All Forum Posts by: Charles Worth

@Anthony Perez

What are you buying for $200K in NYC?

@Account Closed

You said you have not really seen anyone try and use DOS, I am surprised no one has ever tried to use it in a rising market either because they bought the mortgages at a discount or because they could make more money that way. Do you think people will one of these years? The market is a lot more sophisticated now and a lot of savvy funds bought the lower tranches of the securitized offerings at practically nothing. I would be very surprised if no one tries to use clauses to exit their investment as prices rise considering none of these players want to hold the mortgages at the rates being paid.

@Dooreuhn Cee that depends highly on the market. I personally know people in my market who bought a property in the height of the craziness and have made $1MM+ on that one property. Breaking even is a tough term because all those properties are negative cash flow so yes they paid in every month but also ended up way better in the end.

Its not my cup of tea and I think its risky but if you have reserves, can wait and are right on the market it can work out. 

@Jordan Sutherland

I am going to be in the minority on this one but I heard the same thing about the stock market from people who bought in the best period to buy in history bar none.  Just because something went up historically doesn't mean it keeps going. There are lots of people on both sides of that equation and prices are up big in most markets. A lot depends on where and when you buy and what dates you hold it. For instance, much of the stock market returns occur in very specific time periods. Miss those and your returns die. 

I am not saying he won't be right in 10 years if I knew that I would certainly have more money but what I am saying is I would think about your own temperament and think about a few things:

1) You have to actually hold it those 10 years. This means no outside forces making you sell  so how you finance really matters. If you finance using a 5 to 10 year piece of paper you could lose the property because the price went down at the wrong time or didn't go up. Also, if a personal factor makes you sell you can take a blood bath. At the very least I would assume you won't be managing it in your numbers (i.e. if you move, get another job etc.)

2) You need to slog through the time between now and 10 years. This means dealing with a lot of headace for very little return until 10 years from now. Easy to think about, hard to do.

3) If would be advisable if you have money and access to money to cover items like expenses if the property doesn't cash flow well.  See comment above about keeping the property.

@Billy D.

Except taxes would eat a good amount of that. However, you are def right you should do a lot better than that loaning money (I borrow at 10% - 12%). 

@Joe Villeneuve

Would love to know where you are finding safe NNN properties with 8 or 10 caps. Averages are at historic lows and for good NNN lease (i.e. things people need like QSR or drug stores are even lower. 6.18 is the low and its about 7 for office and industrial though the latter is obviously significantly more risky.

@William Hochstedler

All good points, though as I think you were noting I would more say that is extreme optimism like what we see in NYC and SF (and it seems UT). 

Course lets face it this is just semantics much like a recession is just a line in the sand. Fact is people buying at 3 caps and needing to refi in 5 years seem to be taking a big risk. 

Even people buying on 30 yr fixed terms eventually need to sell which its hard to see working out well if prices are artificially high (not saying it is but certainly its a possablity). 

@Andrey Y.

What worries me about people hawking product (and I know you are a buyer not a seller so I don't mean you) with a comparison like the one you gave to a savings account is that its not nearly the same thing. There are many other factors at work and much of the additional return is needed to compensate for time and risk.  Without appreciation its hard to see these properties  being great stores of capital. If you buy at or near equity value you lose $10K to $15 just in transaction cost between the buy and sell. Further, things are not static. There are things like capex that hit you plus if rates go up the next person you have to sell it to will want a good return too (maybe a better one if savings rates are higher) but your property at a higher rate won't return the same thing because the mortgage is higher so the price may just go down at least in inflation-adjusted terms. 

I think this is more what is meant by fold your cards when the hand is not great. 

@Jon Q.

I didn't define a bubble per say though the definition is more or less in line with what I was saying (at least officially) in that it means when prices strongly deviate from intrinsic values. I was really more focused on what leads up to that and that those price rises are from unnatural forces that likely have a day of reckoning since that I think is really more what most people mean when they talk about bubbles. 

I don't disagree with you today, far as I know there is no one major force creating artificial huge price increases just prices that are optimistic and a lot of things that could push prices up way past what anyone can think of as true value. In places like NYC where prices are way out of line with rents right now I think bubble maybe too drastic as demand is very good and supply low for properties. 

However, I think it would be hard not to deem something like 2007 a bubble. 

@Bevla Reeves

DOnt know about AZ but I can tell you that some states have a ton of backlog foreclosure inventory. Those states still have not worked through the previous foreclosure inventory because of laws, not wanting to flood the market etc. With prices up and time having passed some of those areas have expected a lot of inventory for a while.