Never thought I’d say this - But I will be Renting for a Year!
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Quote from @James Hamling:
Everything in this theory hinges on the 1 assumption of "waiting for a market "correction"" meaning expectancy for home prices to drop sharply.
And they will NOT.
Go ahead, argue away against that BUT before you do I suggest doing some research of my "contrarian" market forecasts for the last 3 years, you just may change your mind given my track record. I seem to be something of an expert at predicting the "unpredictable".
There is such a mountain out there of messaging about the folly of "timing the market" that I won't bother reiterating it. If one hasn't absorbed that message of wisdom yet, they never will.
Interest rate increases do NOT create inventory. Any notion of such is moronic, it is. If anything it DECREASES inventory. People reside in housing. The only way to get ADDED inventory is either (A) less people. Or (B) Units built to ADD inventory.
When costs of purchasing a unit goes up, as rates increasing does, DEMAND declines because AFFORDABILITY declines. As demand declines, the manufacturers of new units DECREASE output, so to defend there manufacturing operation. There is nothing new here, this is how manufacturing has operated since Jesus was a pup. Every manufacturer does this from widgets to homes. And that's a common flaw in peoples thinking, seeing home builders as anything other than manufacturers.
You ONLY get more inventory when there is a profitable incentive for a manufacturer to PRODUCE units. How do you get that? Demand and consumer affordability.
So, this whole expectation of MORE inventory during LESS affordability is an oxymoron. As long as the Fed is burning off capital no, there will NOT be more inventory, and as we are in a significant net shortage thus supply-demand supports price.
Now if the Gov. REDUCED production costs, YES lower COG's facilitates a lower cost of new units which creates affordability thus affording more units to be added without holding to current pricing basis. Do you see our government doing this? Talking about this? Even rumoring of this? No, the opposite right, all talk is on INCREASING taxes and there in COG's.
Simple economics, as you raise the cost of inputs the finished product will be disproportionately more expensive. Look up this rule of economics.
It's a fools errand waiting for home prices to drop sharply in a shortage environment, with raised cost of inputs, raising cost of inputs, tight labor with all prospects of getting tighter and more short supply...... Every single factor is one of INCREASED price and here we have chanting masses "waiting for prices to come down".......
Every person who potentially sells a home MUST enter a new primary residence. This is NOT added inventory, it is SHIFTING inventory. This is why some markets have more and others less, the SHIFT of persons. Thus market deviations from the general U.S. market #'s but make no mistake, being so far into net unit shortage of the many millions as we are, this mirage of prices touching back to '18'/'19' levels is insanity.
And please, don't head my warnings, by all means exit the market, become renters, I am happy to have less competition and add you as a tenant, thank you thank you. But don't cry and complain in 18mnths when your still waiting and start to realize your great-crash happened Q4 '22' and you yet again "missed the market".
Lastly, if you think 4% is a "great" return, hit me up, I will give out 5% happily. Heck, I'll even go 6% if you ask nicely. Sure, I'll pay out interest monthly, no problem.
Ok, I'll take you on that. 6% MPY note.
Some markets will still fall, but fundamentally housing will be the most premium market once we get out of the peak fed funds rate environment (still not there). Don't time this, just invest with enough liquidity on hand to stay solvent.The low IR environment from 12-22 made real estate a cash flow game. People still believe this is how it'll work. This new era of high(er) rates + inventory issues + lack of market liquidity will make it a crazy appreciation game. Cash flow will come when things balance out a bit. No idea when that is, but rents will rise(eventually) as rates drop(eventually). But house prices will only sky rocket. Right now, the guys who bought sub 3% are holding, and us buying at 7% would rather re fi than sell at 5.5%. For hedging purposes, maybe sell 10-20% of portfolio.
Anyone running to CDs longer than 6mos at these rates, you realize the banks aren't dumb. They know the rates will exceed what they locked you in at. Not a matter of it, just when.
Quote from @Jeff S.:
Jeff,
Thank you so much for this!! I have began researching treasury bills and will open up a direct treasury account soon.
