All Forum Posts by: Robert C.

@Jay Hinrichs, I think, in the short term, if there actually is movement to break up the big tech companies with anti-trust laws, that could be a big deal. I do believe some regulation is healthy for start up competition in the long run, but west coast cities are really dependent on Apple/Google/Facebook/Amazon etc for stability right now. They own all the office space and are expanding the most. I also don’t trust that that law makers understand the technology they want to regulate. 

As far as macro issues, I think that cheap debt is our biggest problem. Everyone from individuals to corporations to the fed have gotten too used to borrowing a lot of money for low prices. And while I think that gives a lot of downward pressure to keep things cheap. If anything shakes that loose, a lot of folks may have trouble coping. Of course not the homeowners who locked in cheap 30-years. 

@Cody L., @Trudy Pachon, @Jonathan Anderson, @Nicole Heasley Beitenman, I think getting into an argument about racism here may be going too far off topic. However, I just want to say for any of the landlords here who really think racism/systemic bias is an excuse, please just think about all the different things you've heard from other landlords about which "types" of tenants are more desirable than others. You may do your best personally to prevent bias in your own leasing standards, but there are clearly many landlords out there who have no issues leasing based on stereotypes. I wasn't in this business for more than a few days before I started hearing that kind of talk, so let's at least be a little bit honest about that. Forget systemic, the real estate industry is filled with blatant bias, and I'm positive most of us encounter it all the time. 

@Evan Parker, Now that I've read all the responses up to this point, I'm starting to wonder what all the folks here think about NIMBY-ism, which really happens at the far end of gentrification (the flip side of the coin). This is what we are dealing with in many parts of CA right now. Eventually, when enough gentrifying happens, many mid-level to expensive neighborhoods/regions could actually serve a better use to alleviate the housing crisis. From an investment perspective it would be equal or even more lucrative to redevelop the wealthy areas. In a way, that could point to another inequity, where communities are perfectly willing and able to gentrify the poorer neighborhoods, but they happily restrict developing where NIMBYs have power. 

Anyway, as @Chris Martin said, this is probably a question for another thread, but I couldn't help thinking it.

@Evan Parker, This is a question that is bigger than "ask the REI folks", and I think your gentrification example has more to do with capitalism and society as a whole, of which landlords/developers/etc are just cogs in the machine.

Everyone gets to draw their own lines about what part of society they want to participate in and how they personally wish to balance the good and the bad. When you talk about building skills and providing jobs where people live, that's really where government intervention comes into play (federal, state, and local). Just to add a footnote to @Tanner Marsey's post, not everyone can afford that Lamborghini, and that's okay, but it's really only through the government that you can create an even playing field so that people have as equal an opportunity as possible to achieve a higher status (if that's what a person wants).

@Marc Winter, Too little too late. Even if you did argue that rent control has short term benefits, this would have had to have been passed 5-7 years ago to have helped anyone. At this point, it will just encourage all the “nice” landlords who were way under market to start catching up (hurting the tenants who were getting a deal). I would also argue that it will make current rents stickier in the next down turn. 

The Bay Area had a 100%-150% run up in rents over the last 8 years. That’s not going to be happening again anytime soon and 10% annual increases will be plenty to keep up.

@Amit M., Totally agree, and I neglected to mention the specifics of San Francisco in my post. But yeah, there are some very unique characteristics like condo conversions that made small apartments interesting locally. Just look at duplexes and how those values increased even beyond 3/4plex properties. 

@Bea Leichliter, I've always been of the opinion that 2,3, 4plex investments are "neither here nor there" or "best of both worlds", depending on your perspective. The same market conditions that affect large apartment complex vacancies will generally also affect 4-plex vacancies in a down market.

Advantages of having a fourplex is limiting downside risk and having peace of mind by locking 30-year rates (as some people have mentioned). 2-4 unit buildings also allow cash constrained investors to get in on the RE game, particularly with techniques like house hacking. 

On the other hand, they don't tend to achieve the same appreciation as single family homes over the long term. Interest rates tend to be higher than SFR. At the same time they also don't necessarily achieve the same immediate value increases as large MF that come with rising rents, since value is largely based on comps (not income). They don't have economies of scale like with large MF.

What I saw in my market during the last recession is that 2-4 units dropped in value sooner and at greater amounts than other property types. They also recovered slower than SFR and MF. However, they did eventually catch up as people were priced out of SFR and started looking for lifestyle alternatives.

@Jason Dillard, For my market (Peninsula, Bay Area), I would say that it was easy between 2010 and 2015. 2016 to present has been much harder (or perhaps I am more risk adverse due to what I see as downsides in the market). There are some additional tradeoffs to consider locally such as Prop 13. And banks are not lending the way they were even a couple years ago for MF.

My sense though, based on all the recent complaints I read on here about low yield in other parts of the country, is that the rest of the country is starting to hit similar market conditions. That's a broad brush, I know - but in general I think people chasing more yield are finding that they have to tread more carefully lately.

@Mike McKinzie, The question you're asking is the thing that keeps me up at night! I think redeploying real estate equity is easier said than done, especially in today's environment of compressed cap rates. On the surface, yes, if I can move from a lower to higher return on equity, then it would make a lot of sense, but I believe people have to be cognizant of all the risks involved. 

A few thoughts on that point: 

It seems to me that selling when your properties are high inherently increases the risk in terms of where you are in the cycle and how your timing turns out upon redeployment (higher risk, higher reward, I suppose...). 

Also, if there is already a large spread between returns on your existing portfolio versus other properties in the same market, then it begs the question of whether your existing properties are being under-utilized somehow. 

If it were simple, everyone would be doing it! It's the essence of the game that we are all playing here. Whether you're a cashflow or appreciation investor or short term or long term, we're all trying to balance risk tolerance with our ability to maximize/accelerate real estate accumulation. 

@Joshua Baker, Definitely you make a good point about retail being harder to lease these days, and I can see how building 250k of office/retail would be a big gamble. But if the project size is like 50-100 residential units on top of maybe 10k of commercial, I'm wondering why that wouldn't be cost efficient. Or why not add some nominal commercial space just to get the zoning benefits? But maybe what you are saying is just the facts, and wishing it so won't make it better! I think what's challenging in my area is that the apartments are definitely getting harder to pencil, so I'm trying to figure out if it's possible to pursue a successful mixed use project.

@Greg Dickerson, So my downtown has built a ton of luxury housing during this cycle, and it surprises me that even those locations (downtown and near transportation with lots of pedestrian traffic) still skip the ground floor retail component. 

Thanks for both your responses. Do either of you foresee a light at the end of the tunnel for commercial development to pick up again?