Market Guidance from Our Real Estate Coach of The Estates LLC.

6 Replies

The guidance for this week is you want to stay in the markets that are below $300,000 or $200,000 depending upon your area--I talked to a woman the other day that was in Boston and their lower range in the market is $400,000. Regardless of that fact, you want to stay in the lower range in your market’s purchases. You also want to pull to a cash position.

The recession is probably stretched out now and is going to hit somewhere between Q2 and Q3 or go into Q4 of this year, 2021. Right now Joe Biden has been elected president. As such, there are rumblings that his administration is going to do a third installation of stimulus support sent out to the country. So expect them to work to stop foreclosures and evictions and hand more money to the people. That is a common thing that the Democrats do, and we need to look at it. Once again, not from a perspective of what our political beliefs are, but how the decisions of the politicians will affect the business market.

So, as long as they keep inventories low by not foreclosing, the market will remain in an upward trend. Because of that you are going to see the market continue to move upwards in the markets until the banks are allowed to release foreclosure inventories back into the market. At that point your supply and demand numbers will change and force us into a recession. So what you're looking for is what the banks are going to do and the government as far as releasing foreclosures back into the marketplace--primarily Fannie Mae and Freddie Mac homes--which are a large majority of home assets.

Again, my guidance is that pull to a cash position and get into quick flips--in and out of flips in the lower end of the market. Right now, you can still get into a flip quickly and sell for a lot of money because the market is lying false. And you will be able to do that hopefully well into the spring.

In the spring I'm expecting sales to do well. I expect the markets to be strong in Q1 and maybe starting into Q2. So, no buy-and-hold investing across the board. There's too high of a risk to buy and hold right now at the height of the market as the market is ready to correct.

If your argument is cash flow to me, I would tell you that if you think you're gonna make an extra $400 a month and you have 12 months in a year to make $4800, your equities are going to be lost a lot quicker in a down-cycle than what your cash flow can gain you. So I would stay away from any type of buy-and-hold investing across the board as a general rule. Unless you can bring me a real specific argument, stay away from buy-and-hold investing and stick with flips in the lower end of the market.

@David Ginn   Interesting. I appreciate the guts it takes to stand up and make a prediction vs the tired old what do you think /lets discuss post.

My first thought was agreement.  My lower value houses have rocketed in value and I am selling as they become vacant after retailing them up a bit.  No brainer when they are selling at build cost/sq ft. 

Then I was like whoa.  Sell all buy and holds?  You do know there are other asset types besides houses, right?  I have been transitioning into plexes and 5+ commercial apts since 2003 as they became available over the years.  

So what of transaction costs and friction?  Taxes?  Proceed re-deployment?  Or are you just saying to not purchase any? 

I saved $112k in closing costs and commissions doing a 5 transaction exchange solo, my way, last year.   So if I'm avoiding a drop in asset value much greater than the annual cash-flow, what of the transaction costs?  What of the tax implications?  What of having to earn a return on the proceeds?

The one common denominator in your recommendation is high transaction costs and taxes if your recommendation is to sell B&Hs.  Please comment.  Thank you.   

@Steve Vaughan

Are any of the homes that you own in an IRA or 401K? Because if they are, your answer is going to be different. So I'm going to answer you in two ways. First, if you own them in an IRA or 401K and then, second, if it's in cash.

If it is in a IRA/401K, and not a Roth IRA, you need to convert to a Roth IRA. The reason is because you're going to sell that asset and take a hit on the asset financially by paying the taxes now when you sell it. But then, as you move it into a Roth IRA, any money you make on your money after that point is going to be tax free when you pull it out. So it's better to take the hit now and pay the taxes to move from a regular IRA or regular 401K to a Roth. And once you are out, then you are going to go into flips and sell everything you own.

If you are already in a Roth IRA / 401K then you are not going to get hit with the tax consequences. If you are not, then make the move and take the hit now--that would be a good move.

Secondly, if it’s cash, you’re going to sell your asset and get cash out of it. The smartest move is to sell now as much as you can. You are going to take a 15 to 39 percent hit, depending on how much asset you have, depending on what tax bracket you are in. But the gain that you get through the current high side market will help offset that loss. Right now I’m seeing 10-20 percent gains. So if you sell now and get a 10 or 20 percent gain, then your loss from sale is now really only 15% if your tax liability was 35% So even if you have a taxable event, it’s smarter for you to get out of the asset at the high side of the market. Liquidate all of your assets by no later than September. This can be different depending on the market segment you are in.