At the moment 4-week T bills are at 4.53% returns… Your post has helped to allow me to educate myself on treasury bills, their different products, maturity rates, etc…
Will likely be moving from a HYSA to T-Bills soon as I don’t need the capital anytime soon. Lots of Research time (love learning!) Thank you again!!Quote from @Craig Janet:
I'm busting my butt for 10% return on my rentals. It's very tempting to sell and get 5% for doing absolutely nothing. I just know I'll probably regret it after 5-10 years.
Hi Craig,
Returns and risk tolerance really is on an individual basis. There is no one clear answer. If working hard busting your butt for 10% returns is serving you, keep at it!As an example, my income comes from business/being an entrepreneur. This is what I love. Parking capital on 4.5-5% returns in the meantime serves me quite well as we are no longer in growth-stage at the moment. But for you this may not be the right answer.
My reasoning ties into the philosophy of capping the downside aka mitigate risk to put myself in a position where I am able to place large bets in my entrepreneurial endeavors. If those bets go to 0, it’s ok as it actually really isn’t a risk. I get to start over and try again in a different endeavor, doing what I love to do in life (Whatever that entrepreneurial endeavor may be). We all have different reasons for what we do, there is no one right or wrong answer.Respectfully James, I stopped reading after you wrote “and they will NOT”.
I’ve done enough reading on that other thread with 100+ pages and for me personally, it’s difficult reading a post where one uses caps lock on many parts of the post to emphasize a point.
This is just something on my end I don’t enjoy and not a fault of yours. At the end of the day I am not interested in arguing. I have my convictions and you have yours. None of us here are hurting financially. Best wishesQuote from @Andre O.:
Quote from @Jeff S.:
Jeff,
Thank you so much for this!! I have began researching treasury bills and will open up a direct treasury account soon.
At the moment 4-week T bills are at 4.53% returns… Your post has helped to allow me to educate myself on treasury bills, their different products, maturity rates, etc…
Will likely be moving from a HYSA to T-Bills soon as I don’t need the capital anytime soon. Lots of Research time (love learning!) Thank you again!!Edit - Just moved all of my HYSA towards Purchasing 8 week T-Bills.
Yield Increase from ~ 4.05% —> 4.66% :).
Fun Fact: Yield or Interest Rate is simply known as Coupon with regards to Treasury Bills.May need to treat you to a very nice dinner one day for the great information!
Update #2 Just to Clarify:
Your yield or interest earned on capital invested is simply known as Coupon. This is the Jargon used with respect to Treasury Bills.
Upon some further research, Yield has effectively increased from ~4.05% (HYSA) --> ~ 4.759% (8-Week T-Bill).
We should look towards the investment rate column, and not the high rate column.
Would somebody with more experience be able to confirm or correct? Thanks!
https://www.treasurydirect.gov...Quote from @Andre O.:
Update #2 Just to Clarify:
Your yield or interest earned on capital invested is simply known as Coupon. This is the Jargon used with respect to Treasury Bills.
Upon some further research, Yield has effectively increased from ~4.05% (HYSA) --> ~ 4.759% (8-Week T-Bill).
We should look towards the investment rate column, and not the high rate column.
Would somebody with more experience be able to confirm or correct? Thanks!
https://www.treasurydirect.gov...@Andre O. if you go to your brokerage account with Schwab, Fidelity or whatever brokerage you have you can purchase CD's in $1,000 increments that will yield even a little higher yield than treasuries in some maturities. For example anything a year or longer will give more yield in a CD.
Treasury direct is good to buy I-bonds with a yield over 6% for 6 months but you don't know what the next 6 months will be because it is based on inflation
- 3yAdam BartomeoBusiness MemberReal Estate Broker · Cape Coral, FL · Member since 2015 · 2k+ posts · 1k+ votes
There are many ways to make money when you have money but I feel that this is one of the laziest and worst things that you can do. It is easy to make a 5% cap rate in multifamily which doesn't include appreciation or tax benefits. I seller financed a house with an interest of 8%. You can give hard money loans and make 10%.
