All Forum Posts by: Christian Carson

I find myself jumping in to basically repeat what @J Scott said: if you fancy yourself a gambler, buy for appreciation, but for me, I'll go to work every day to make that cash flow.

True enough, monetary policy, NIMBYism, tech clusters, the "creative class", and warm weather are all memes of the day. Some of us are very certain that all of these factors will solidly set the trend for the next thirty years. And to some extent, everyone will be right, but for the game-changing factors that we can't find in our crystal balls.

I do play the appreciation game, but I do it on a neighborhood level. It's not hard to see where it will occur: gentrification is contagious, and once a popular neighborhood runs out of affordable housing, the next one over starts seeing $40,000 houses turn into $300,000 ones in a matter of years. Yes, this even happens in Cleveland. It's not hard to see why--walk the neighborhood, talk to residents and visitors, and it'll become plain that it's all based on sentiment, and has little to do with actual crime statistics or school achievement or weather. It's all about perception. If you really want a crash course on the fundamentals, try picking up "The Tipping Point." 

Would you believe me if I told you that in 1945, Detroit was a really popular place? Don't believe me, look at the population statistics. It's not just about jobs, but immigration patterns, amenities, and a sense of community that the farms or old-line New York and Chicago didn't offer. Heck, Metro Detroit didn't even stop growing until 2000! My, how sentiments change quickly, huh?

Monetary policy and all of the other endogenous influences mentioned above simply amplify the upward or downward trends driven primarily by perception. Bay Area banks have a lot of money to lend, and interest rates are low, so why not bid over list on that house? Competition is high, and consequences of making a mistake seem low.

I'd love to see the statistics of how many people move to the Bay Area without having first secured a job, because--although I'm not a gambling man--I'd wager that the majority move there simply assuming that they will find a job. And most do, because a rising population does generate jobs to an extent.

Throw in some future uncertainties and perception can change on a dime. What happens when the American Southwest finally runs out of water, and the rest of the country refuses to bail them out? There are other game-changers that will happen here, but how many of us here are factoring that almost-certain event into our calculations? California is in extreme drought, so what happens if it doesn't start recovering soon? 

The appreciation game is built on a house of cards when it comes to the macro level. Perceptions can change quickly, and although the smart and in-tune will see it coming, most will simply "buy the dip." I prefer that my real estate be the more conservative part of my portfolio.

140% appreciation in 2.5 years? That sounds like bubble territory, unless of course you put a couple hundred grand into the renovations. If I were you, I'd strongly consider taking the money and RUNNING. This isn't Miami in 1925. Just sayin'.

Firstly: Holding each property in a separate LLC is the optimum arrangement, assuming a clinical environment where everything is done correctly at all times.

That having been said, most real estate investors don't operate in a clinical environment. I've seen countless scenarios where investors pay for the big expensive multi-LLC setup, and the attorney advises them to follow all formalities, keep all funds separate and operate them as separate entities. This lasts a few months, then the investor gets some bad advice that "oh, don't worry about commingling funds, all these formalities are not necessary" and all the benefits of the structure get thrown out the window. Bottom line, it's a PITA to manage all these separate LLCs and the most benefit you're getting is protection in that 0.1% chance scenario when you have to completely abandon a property.

I don't let clients forming a trust leave my office without signing the deed funding the trust. Why? Because there's about a 50% chance that the client won't follow the instructions I gave them and the benefits offered by the trust will be rendered useless. As an attorney, I believe it's my job to make sure you're getting the protection you paid for. Most people approach estate planning and business formation as a one-time expense, but really they are things that require ongoing attention. No sum of money paid for the initial package is going to exempt you from the burden of managing these entities individually. Trust me, managing ten bank accounts is not fun, and I'll bet that the attrition rate for these multi-LLC structures is pretty high. I'm all about avoiding headaches and unnecessary complication.

I rent a house and own rental properties. The calculus is really very simple -- I want to live in a nice, desirable, safe neighborhood, where landlords get killed with high house prices and low rents. I want to own in working-class areas where properties are cheap to buy, but I wouldn't necessarily live there. And I see no reason to, either, because I pay only a small premium for rent over what my tenants pay me.

The homebuyers keep driving prices in great neighborhoods to the moon, so they're paying more in PITI than I pay for rent. To me, the decision to rent is a no-brainer. The really funny part is that I pick up rentals in the city proper that would sell for 10x as much in my neighborhood, which is less than 5 miles away. It's a crazy world.

The most important thing to remember is this: never let favorable borrowing terms turn a bad deal into a good one. Yes, you can buy that duplex in the nice neighborhood for 3.5% down, but when your cashflow is -$500/mo, is it really a good deal, especially if your entire investment strategy is based on property values going up?

I'm going to throw my hat in the ring here and question the usefulness of DOMs. It's still a buyer's market where I invest. An average duplex in my neighborhood is worth $100k, and DOMs will vary from 5 days to 300 at that price point. The only thing DOMs will tell me is the price where a deal becomes a firesale. The only explanation I can think of is that there is still a low supply of qualified buyers.

I always recommend getting title insurance on a property, unless you REALLY know what you're doing. The blowup and resulting collateral damage from passing a clouded title can be very expensive.

@Adam Craig , there is no shame in risk management planning in marriage. Those who are offended by prenuptial agreements probably have never been through a nasty divorce. My parents' took 7 years and occupied the bulk of my early childhood, so I know personally how hard it can be on kids.

The entire family law court system is designed to create conflict where there is none, and bankrupt both parties. A prenup is not about being greedy, it's about protecting both you and your spouse from divorce lawyers and custody evaluators and the court itself, who all have every incentive to push your case until both of you run out of money. Countless divorces have gone from amicable to all-out war because divorce lawyers use the prospect of getting more money to tempt their clients into making bad decisions where only the lawyers end up getting paid. 

Watch the documentary Divorce Corp if you are interested in finding out more about how this awful system really works. Stay as far away as possible from it if you can.

I'd avoid condos as a first investment especially if you've never been a member of a condo HOA before. Those organizations will suck every last penny out of your investment and then vote to make renting illegal. Rising maintenance fees will devalue your unit. I've seen condos here in Cleveland sell for $10k (or less!) because the maintenance fee alone was $1500/mo.

@Account Closed -- true enough, the meter is always running, but I've found that goodwill is a very satisfying policy. Asking basic questions targeted toward a lawyer's experience and skillset is always useful. Sometimes the line between a probative experience question and a request for legal advice can be a little blurry, so just be sure that you're asking the right questions.

My investigation of the legality of wholesaling has taught me that the vast majority of real estate attorneys aren't aware of the practice at all. 

In my county in Ohio, the Board of Revision handles property tax revaluation cases. The name has a very "1984" sound to it. I've had very good success getting tax assessments reduced to the purchase amount. They are primarily concerned about the valuation/condition of the property on January 1 of the previous year, not the current condition.