You can get on a Zoom call with me. I have 8-10 meetups a week. You can ask me these questions and I can go over them with you in detail and get you set up. But, what you want to do is pull to a cash position because if you are in an IRA/401K, switching to a Roth is a good move, or if you're just cash and you take a 35% hit, you gain 10 or 20 percent so your loss is just 15, but now you're out of the asset.

If you get all of this done by September, now you can start investing in the flips. And there are very specific ways you can invest in flips. Follow my guidance which is to stay on the lower side. Pull to a cash position and then you go into homes that you can flip that are in a medium price range--don’t buy anything above a 300K home. Stay on the low side of the market as it cycles down and go in and out of the assets as quickly as you possibly can.

Once again, those strategies I can talk to you about if you get on my calls or attend the meetup. But, at the end of the day, your goal is to get into flips. Because, if you flip on the down cycle with tight quick turns, you’re going to pull profits. And you flip while the market is falling down. It makes no sense to hold an asset that’s worth a million dollars and it drops down to where it’s worth 600 or 700K and you take a 300 thousand dollar loss and you gain nothing with your loss. In this case, selling your assets now, you are gaining huge benefits and avoiding the losses.

The last thing is if you're investing right when the market cycles down you’ll be able to take advantage of great deals. The last time the market collapsed, everyone’s cash froze and they had little of it. Cash is double or triple king in a down cycle because you have what no one else has or very few people have. And so cash is king and you’re going to be able to take down deals that are super duper. That's my guidance.

Originally posted by @David Ginn :

@Steve Vaughan

Are any of the homes that you own in an IRA or 401K? Because if they are, your answer is going to be different. So I'm going to answer you in two ways. First, if you own them in an IRA or 401K and then, second, if it's in cash.

If it is in a IRA/401K, and not a Roth IRA, you need to convert to a Roth IRA. The reason is because you're going to sell that asset and take a hit on the asset financially by paying the taxes now when you sell it. But then, as you move it into a Roth IRA, any money you make on your money after that point is going to be tax free when you pull it out. So it's better to take the hit now and pay the taxes to move from a regular IRA or regular 401K to a Roth. And once you are out, then you are going to go into flips and sell everything you own.

If you are already in a Roth IRA / 401K then you are not going to get hit with the tax consequences. If you are not, then make the move and take the hit now--that would be a good move.

Secondly, if it’s cash, you’re going to sell your asset and get cash out of it. The smartest move is to sell now as much as you can. You are going to take a 15 to 39 percent hit, depending on how much asset you have, depending on what tax bracket you are in. But the gain that you get through the current high side market will help offset that loss. Right now I’m seeing 10-20 percent gains. So if you sell now and get a 10 or 20 percent gain, then your loss from sale is now really only 15% if your tax liability was 35% So even if you have a taxable event, it’s smarter for you to get out of the asset at the high side of the market. Liquidate all of your assets by no later than September. This can be different depending on the market segment you are in.

You can get on a Zoom call with me. I have 8-10 meetups a week. You can ask me these questions and I can go over them with you in detail and get you set up. But, what you want to do is pull to a cash position because if you are in an IRA/401K, switching to a Roth is a good move, or if you're just cash and you take a 35% hit, you gain 10 or 20 percent so your loss is just 15, but now you're out of the asset.

If you get all of this done by September, now you can start investing in the flips. And there are very specific ways you can invest in flips. Follow my guidance which is to stay on the lower side. Pull to a cash position and then you go into homes that you can flip that are in a medium price range--don’t buy anything above a 300K home. Stay on the low side of the market as it cycles down and go in and out of the assets as quickly as you possibly can.

Once again, those strategies I can talk to you about if you get on my calls or attend the meetup. But, at the end of the day, your goal is to get into flips. Because, if you flip on the down cycle with tight quick turns, you’re going to pull profits. And you flip while the market is falling down. It makes no sense to hold an asset that’s worth a million dollars and it drops down to where it’s worth 600 or 700K and you take a 300 thousand dollar loss and you gain nothing with your loss. In this case, selling your assets now, you are gaining huge benefits and avoiding the losses.