Bartomeo Property Management4.7143 Reviews - 3yRyan KellyBusiness MemberReal Estate Broker · Austin, TX · Member since 2018 · 1k+ posts · 1k+ votes
@Andre O. as Warren Buffet said " Be greedy when others are fearful, and fearful when others are greedy." The last three years has proven that most people go with the herd. Everyone wants to buy when everyone wants to buy. Everyone will sit on the sidelines when everyone else will sit on the sidelines.
Austin has seen some solid 20-25% price correction since last May, however it is now starting to trend more sideways. You are welcome to guess where the bottom is, but compared to what? If your goal is to own something longer than 2-3 years, you'll be hard pressed to find a better time than the present.
Ryan Kelly Group - Keller Williams5112 Reviews - Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes3y
Quote from @V.G Jason:
Quote from @James Hamling:
Everything in this theory hinges on the 1 assumption of "waiting for a market "correction"" meaning expectancy for home prices to drop sharply.
And they will NOT.
Go ahead, argue away against that BUT before you do I suggest doing some research of my "contrarian" market forecasts for the last 3 years, you just may change your mind given my track record. I seem to be something of an expert at predicting the "unpredictable".
There is such a mountain out there of messaging about the folly of "timing the market" that I won't bother reiterating it. If one hasn't absorbed that message of wisdom yet, they never will.
Interest rate increases do NOT create inventory. Any notion of such is moronic, it is. If anything it DECREASES inventory. People reside in housing. The only way to get ADDED inventory is either (A) less people. Or (B) Units built to ADD inventory.
When costs of purchasing a unit goes up, as rates increasing does, DEMAND declines because AFFORDABILITY declines. As demand declines, the manufacturers of new units DECREASE output, so to defend there manufacturing operation. There is nothing new here, this is how manufacturing has operated since Jesus was a pup. Every manufacturer does this from widgets to homes. And that's a common flaw in peoples thinking, seeing home builders as anything other than manufacturers.
You ONLY get more inventory when there is a profitable incentive for a manufacturer to PRODUCE units. How do you get that? Demand and consumer affordability.
So, this whole expectation of MORE inventory during LESS affordability is an oxymoron. As long as the Fed is burning off capital no, there will NOT be more inventory, and as we are in a significant net shortage thus supply-demand supports price.
Now if the Gov. REDUCED production costs, YES lower COG's facilitates a lower cost of new units which creates affordability thus affording more units to be added without holding to current pricing basis. Do you see our government doing this? Talking about this? Even rumoring of this? No, the opposite right, all talk is on INCREASING taxes and there in COG's.
Simple economics, as you raise the cost of inputs the finished product will be disproportionately more expensive. Look up this rule of economics.
It's a fools errand waiting for home prices to drop sharply in a shortage environment, with raised cost of inputs, raising cost of inputs, tight labor with all prospects of getting tighter and more short supply...... Every single factor is one of INCREASED price and here we have chanting masses "waiting for prices to come down".......
Every person who potentially sells a home MUST enter a new primary residence. This is NOT added inventory, it is SHIFTING inventory. This is why some markets have more and others less, the SHIFT of persons. Thus market deviations from the general U.S. market #'s but make no mistake, being so far into net unit shortage of the many millions as we are, this mirage of prices touching back to '18'/'19' levels is insanity.
And please, don't head my warnings, by all means exit the market, become renters, I am happy to have less competition and add you as a tenant, thank you thank you. But don't cry and complain in 18mnths when your still waiting and start to realize your great-crash happened Q4 '22' and you yet again "missed the market".
Lastly, if you think 4% is a "great" return, hit me up, I will give out 5% happily. Heck, I'll even go 6% if you ask nicely. Sure, I'll pay out interest monthly, no problem.
Ok, I'll take you on that. 6% MPY note.
