All Forum Posts by: Nate R.

@David Song There is risk in any investment or speculation, but to me there is a spectrum with speculation on one end, investments in the middle and "risk-free" assets (cash) on the other end.

At least with some real estate, if the value goes down but it was purchased correctly, it is likely to continue to generate cash flow for the investor.

Most speculations are usually not very good investments. In other words, they don't generate any cash flow (gold) or the underlying businesses are so crummy they are probably losing money (like mining). The *only* reason to own them is because your hypothesis that they will go up in value. 

I consider highly leveraged coastal real estate with negative cash flow to be more on the "speculation" side of the continuum.

Care to share pics? I'm sure we would enjoy seeing before and after. :-D

I agree, it can be fun, but I would rather bet on sure things now.

I made lots of money in gold and silver from 2001 - 2012. I also lost money on all kinds of stocks, including penny stocks, more than one of which turned out to be a scam.

Real estate has made me more money than any speculation ever has. I've never lost money on any property, investment or residence.

I ran a cost of living calculator and it implied I would need something like 2 or 3 times my current salary in Austin working as a software engineer to live as comfortably in SF/Bay Area. While there might be a handful of superstars that get that, I highly doubt the average ones working in my industry make anywhere near that.

Surveys of salaries for cities in tech "bang for the buck" (avg. salaries adjusted for COL) showed Austin at or near the top and SF at the bottom.

I, too, am interested in Cleveland but have seen some mixed data. 

Neighborhood Scout is a data source that provides a lot of different data points to consider, as well as some proprietary indicators. One of them was "security". It rated the Cleveland suburb I was considering as "least secure" based on the past track record. Catering property values in the 2000's followed by tons of foreclosures, and only recently have the prices appeared to somewhat stabilize. On the other hand, it rated high for potential appreciation. So, this particular area was "high risk" and "high potential return". In fact, if you look at a chart of prices, it almost looks like it's forming a rounded bottom (anyone who has ever read a little about technical analysis in the stock market knows what I'm talking about). As a natural contrarian, I find that intriguing. 

If I had a lot of money to spread around, maybe I'd build a portfolio of homes in the sunbelt, where there is growth, mixed with some cash-flowing properties in the midwest. Some will inevitably do better than others at any given time. 

There is a really fun and interesting book called the "Cleveland Neighborhood Guidebook" that can add some anecdotes to the data. I agree with others on seeing a place first-hand before investing.

It was John Maynard Keynes who wrote: "The market can remain irrational longer than you can remain solvent."

He had made some highly leveraged trades that ended badly, presumably in ruin.

The story is here: https://quoteinvestigator.com/2011/08/09/remain-so...

The discussion diverged a bit, as we somehow got on the topic of comparing California and Texas economies. California is slow growth and its coastal property is scarce. As a result, the relatively small % population increases in California outpace job creation and housing supply, with low growth in payrolls. Texas on the other hand has lots of cheap land and companies have been moving here in droves. Job growth in TX outpaces that in CA. Forbes did a good article that touches on all these points.

My original point was that I wouldn't personally feel comfortable holding highly-leveraged property CA on the basis of expected appreciation, as I am not independently wealthy (yet - haha) and cannot sustain a hit to both my W2 income and the value of properties that are highly economically sensitive. CA property has appreciated over time but it's more volatile than property in TX. As one famous investor once said (I'm paraphrasing): The market can stay irrational longer than I can stay solvent.

"Coastal CA creams TX in appreciation over the last 3+ decades, no contest." That's nice. I'm investing for cash flow and all the millionaire apartment owners I know are investing in TX, although we have some people doing stuff in Sacramento, where the numbers make more sense.

Are you suggesting that people should buy coastal real estate because it appreciates, regardless of its ability cash flow? Personally I don't consider that investing, that's speculation. Are you counting people who owned their residences in California and saw them appreciate as "investors"? 

It's a personal story, but I never felt comfortable getting on the "property ladder" when I was living in LA, as I could never get comfortable with the idea of 50% or more of my take home pay going to service debt. Everyone is different, though. 

From Dallas Morning News:

  in California, Kentucky and New York have been asked to move next year, and the company has said it expects about 70 percent to accept -- an unusually high proportion, likely driven by generous relocation benefits.

Plus, the company expects to hire over 1,000 more for high-paying jobs in finance, quality engineering and sales, among other areas.

Ouch, Torrance lost 3000 employees, and that's got to be a significant loss for the state and local tax base, too. 

As a result there is a massive investment in Toyota's North Texas campus and the housing market in Plano and North Texas is red hot.

And this is just one example. Company after company is announcing moves like this.

That's what Cali is - a two tiered society with a small and shrinking affluent upper middle-class having to shoulder the burden of a high-tax welfare state, and a massive and growing underclass.

So they kept a few designers but moved all the back-office work, the kinds of jobs that can sustain middle-class families to Dallas. I would assume that highly-compensated executives moved as well.

Meanwhile TX companies continue to add STEM jobs every year. There are all kinds of software and engineering jobs where I am and the pay is lower than in CA but adjusted for cost of living affords a better lifestyle than I could ever hope for in CA.

I guess if I lived in California I would worry about more than just the RE market. I'd worry about jobs leaving for places like Texas, for example. Toyota Financial just moved its HQ and thousands of high-paying jobs to Dallas, and a bunch of other companies are moving, too.

California is super-leveraged. When things are going well, property prices shoot up, but they will come crashing down in a liquidity crisis. The first things people will want to get rid of in a downturn are high-end homes and negative cash-flow properties. Your economy is so tied to debt and tech sector speculation. Amazon is so much cheaper now at 259 times earnings than it was during the last crisis, but that's because investors expect it to show a profit, lol.

If I was the "typical" person there, with a tenuous job situation and a huge mortgage on one or more properties, I think I would have some sleepless nights.

I used to live in L.A. and remember when everything abruptly contracted in 2008-2009. I left for Texas in 2010 and didn't look back. Plentiful work (in tech), affordable housing, cash-flowing RE. It's nirvana, except we have no beaches and the weather is not nearly as nice. :p