All Forum Posts by: Darwin Crawford

@Mike H. - DTI limits are there, yes, but that doesn't factor in the "silly spending factor" which I feel is at a peak. $140 gym shoes, $200 meals out, offroad tires and wheels for trucks, $100 haircuts for the wife, $150/hour dog trainers etc. These are examples, but you get the idea. Lots of frivolous spending and no incentive to save for emergencies is something I see as a trend, both locally, and nationally through work. I talk to 40+ people a day on the phone, all over the country, and 95% of them are very poorly situated financially. Last I checked, mortgage underwriters don't check savings account levels, or people's ability to weather a job loss.

@Jacob Ham - no problem. Based on what I've found, rentals here fall into 2 categories: nice properties with decent tenants and 5-7% cap rates, or garbage with 10+ caps and headaches. I've owned the tough stuff, and just got tired of the drama. But keep looking, deals do come up. You've GOT to be liquid enough to put in fast cash offers though, or someone else will. Last place I got in scottsdale hit the MLS at 9am, and I gave them full price cash at 10Am - FYI there were 3 backup offers.

@Mike H. - I think your statement of "These people are not getting loans they can't afford so they are not going to be walking away from houses en masse." is partially correct.  

However, based on my last experience here, and being in the demographic of lots of first time home-buyers, I think there is a flaw in it.  The middle class young couples buying homes here are, from an underwriting standpoint, "qualified", but in reality, they are borrowed to the hilt, and if anything goes wrong (AC replacement, plumbing, electric) they are 1 step away from default.  

I'll use some friends of mine as an example.  They just bought (against my vehement advice) a $335K home in the trendy part of south scottsdale.  It wasn't anywhere close to "retail ready" and needs work.  They borrowed their small down payment from her father, and had to put $10K of their savings towards the plumbing, which was rotted out, despite my telling them that.  

So they are in a house for $350K of other people's cash and debt, (fixed payment at least) that needs work (paint, pool equipment, etc), have blown their savings, paying $2000.00/month for PITI, which is over 25% of their income, and are literally teetering on the brink of default if anything comes up. yea, her dad is wealthy, and could bail them out, but I know a lot of people who are in this situation without any backup or safety net. Also just for fun, I looked up peak (bubble) pricing on the place, and it was "appraised", for $360K which we all know at this point was total BS, back in 2006.

now, knowing what we all know, they would have to sell this place for 10% more than they paid, just to break even.  In this market, with construction costing what it does, they are at "water level" right now, and any type of stagnation and/or dip in prices will leave them underwater.  

This situation, which I know from experience is most of the new home-buyers, is the core of my unsettlement about the housing market.  With job growth flat, and the middle classes so unprepared, it wouldn't take much for a few job losses coupled with some broken AC units to cause some "issues" down the line.  Couple this with the massive amount of flipping going on here, with declining margins, on borrowed money, and I see some opportunity for corrections, if only in my local market.  

@Jacob Ham - depends.  What are your goals?  I'm a buy/hold guy, working my way towards my "freedom number" so i can get good at riding motorcycles and giving back.  from what I've seen, there are some people making money, but it's mostly on the west side (maryvale) and that market is stupid-flooded. 

My rule for REI, which I've learned here, and through screwing up, is "Identify your goal, then focus on the process".

Hope that helps.  

I agree that there are some unsettling trends, but they are local and i can't quite get my head around their root causes.  In Scottsdale, where I work and invest, pricing has gone through the roof in the past 6 months.  Two of my rental condos have done 35% appreciation in the last 6 months, and I cannot figure out why.  Not a lot of job or wage growth to speak of, but prices are up.  Also, through my day-job, I can tell you that most pricing in ZIP codes 85251, 85257, 85250 and 85258 is at or above 2006 levels, which was, by definition a bubble.  I literally have $80K in cash sitting in a stupid savings account that I can't justify spending locally, as cap rates here are in the toilet based on price.  

I agree with @Tzvi Balsam that most of the rentals in this market only work numbers-wise (and they BARELY do) at the current low rates, and if interest goes to more realistic levels (6-7%), they won't make a dime.  

For my day job, I'm an acquisitions manager for a national home buying company, and see pricing, motivation, etc in various parts of the country.  The statement from the OP that rust-belt locations are dying is unequivocally correct.  We routinely pick up perfectly good rentals for under $10K.  In other markets, flippers and investors have bid up pricing so high that we literally stopped all advertising in those places.  There's just no margin anymore.  

In Flipper-World out here, the margins are razor thin, and I have talked to a lot of that crew who are making starbucks money while risking tens of thousands of dollars. I just cannot see their logic. However, this is a local trend, which I see in Arizona and other west-coast markets with higher priced dirt. In the beginning, they are all gung-ho and about to make a fortune, but when I look at closed values (again, I can do this through work) and estimate what they put in them (I had 10+ years in construction before I got into REI), add some holding cost, and there just isn't jack left on the table.

Now, what I can't get my head around, is whether or not these trends represent a "bubble".  Yes, the pricing is there, but the easy money is not.  The last re-fi I did was 2014 and they crawled up my hole far enough to make me sure that any and all "easy credit" was just a dying memory.  However, I know that most of middle america is FUBAR financially, with little to no savings, credit card debt has spiked, and real wages are flat.  Homeownership is at its lowest level since 1965, and student loan defaults are close to 40%.  So what does that mean?  

This came through my news feed at work the other morning: https://www.scribd.com/doc/315050553/David-Rosenberg-Slides

get someone to pull the 5 closest comps in your area that sold or rented for the most $ per SF and just do what they did.  Easy. 

I prefer to buy them, with the price cutoff in mind.  I own up to a heavy grade SDS hammer, for boring concrete, and the like.  

In my book, cheap tools are the worst thing ever, and I actively avoid HF or the Ryobi stuff - I'd rather buy once and buy right, even for occasional use.  

On the large-ticket items, a very valuable trip is going to see your local tool repair shop, and asking them for recommendations on brand, etc.  They usually also sell re-furb stuff at good prices, and can tell you what is fixable, and what is "throw away grade".  I got my big Hitachi roto-hammer from the local guys for $250 cash (new is $1K+) and I've punched a wagon-load of holes in concrete, its never messed up once.  

Bit of a philosophical issue, but I learned most of my construction skills from my grandfather, who was old-school, and throw away tools are overall bad for everyone.  Spend a little more and get the good stuff, american made if you can.  

I use pretty much only the Dewalt 20V stuff now.  I upgraded my whole set after a jobsite robbery on my last flip, so Traveler's Insurance bought me all new tools.  

I used to have the 18V, but NiCad is affected a lot by outside temps, and the Li-Ion tools have been great.  I own a ton of them and have been very, very happy.  Not cheap, but Dewalt is attempting to bring back manufacturing stateside, and I'll gladly spend more for a quality domestic product to support that initiative. 

@Jared Garfield - I'd also take the names of any property managers you know/use.  Many thanks in advance!

EDIT - that should have read: have you had good luck with property managers?