All Forum Posts by: Eric James

Quote from @Joseph Ortiz:

Hello fellow investors, lenders and real estate professionals..

We are in the process of getting ready to build a new duplex which will be leased out when completed. The property started out as a sweetheart deal, but the latest interest rate hikes and increases in materials costs have us being very cautious about the overall expenses affecting future cashflow. Can anyone recommend a lender they may have used in the past who does both construction loans and term financing products for investors? I have made a list from BP resources but I was looking to get input if possible from investors who may have experience with  a specific company?

Thank you in advance for any help!

Angel.

 I would be talking to some local small banks that might have a construction to perm product..  most of the time though if you have never done a new build project having a great credible GC will be needed and warranted.

Quote from @John Underwood:

Quote from @Nathan W.:

The question is, do investors have enough in reserves to get them through a recession that might last 12 - 18 months. For those that can get through that period, I think I inflation will help them turn a bad investment into a good one.

The problem is, a lot of the people who purchased a cabin over the past year aren't experienced and didn't really understand what they were doing. Too many of them were relying on YouTube, TikTok, or Realtors for financial advice. Over and over again I've seen people question if something was a good deal on forums or in a Facebook group only to see them almost mocked for asking the question. These investors aren't stress testing their numbers at all. Do they even have numbers? Maybe I'm just cynical but I don't understand how some of theses prices are justified. 

As @Collin Hays and others have said, those who have properties that stand out will probably be OK. Amazing views, being on the river, close to downtown, pools, and more modern cabins will stand out. But older cookie cutter cabins that are a dime a dozen will struggle. Speaking of Youtubers, I think Robuilt's most recent video is highly revelvant here. You need to stand out. 
BTW, I'm not against Youtubers, facebook groups, or realtors who deal in the space. I just think too many people are blindly following them without fully understanding what they are doing. 

If you are one of those who made a bad investment, I believe there's still hope. Figure out what it will take to make it through this recession. Take an extra job if you need to. You may need to cover some mortgage payments. It's going to be discouraging but if you can make it through the next 12 - 18 months (The average recession is 15 months) then you'll be MUCH better off than if you give the house back to the bank or declare bankruptcy. 

 Very true.

There will be some survival of the fittest and those people who are over leveraged with non standout properties may not make it.

I am diversified and all of my LTR properties are paid for. I have been buying distressed properties and paying cash. I am looking to buy more. There may be great opportunities for those that are prepared.

 John,,  Scott Trench started a thread this morning running through who might be most at risk if/when market conditions change negatively.   he ran through the list in descending order or most risk to least..  BUT he failed to mention those with paid for assets  LOL.. So of course I chimed in on that one.. those who own paid for assets are in the safest position of all. 

Quote from @Carlos Ptriawan:

Quote from @Toby Kim:

Quote from @Eric James:

I think it depends on details of what happens in the economy. We may be moving into a recession....but accompanied by high inflation.  If so, prices may actually go up, rather than down. Including rents. But people will have difficulty affording the high prices. In a high inflationary environment  wouldn't having low, fixed rate income producing debt be attractive? Or any debt that is lower than the inflation rate. And it's  an open question as to just how far the Fed will be willing to raise interest rates if/when we go into a deepening recession. 

Inflation increases when money supply increases. Money supply = all cash AND credit in the economy. By lowering interest rates you would incentive more people to borrow money since it’s so cheap. Now there is more money and supply and same production levels.

Imagine an economy of an island that only produces coconuts. Let’s say there is 20 coconuts produced per year. Money supply is $100. If everyone spends their money the coconuts are $5/coconut. Next year government makes interest rate 0% so banks can loan money at any interest rate to make money so they offer .05% interest loans. Now people rush in to get all this credit and the money supply explodes to $200 in the economy. No change in production. Same number of coconut trees and coconut farmers, etc. Now there is $200 in the economy and 20 coconuts. Everyone spends their money and coconuts end up at $10/coconut. Inflation rose 100%. Obviously our economy is more complicated but that is why low interest rates produce inflation and why the Fed is so gung-ho about jacking them up.

