Where are YOU looking to park your money?
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,
Pool cash waiting for the next down turn.
@Kenneth LaVoie By "the book" I assume you're referring to Nelson Nash's "Becoming Your Own Banker". This book is great, but there are actually a lot better resources to learn the concept in my opinion. I could provide a bunch of links but I'm a bit new to the forum here and I haven't fully studied the rules for links, etc. so I'll hold off on that for now. You can send me a PM if you want to discuss it more detail. I'd be happy to answer any questions you have about it and point you to some great material.
My policy (which is whole life...avoid IUL or VUL) has a contractual guarantee of 4%. It can never return lower than that, and when that interest is paid it's locked in forever. It can never go backwards. The dividends are then added on top of that, and the mutual companies that are recommended for this sort of thing have paid dividends for 100+ years. You can review dividend history of mutual insurance companies and you'll see they are pretty much all at 6% or higher for...pretty much ever.
You ARE charged interest on your policy loans. It's a loan like any other. The insurance company gives you their money so that yours can remain in the account earning interest uninterrupted. The interest you pay is simple interest, though, and the interest you earn is compound interest. This makes you better off in the end (as long as your responsible and you pay it back using the cash flow from your investment.) You will earn more in compound interest over the time period than you will spend in simple interest, so you end up with more cash at the end than you would have had just paying cash and saving it up again, and again, you don't interrupt the compounding, which is one of the most powerful pieces to this puzzle.
Another thing to consider regarding the interest you are paying to the insurance company is that as a policy holder of a mutual company, you are an owner. So the dividends you pay go back to the company, which you are a part owner of, so it gets paid back to you as a dividend. This is why some people say you are "paying yourself back". You don't pay the interest directly back into your own cash value, but you pay it back to the insurance company that you are a part owner of, and you get a dividend from those profits.
The IUL and VUL policies are tied to the market, so I would avoid those. The point of this is that it's a solid financial foundation to build on that is guaranteed, liquid, and you have full control of it. With IUL/VUL policies those guarantees are gone, and if the market has a few bad years it could chew away your cash value, and indeed the system would fall apart. I highly recommend avoiding people who want to set you up with this system using IUL/VUL.
@Damon Pendleton I'll send you a message with some info.
I'm a believer in multifamily, class B value-adds. I am investor in many syndications as a Limited Partner, and I sometimes offer some equity to others when I find a project and a team that I believe in. During the last crash multifamily held up well, and I haven't yet discovered a better way to get the cash flow, tax benefits, and relative security that multifamily syndication offers. I've been looking at small multifamily, single family, and even land on my own but the numbers just aren't working for me as well as my passive opportunities.
This is going to sound terrible but the market has been SO hot, that I've used a lot of my cash to simply pay down my most expensive loans. I just paid off a $$$$$$ loan @ 5.5% as that $ was sitting making 2%. I don't expect to need it anytime soon in this market -- until the crazies have been flushed out.
@Alan Grobmeier @Ned Carey @Mike Dymski
I agree with the warning flags for coming market correction. I my opinion one of the biggest risks is the Fed raising interest rates. We're already seeing millennials being unable to purchases houses due to student debt, so if interest goes up they are even more likely to be out of the market.
This is leading many to move over to multi-tenant properties as they usually are the last to go in a downturn, and the first asset class to make a comeback. That coupled with less reduction in cash flow makes it easier to weather the storm.
Some of the new technologies enable a major reductions in expenses e.g. submetering, and enable some pretty interesting valuation increases very quickly.
Interesting note about self storage - I had breakfast in the last two weeks with an appraiser whom I know well and he had the following: in the last recession, down turn, depression, financial crisis - whatever you want to call it - he did a lot of bank appraisals for foreclosures:
Churches - apparently this is the first thing people quit paying, contributing
Self storage - second thing - people will let their stuff go and quit paying rent for stuff they don't need.
Just thought I would share, as I was talking to him about buying some SS .
@John Maddox, I have looked at MF a LOT. The CAP rates are getting stupid low because it seems ALL the money is chasing MF.
