All Forum Posts by: Canesha Edwards

@Scott Mac

I like your point about prices stagnating. This correction, “bubble” will be different this time around because all the new loans are fixed rate versus variable rate mortgages. A fixed rate mortgage protects the consumer.

As a bank however, in a rising rate environment, fixed rate mortgages don’t allow you to take advantage of higher rates , because no one is refinancing into a higher rate. Additionally, having assets on the book that under go a correction is just as bad.

Who knows what going to happen. If I could predict the future life would be a lot easier. :)

@Bruce Woodruff

As much as the Fed is supposed to be quasi government, it has turned into a political puppet and a money printing machine. This notion to keep throwing money at the problem is a proven bad strategy.

@David Lilley

All valid points.

What’s your worst case scenario for rate increases?

In terms of inflation, I wish people wouldn’t use this as a good sign for real estate. Inflation in it’s simple still terms means- currency devaluation. My dollar can now buy less, but prices are so high. That’s why real estate prices are high, that’s why rent prices are projected to keep increasing. Inflation doesn’t add real value.

So, if we’re now in an inflationary period- that means the cost of living is going up. The number of people who were rent burdened prior to 2020 was increasing across higher income classes as well as low income classes. Once we take into account 2020, shut downs, lay- offs, unemployment…. there are more people now who are one tragedy away from being wiped out financially. There’s an even larger group of people who only survived the pandemic due to government stimulus and the memorandums. Now, the small percentage of people who didn’t need the government to survive more than likely took advantage of low mortgage rates and purchased a home and is not a part of the renter population. The question is, what is really the quality of the rental population and can they sustain your planned rent increase?

As far as today’s syndications - The premise of having to accept lower cap rates because that’s what the market dictates is not part of my investment strategy, but every one is different. I don’t see the appeal in paying a premium and squeezing margins.

However, that doesn’t mean that I am waiting to buy and I don’t suggest anyone waits until a crash to buy. Yet, the risk have to be weighed and buying a “value-add” property at a 3% cap puts a bad taste in my mouth. Obviously, people are doing well with this strategy and making a lot of money and I wish them all the success. I just think when the party finally ends- these investors have a lot to lose.

@Taylor L.

All valid points.

I also think the Fed needs to find a backbone.

I guess we’ll have to wait and see what happens.

@Aaron Gordy

Inflation reached 14% during that time. Interest rates were increased to 20%. The current U.S inflation rate is 6.2% percent, with the next inflation report being tomorrow, let’s see if it’s lower or higher.

I have never been a fan of QE. I think it was the wrong move in ‘08 and I think it was the wrong move now.

Now, personally I’m not concerned because I own my investment properties outright and plan on holding for 30 years. So, I’m good regardless if prices or interest rates go up or down. I know many investors like this or who at least have long term fixed rates.

However, like I stated in my original post, all these syndicator’s who’s business model is solely based on rising rents and refinancing are going to be in for a rude awakening when interest rates start rising. Rates have been too low for too long and cheap money makes people risky and irresponsible.

@Austin Johnson

Hey Austin. Thanks for the response. Yes, Peter is one of the few that I listen to and I agree with him and everything you said.

If you haven’t- study the 1970s and Paul Volcker’s massive interest rate hikes. The situation is identical in some instances and different in others. However, the one things that is constant in both situations is low interest rates and slow economic growth. Volcker raised Rates in a massive way and yes the economy did suffer through 2 recessions during this time but it caused the US to get their **** together. (Excuse my language). And that is what needs to happen today. As a business, if you’re only able to thrive in a low credit economy where money is cheap, the you need to re-evaluate your business practices. Solid companies are able to maintain through good and bad times. The US is a heavily debt burdened country, with a devaluing currency, who’s GDP is at historical lows.

The bubble needs to pop and it needs to pop quick or we’re headed for worse. The government has only kicked the can down the road and nobody wants to do what NEEDS to be done for the greater good of the economy.

Canesha

Hello everyone-

Please keep in mind- that this post is of my opinion only, based on my knowledge of the US economy and real estate markets.

Now, this discussion about a bubble and a crash in the real estate market has been going on for a few years. Let’s say since around 2016 but prices have only continued to rise. However, now we find ourselves in a very unique environment.

First, let me say that the next crisis will not be with the homeowner like ‘07-‘08. Why? Because that crisis was based off terrible lending practices. Anyone with a heart beat could a get a loan and a lot of these loans were variable interest rate loans. Most homeowner loans today are low Interest fixed rate loans. Therefore, even when rates do rise- payments are staying the same. Not a major problem there.

So, where is the problem? I think we are going to see major problems in the commercial arena. I’ve seen too many syndicators and personally talked to a few who are underwriting deals at a 3% cap. This is unheard of and quite frankly bad risk management in my opinion. Why you ask?

All of these deals are based on rents rising and syndicators being able to refinance or sell on a 3-7 year period. The problem is no one is considering the chance of rising rates, but I think this is a real viable option. Jerome Powell has finally admitted that Inflation is not transitory. If inflation gets too out of hand- the FED will have to deal with it. How do you tame inflation? The gov’t could spend their way out of it or they could shrink the money supply. I personally feel the government has been spending way too much and I vote for contraction of the money supply. Meaning the FED would have to raise rates. Well as a syndicator if you have to refinance at a higher rate….well the deal goes from good to suspect real quick.

Cheap credit has its pros and cons but I think this period of low interest rates has served it’s purpose. To me, this era has more in common with the late 1970s than many would like to admit. The question is, will we have a Fed Chairman like Paul Volcker to do what needs to be done?

I’d love to hear others opinion on the matter.

Just my 2 cents.

Happy Investing.

Canesha

@Ibrahim Elvis

YouTube. There’s tons of videos on how to analyze an investment property.

Canesha

@Nate Pucel

This basically means the buyer will inherit the physical and legal conditions of the property. Make sure to check the taxes, check to see if there are any liens on the property, zoning issues, etc.

Canesha

@Sameer Agrawal

Have you tried sending a letter to the other address? Sometimes good ol’ fashion mail works.

Canesha