 Most folk thinks the source of inflation is mainly from Fed printing money, but if we examine the CPI closely, the crazy inflation only occurred mainly in two sectors: Energy and gas. It started in Feb after Ukraine invasion and russia oil embargo by the western country. I think what we see today is the effect of oil price going to $120, but when this oil issue is resolved by itself in the next few months, CPI will go back to 5-6% (just like during covid). When CPI goes back to 5%, 30Y Mortgage is going back to 4-5% hopefully. Usually oil crisis is very shortlived.

Oil Gas impacts the price of almost everything. It’s involved in so many manufacturing processes. Not to mention the transportation of goods and services. Until this gets under control, I think inflation will remain high.

with regards to them dropping mortgage rates, I don’t think the fed will do that unless unemployment gets too high or we start seeing deflation or inflation less than the 2% target.

rates are still super low by historical contexts, the Fed won’t drop them unless there’s a reason to in my opinion. 

Quote from @Eric James:

I think it depends on details of what happens in the economy. We may be moving into a recession....but accompanied by high inflation.  If so, prices may actually go up, rather than down. Including rents. But people will have difficulty affording the high prices. In a high inflationary environment  wouldn't having low, fixed rate income producing debt be attractive? Or any debt that is lower than the inflation rate. And it's  an open question as to just how far the Fed will be willing to raise interest rates if/when we go into a deepening recession. 

Inflation increases when money supply increases. Money supply = all cash AND credit in the economy. By lowering interest rates you would incentive more people to borrow money since it’s so cheap. Now there is more money and supply and same production levels.

Imagine an economy of an island that only produces coconuts. Let’s say there is 20 coconuts produced per year. Money supply is $100. If everyone spends their money the coconuts are $5/coconut. Next year government makes interest rate 0% so banks can loan money at any interest rate to make money so they offer .05% interest loans. Now people rush in to get all this credit and the money supply explodes to $200 in the economy. No change in production. Same number of coconut trees and coconut farmers, etc. Now there is $200 in the economy and 20 coconuts. Everyone spends their money and coconuts end up at $10/coconut. Inflation rose 100%. Obviously our economy is more complicated but that is why low interest rates produce inflation and why the Fed is so gung-ho about jacking them up.

that looks like a high density area just by the picture is there sewer in the street..  ???  if so hook up to sewer and fill in the cesspool if you must..

Quote from @Eric James:

One stated benefit of investing in real estate is price appreciation.  However, if you look at inflation adjusted real estate prices for the most part there isn't much appreciation.  There are specific points in time like 2006 (we know what followed that) and right now when real estate exceeds inflation adjusted prices. However,  over the long term it doesn't really appear that real estate appreciates much beyond inflation. Is real estate appreciation a myth?

https://www.supermoney.com/inf...

"We can debate whether this is a better investment than x but as to the initial question you posed, there is no doubt that growth in this market has clobbered the rate of inflation (as measured by CPI)."

And therein lies the rub. As detailed elsewhere in this thread, the CPI does not measure the rate of inflation. At least not by any sensible or classical definition of the term.

Rather, it captures the prices of a limited basket of consumer goods, which are likely to see naturally falling prices in real terms due to increases in productivity, improvements in technology, outsourcing of labor, increased capacity and so on.

If the price of a fixed basket of goods would have dropped 20% against a stable monetary baseline, but instead its price rose by 2%, it would be crazy to say "Well, inflation was only 2%!"

Yet that's what some people try to get you to do.

No, the inflationary price increase in that context was 22% relative to where it would otherwise be. At least.

And that's before we factor in substitutions, hedonic adjustments, and the fact that goods, services and assets that experience the greatest inflationary price increases aren't even included in the basket of goods. (Oil, rent, education, medical care, home prices, etc.)

This is why the classic definition of inflation is far more sensible. Inflation is when they create the currency. The price dynamics that occur after this are an entirely separate can of worms.