would be triple what your talking about with very mitigated to limited risk of say HML to fix and flippers See patch of lands foreclosure issues.. currently we do about 500k in a low month to 1 million a month in this paper and I would say 75% of our clients are moving from landlording to being the bank.. they dig the cash flow just don't want to deal with the tenants any longer.. plus you don't need to be accredited you don't get pooled into a big pot.. pretty cool alternative for placing cash today other than sitting in the bank.. but their are lots of other places to put money realively safely that is not tied to real estate if that is what has you worried.

Max funded whole life insurance.  Let your cash sit there earning 5+% while you wait to find a good deal.  When you do find a good deal, take a policy loan to make the deal so your cash continues to sit there earning 5+% while you're also using it for your real estate deal earning a greater return on the same dollars at the same time.  Cash flow from the deal pays back your policy loan (same as saving up for another deal) and you end up with more cash in the end than you would have had otherwise, plus you never interrupted the compounded return of the cash value even though you were using it to make deals.

That's the one paragraph version of the infinite banking concept.  I know the topic has come up in other threads and I'll probably get flamed a bit for bringing it up here.  I am doing it, though, and I'm watching it work.  I've seen the math and I've seen the cash first hand.  It increases the return on any deal I ever do whether it's real estate, business, or whatever.  Again, while you're waiting for those deals to present themselves, you're earning a reasonable 5+%.  Much better than any bank will give you, and it allows you to be more patient and wait for that great deal.

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