All Forum Posts by: Alan F.

https://www.dailymail.co.uk/real-estate/article-15036691/US-...

'It's the Anna Karenina housing market: Everyone is unhappy, but each in their own way,' said Realtor.com senior economist Jake Krimmel.

In other words, buyers, sellers, and builders each face unique challenges, yet the result is widespread dissatisfaction across the market.

As a result, the market is in stasis and 'grinding through a cruel summer,' Kimmel said.

'Buyers face steep affordability barriers. Sellers are losing market power but are futilely resisting. And builders are now pulling back even as the nation remains short of four million homes. And regional markets are dysfunctional in their own unique ways.'

The national median list price remains near $440,000, which is relatively unchanged since 2022, according to Realtor.com.
Compared to 2019, today's buyers are paying over $1,200 more per month for the average home, with costs rising due to both price growth and higher interest rates.

Across the US in June, for every 100 new listings, 21 were removed without a sale.

In the South and West, supply is massively outpacing demand, leading to slower sales and price drops.

Meanwhile, in the Northeast and Midwest, the situation is almost the exact opposite. Inventories are low and demand is high, which is keeping prices up.

Many of you are savvy lenders, bankers, or investors and you already know this, but I realize that some of you are here to learn and I hope this helps. I received a call from an someone today that said “it looks like mortgage rates are coming down because I heard the Federal Reserve is lowering rates multiple times before year end.” Mortgage rates may, indeed, come down, but contrary to popular belief, the rates on 30-year mortgages and the rates that the Federal Reserve raises and lowers are not directly tied to one another. Hopefully, this will explain the difference and how you can watch what direction rates are going.

The Federal Reserve, the Central Bank of the United States, serves several functions. “The Fed”, in theory, is independent of the Executive Branch (the President) and has a mission to accomplish two things, known as a “Dual Mandate”. They are supposed to balance 1) having a strong economy and 2) keeping inflation under control. They do this in several ways including the raising and lowering of the “Federal Funds Rate (Fed Funds Rate)”, or the rate at which member banks can borrow money in the short term from The Fed or from other member banks. When the economy is doing well, we might experience prices that go up too quickly, or inflation. To curb inflation, they will raise the Fed Funds Rate in hopes that increased rates mean businesses will slow their activity which, in theory, keeps prices down. If the economy slows too much, they will lower rates in hopes that it will allow for more borrowing which leads to more spending, which means a hotter economy. It’s tough to balance and, historically, the Fed has tended to move way, way too late one way or the other. That being said, these rates are “SHORT-TERM”…not the longer term rates that mortgages use.

Let's move to longer-term mortgage rates like Conventional Loans, FHA Loans, VA Loans, and 30-Year DSCR Loans on Rental Property. Enter the "Mortgage Backed Security", or MBS for short. In order to afford a home, most people need to pay over a longer period of time, normally 30 years. The Fed Funds rate for short-term borrowing is simply too volatile. Conservative investors like pension funds might buy US Treasury Bonds/Bills to be "safe", but what if they want to stay relatively safe, but add a little "juice" to their investment portfolio? They can invest in a MBS. A Mortgage Backed Security is an investment, similar to a bond, in a huge portfolio of many, many mortgage loans. The investor will invest in these pools, also known as "traunches" of loans that all of similar "quality". Although safe, they aren't in theory quite as safe as a US Treasury Bill/Bond, so the rates will be a bit above the Treasury Rate. That's why mortgage rates move up and down in lock-step with the US Treasury. We lenders use those pools of money to create the 30-year fixed rate loans that we lend to our borrowers. The loans are then "sold" into those traunches. Without this process, the longer-term fixed rate mortgage would not be possible. Of note, this is why we have to adhere to "underwriting guidelines". These MBS traunches have to stay consistent with what they promise investors, so all of the loans in the MSB traunche MUST meet the stated guidelines. When we ask for bank statements, paystubs, lease agreements, or whatever we lenders ask for, know that we have to in order to get the money from the traunche to fund your loan. Otherwise, they wouldn't be able to fund the loan and you, because you wouldn't cough up that bank statement, can't get funded.

When the Federal Reserve decides to change their Fed Funds Rate, it might influence but it does not have a direct impact on Long-Term Mortgage Rates. Mortgage Rates move up and down with the bond market…namely the US 10-Year Treasury. The Fed Funds Rate is deliberately (I might say arbitrarily) set by the Federal Reserve. They are, indeed, different.