That's before you get into the fact that MF, IMHO, is work/a job in comparison to my business model.
All in ALL, I am seriously looking at NOTES. I don't want to work that hard, want to minimize risk. I want my money to work harder than me. LOL.
I KNOW I probably hit the ‘eject button’ early on these places. I owned a property in Bakersfield, CA just prior to the last downturn. Money was flowing from LA, buying up everything as real estate was a ‘no brainer’.
I listed my property at $369k, mainly due to fact that the property was unaffordable to the ‘rank & file’, which made around $20 an hour.
I had originally purchased the house in 1992. I moved to LA and rented the property behind me, at a $100 a month loss on cash flow. In 2004 I sold, 1031 exchanged into a better neighborhood. My thoughts were that prices would stabilize. But they were, in fact, set for ‘moon launch’. In less than 2 years I was realizing a $100k+ profit from the purchase and had a lot of equity.
It took me 6 months and a $40k reduction in price to sell. The year was 2006, almost 2 years prior to the beginning of the Great Recession. Bakersfield was a laggard in price increase, but a leader in price decreases. I’d be willing to bet there is already a canary in the coal mine.
Anyway, my point is that I would rather sell/miss on the way up than panic on the way down.
Bulls make money, bears make money, pigs get slaughtered.
@Alan Grobmeier Totally agree with you (especially on the being work part) I was more referring to syndicate deals where someone else handles all the real work :)
Regarding notes, totally agree. I'm working with a group that does 8-12% annualized, paid quarterly, not traditional notes, but private bonds. Backed by existing assets. Also allows for relatively short terms 6, 12, 18 months.
I think it's pretty innovative and also opens you up for first round offers on equity deals.
Lots of posts and I certainly agree with most of them. Fact: the economy is and always has had up's & down's of business cycles, typically every 8 - 10 years.
It doesn't take a genius to make money in a bull market. However, when things change (and they will) you need to be ready to both defend yourself (that means your business, assets, etc.) and capitalize on the opportunity. Disclaimer: I'm not calling myself a genius; I've learned a lot through the school of hard knocks. Wasn't pleasant while going through it, but the wisdom & experience in hindsight is priceless.
At my Storage Mastermind just a couple of weeks ago we discussed this exact topic. The nuggets of insight was basically this:
1) Go through your business & stress-test it all, as in what happens in mild, bad, & worst-case scenarios.
2) Be sure that you are not over-leveraged. Most of the defaults in all categories came from being over-leveraged against the equity and if it decreases and/or disappears a lot of the fine print on these loans allows them to be called if X, Y, or Z happens. A lot of folks gave keys back to the bank on a lot of property.
3) Sell anything that is a challenge now.
4) Cash flowing assets (properties, of course, since this is a Real Estate forum) will be king. But see #1 & #2 above if you've borrowed money against it as this is not a blanket statement.
5) Align yourself with other folks and be ready to capitalize if things go bad. Certainly don't wish ill will and bad tidings on folks but it is what it is. Deal with it. (pun intended)
Good luck to all of us!
Scott
Originally posted by @David Hutson:
Since you are asking where to park money if you were to sell I won't discuss 1031's and other property investing. I have sold four houses in CA during the last year and a half or so and I'm putting money into notes or crowdfunding. I have been getting between 12% and 28% CoC from many online sites. There are numerous out there, depending on your investing level. I'm hoping the market slows significantly and I can buy in another state when the market goes down again. I don't expect it to be like 2009 but I do believe prices for investment homes will go back down. All of my investments are laddered so they will start paying off at the end of this year and are somewhat spaced out for the next few years, similar to what people do with CD's at a bank.
Hope this helps, at least if you aren't looking to reinvest in property right away.
David
Originally posted by @Alan Grobmeier:
@Ned Carey, my experience is there are not many of those running around right now. :-( It might be easier to find Bigfoot.
Have you ever heard of dollar cost averaging. By investing a fixed amount on a regular basis you buy more when prices are low and less when prices are high. The same concept applies here If I can't find great deals i just don't buy.