Some markets will still fall, but fundamentally housing will be the most premium market once we get out of the peak fed funds rate environment (still not there). Don't time this, just invest with enough liquidity on hand to stay solvent.The low IR environment from 12-22 made real estate a cash flow game. People still believe this is how it'll work. This new era of high(er) rates + inventory issues + lack of market liquidity will make it a crazy appreciation game. Cash flow will come when things balance out a bit. No idea when that is, but rents will rise(eventually) as rates drop(eventually). But house prices will only sky rocket. Right now, the guys who bought sub 3% are holding, and us buying at 7% would rather re fi than sell at 5.5%. For hedging purposes, maybe sell 10-20% of portfolio.
Anyone running to CDs longer than 6mos at these rates, you realize the banks aren't dumb. They know the rates will exceed what they locked you in at. Not a matter of it, just when.
DM me, happy to get that ball rolling!
That's a good example that last several years have been the "E-Z" Cash-Flow Analysis Market, and I do stress "E-Z". There is just as much, and I argue MORE opportunity in the market today, it's just not so "E-Z" to see, comprehend, actuate upon. I would coin this "The Professionals Market". Via comprehensive strategy deployment, as I have said, my group is killing it. And YES, I see continuation of this BUT were not sitting still mindlessly rehashing 1 simple strategy over-n-over again. We are keeping stride with the times, evolving, shifting, moving to stay ahead of the ball. Embracing the shifting sands.
- Member since 2019 · 7k+ posts · 4k+ votes3y
Quote from @Ryan Kelly:
@Andre O. as Warren Buffet said " Be greedy when others are fearful, and fearful when others are greedy." The last three years has proven that most people go with the herd. Everyone wants to buy when everyone wants to buy. Everyone will sit on the sidelines when everyone else will sit on the sidelines.
Austin has seen some solid 20-25% price correction since last May, however it is now starting to trend more sideways. You are welcome to guess where the bottom is, but compared to what? If your goal is to own something longer than 2-3 years, you'll be hard pressed to find a better time than the present.
it is now good time to buy to sell it in 2027.
Nov and Feb is very different down here in term of activity. - 3yRyan KellyBusiness MemberReal Estate Broker · Austin, TX · Member since 2018 · 1k+ posts · 1k+ votes
No one knows the future, but there are opportunities in the market now with less competition than you would have had the past few years. When interest rates do come down again in the future, buyer demand is likely to pick up again. It's impossible to tell anyone what things will be worth 5 years from today, but with real estate, the longer you have a property the more opportunity it has to appreciate. We bought our home in September 2008 right at the beginning of the last recession. While it may not have appreciated much in the first few years, it has since tripled in price. Time in the market is more important than timing the market.
Ryan Kelly Group - Keller Williams5112 Reviews - 3yDrew SygitBusiness MemberProperty Manager · Royal Oak, MI · Member since 2012 · 13k+ posts · 9k+ votes
@Andre O. your approach shows you are not a true RE Investor, just a TREND investor.
You're probably only looking at properties on the MLS/Zillow!
There are deals everywhere worth buying NOW, you just need a network to find them.
We working on a package of 9 SFR's that the motivated owner is willing to provide seller financing on.
Logical Property Management4.9469 Reviews Quote from @Adam Bartomeo:
There are many ways to make money when you have money but I feel that this is one of the laziest and worst things that you can do. It is easy to make a 5% cap rate in multifamily which doesn't include appreciation or tax benefits. I seller financed a house with an interest of 8%. You can give hard money loans and make 10%.
I make my money on business and entrepreneurship. My time energy and focus is spent there. I'll gladly take ~4.7% as icing on the cake for a few mouse clicks.
Quote from @Ryan Kelly:
@Andre O. as Warren Buffet said " Be greedy when others are fearful, and fearful when others are greedy." The last three years has proven that most people go with the herd. Everyone wants to buy when everyone wants to buy. Everyone will sit on the sidelines when everyone else will sit on the sidelines.
Austin has seen some solid 20-25% price correction since last May, however it is now starting to trend more sideways. You are welcome to guess where the bottom is, but compared to what? If your goal is to own something longer than 2-3 years, you'll be hard pressed to find a better time than the present.