The last thing is if you're investing right when the market cycles down you’ll be able to take advantage of great deals. The last time the market collapsed, everyone’s cash froze and they had little of it. Cash is double or triple king in a down cycle because you have what no one else has or very few people have. And so cash is king and you’re going to be able to take down deals that are super duper. That's my guidance.

Thank you, David.  I agree home values are crazy frothy. I am currently under contract on my 2nd sale this year.  I have been exchanging into several quads of private sellers I have formed relationships with over the years. 

Cash and reasonably priced B class MF is my game plan for now.  Will probably also be leveraging a few more free and clears for additional liquidity at these low rates.  

 

Originally posted by @Steve Vaughan :
Originally posted by @David Ginn:

@Steve Vaughan

Are any of the homes that you own in an IRA or 401K? Because if they are, your answer is going to be different. So I'm going to answer you in two ways. First, if you own them in an IRA or 401K and then, second, if it's in cash.

If it is in a IRA/401K, and not a Roth IRA, you need to convert to a Roth IRA. The reason is because you're going to sell that asset and take a hit on the asset financially by paying the taxes now when you sell it. But then, as you move it into a Roth IRA, any money you make on your money after that point is going to be tax free when you pull it out. So it's better to take the hit now and pay the taxes to move from a regular IRA or regular 401K to a Roth. And once you are out, then you are going to go into flips and sell everything you own.

If you are already in a Roth IRA / 401K then you are not going to get hit with the tax consequences. If you are not, then make the move and take the hit now--that would be a good move.

Secondly, if it’s cash, you’re going to sell your asset and get cash out of it. The smartest move is to sell now as much as you can. You are going to take a 15 to 39 percent hit, depending on how much asset you have, depending on what tax bracket you are in. But the gain that you get through the current high side market will help offset that loss. Right now I’m seeing 10-20 percent gains. So if you sell now and get a 10 or 20 percent gain, then your loss from sale is now really only 15% if your tax liability was 35% So even if you have a taxable event, it’s smarter for you to get out of the asset at the high side of the market. Liquidate all of your assets by no later than September. This can be different depending on the market segment you are in.

You can get on a Zoom call with me. I have 8-10 meetups a week. You can ask me these questions and I can go over them with you in detail and get you set up. But, what you want to do is pull to a cash position because if you are in an IRA/401K, switching to a Roth is a good move, or if you're just cash and you take a 35% hit, you gain 10 or 20 percent so your loss is just 15, but now you're out of the asset.

If you get all of this done by September, now you can start investing in the flips. And there are very specific ways you can invest in flips. Follow my guidance which is to stay on the lower side. Pull to a cash position and then you go into homes that you can flip that are in a medium price range--don’t buy anything above a 300K home. Stay on the low side of the market as it cycles down and go in and out of the assets as quickly as you possibly can.

Once again, those strategies I can talk to you about if you get on my calls or attend the meetup. But, at the end of the day, your goal is to get into flips. Because, if you flip on the down cycle with tight quick turns, you’re going to pull profits. And you flip while the market is falling down. It makes no sense to hold an asset that’s worth a million dollars and it drops down to where it’s worth 600 or 700K and you take a 300 thousand dollar loss and you gain nothing with your loss. In this case, selling your assets now, you are gaining huge benefits and avoiding the losses.

The last thing is if you're investing right when the market cycles down you’ll be able to take advantage of great deals. The last time the market collapsed, everyone’s cash froze and they had little of it. Cash is double or triple king in a down cycle because you have what no one else has or very few people have. And so cash is king and you’re going to be able to take down deals that are super duper. That's my guidance.

Thank you, David.  I agree home values are crazy frothy. I am currently under contract on my 2nd sale this year.  I have been exchanging into several quads of private sellers I have formed relationships with over the years. 

Cash and reasonably priced B class MF is my game plan for now.  Will probably also be leveraging a few more free and clears for additional liquidity at these low rates. 

 

Steve you are too kind !! and a true gentlemen here on BP..  real estate in the US is highly regional.. so no one can make predictions for all markets..  I just got my expensive MAI appraisal for the remainder of my project in Canby Oregon  ( 60 homes)

575k to 750k and the report indicated we would sell 6 a month and the market was stable for at least 2 more years.. So I am going on that opinion since my bank will also go on that opinion.