If you want to track mortgage rates and you have a smart phone, there are two ways to do this. First, watch the 10-Year Treasury. If you have a smart phone, it’s “TNX” on your stock ticker ap. Save that to your watch list. The mortgage rates will usually be anywhere from 2% - 2.5% on average above the 10-Year Treasury and it will move up and down in lock-step with it. Riskier loans will be higher...safer loans will be lower. You can also download “Mortgage News Daily” as a free ap on your phone. They publish the national average mortgage rates along with articles about rates and housing. 

I hope you found this helpful.

Been thinking about this for a bit and wanted to get additional thoughts on it. 

A live in flip requires moving (which I am not interested in doing), but has an advantage of a slow burn to get the property to what you want. What about a tenant live in flip (TLIF). I am purchasing a property that needs some work but not a ton of it. I intend to get a tenant quickly into the property, and think this is doable (though the time of year is working against me). During the time that I am marketing the property, I will be doing some of the more cosmetic work that I can knock out pretty quick. No problem there. BUT, I don't want to lose out on rent for 2-3 months while I complete the rest of the work which would include: 

1) a new front deck (replacing an older worn structure with a couple of flaws that are long term concerns; but still functional and safe now)-there remains an alternate entrance for tenants to use during this time.

2) bathroom rehabs (2); both small rehabs but ones that today I'm not ready to get into due to limited availability of my time this fall

3) kitchen cabinets and counter, sink rehab

:These are all things that as a standard LIF, would be fairly easy to work around (kitchen being the obvious most intrusive).  For a TLIF, I intend to let the tenant know these are coming and also offer some reduced rent during those times, so as to make it more palatable for them. For instance. One bath at a time; could be knocked out in a day, with a couple day for tile setting, etc. before use. So that wouldn't require a significant reduced rent. The front deck could be a problem for the tenant if they work from home; so maybe some concessions for that few days of work so they can work out of another location due to noise, and the kitchen; that might be a few nights in a hotel for them. 

Has anyone also done this and what has been your experience? I would appreciate your thoughts and amount of concessions you might offer. Rent will be $1850 in the Raleigh, NC market.

#3 is definitely true. I'm not sure I would say it's highly complex but it's highly prone to go awry as rehab budgets are highly prone to blow up in your face, all the more so for newbies. And this market in particular is tough for BRRRR. I'd recommend 90% plus of new investors to start with house hacking.

@Marcus Auerbach

like you, i can mow a mean lawn and do a trash out. and i leave everything else to the professionals.

The live and flip option is very appealing especially considering the more immediate gains. That said I would like to set ourselves up for a nice retirement in the next 10 years, but with a live and flip strategy we would be able to do that a max of 5 times. If doing the brrr strategy, we could get 10+ properties with a nice income stream in 10 years.

I’m curious, with long term rentals in CA, if you’re financing the rehabs yourself (or not), how does that breakdown over time? I’m still wrapping my head around how you “make back” your down payment and expenses.

If we create 4 units on the property we’re buying, there should be cash flow once we rent, but it’s a lot of our money gone to wait a long time to get it back. I understand appreciation, loan paydown, tax savings, and possibly a refinance, but I’m still wrapping my head around it. When will we actually make a “profit”?

Some of us really try, Alan.  Doing the right thing doesn’t always mean doing the easy thing, but this business is a marathon, not a sprint.

Case in point: I had a large investor place several million with me into two deals.  One was a profit, one was a loss (like @Jay Hinrichs just wrote, it happens, even to us experienced guys).  The loss was a rounding error to this investor, but in making my final cash distribution last week I allocated a share of my profit split from the profitable deal to the investor to zero out the loss on the other deal.  Did I have to?  Absolutely not.  Did it matter to the investor?  Probably not.  But deposits to the karma bank earn a higher rate of return than any investment that I’m aware of.

There is a characterization projected by some people on this site that fund sponsors are just a bunch of hucksters in it for themselves and ripping off investors, or living the high life off of fees earned on losing projects.  There are managers deserving of that title, but just as you can’t paint all passive investments as bad, the same broad brush shouldn’t be painted on the managers either.

Maybe just another reason why I believe that manager selection is more important than the deal itself.

 Its the age old Motto  NEXT .  BP is unforgiving for those in the RE space using it to advertise their product.. As we know not every deal works  not every rental works not every section 8 tenant pays and keeps house great.. etc etc.. There are a few on here that do a good job interacting with those that come to bP to complain.. IE  Chris Clothier.. Zach at RTR  and a few others .. but generally speaking others either wont engage on BP when anything negative comes up like it appears is happening with most all the syndicators that were on BP raising money for their deals. We dont see Norada post anymore  Open door I have not seen anything Ashcroft nothing  lane Kawaka I do still see post but mainly new deals  I dont see Ask Ben but I dont know how his deals turned out I suspect if they were great we would hear about it..etc etc