You have some solid points. Coming from a different state, renting for a few months up to a year will better serve me. I have never been to Austin and all I really know is South Florida. I am happy to live rent free -- previously I was troubled with regards to renting and throwing money away. But due to the high yields on T-Bills, the possibility of renting without the feeling of throwing money away is a great benefit to me and my circumstances.
Quote from @Drew Sygit:
@Andre O. your approach shows you are not a true RE Investor, just a TREND investor.
You're probably only looking at properties on the MLS/Zillow!
There are deals everywhere worth buying NOW, you just need a network to find them.
We working on a package of 9 SFR's that the motivated owner is willing to provide seller financing on.
Is your definition of what constitutes a true RE investor or trend investor the world-wide standard? This is how your post comes off. Your opinion isn't written in law. One can invest in real estate in any way they choose and be a RE investor. Your response feels quite rigid, as if having blinders on.
There is not one way to do things. One can earn a few hundred thousand a year and plow it into real estate and have small returns. This still makes one a RE investor. Now does it make them a true RE investor as you say? Who cares. What even is "a true RE investor"? What you think or say it is? I didn't make this post to defend myself to people who only see things in their way and from their situation and perspectives.Quote from @Drew Sygit:
@Andre O. your approach shows you are not a true RE Investor, just a TREND investor.
You're probably only looking at properties on the MLS/Zillow!
There are deals everywhere worth buying NOW, you just need a network to find them.
We working on a package of 9 SFR's that the motivated owner is willing to provide seller financing on.
Why would you say that? Seems that @Andre O. has a solid plan. He is a cash buyer earning over 4% on his cash. Are we sure prices will be up over 4% in the next year? Current prices can surely be pressured to go lower. There are some deals out there but they certainly are not everywhere. By his post it appears he is buying a place to live in as well which has much different criteria than just a "deal". Am I still buying? Of course but it is what I do for a living. However, I am much much more selective then I have been for the last decade. Could I be wrong about the market? Absolutely. However my 30 + years for doing this is telling me to proceed with caution
Quote from @Greg H.:
Quote from @Drew Sygit:
@Andre O. your approach shows you are not a true RE Investor, just a TREND investor.
You're probably only looking at properties on the MLS/Zillow!
There are deals everywhere worth buying NOW, you just need a network to find them.
We working on a package of 9 SFR's that the motivated owner is willing to provide seller financing on.
Why would you say that? Seems that @Andre O. has a solid plan. He is a cash buyer earning over 4% on his cash. Are we sure prices will be up over 4% in the next year? Current prices can surely be pressured to go lower. There are some deals out there but they certainly are not everywhere. By his post it appears he is buying a place to live in as well which has much different criteria than just a "deal". Am I still buying? Of course but it is what I do for a living. However, I am much much more selective then I have been for the last decade. Could I be wrong about the market? Absolutely. However my 30 + years for doing this is telling me to proceed with caution
FWIW, I know lots of folks in the other thread pointing towards Capital One's 5% CD for 11 months by 3/14. There are some other banks offering 5.25% + on a 1 year. All yields just traced upwards these past 4 days due to all this bearish news. Hikes won't stop, so I don't think the bleeding stops. Investing with caution is always correct, I think now liquidity is now more paramount than ever.
I'm fielding a lot of calls from willing sellers, but they don't seem truly willing and hoping the market is doing a pump fake. Time can only tell but I think the underlying risk now for investors isn't the actual cost of capital you're taking on, it's actually the tenant and rental game. This looks like it'll trend downwards and you'll face more job losses from your average tenant. The folks that just keep 6 months reserves are going to face a lot more scrutiny. I think it's without a doubt now that we'll face a hit sometime here between q2 & q3.
The running projections on the Fed(usually always wrong, rarely in the details but more so in the timing) show a recession coming our way mid Q3, and a strong smash inflation going into Q4. I'm thinking if that's the projection, you'll see more preparation for that coming forward so it'd actually be more material early. The target terminal rate just went up again to 5.5-5.75. The people that said Q4 '22 was your last opportunity to buy bargains are really going to be tested here. Powell seems dead set on creating a recessionary environment.
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