All Forum Posts by: Robert C.

@Bryan Danger, If you want to get to the philosophical nuts and bolts of this, I think it's less about fear or avoiding a JOB and it's more about fulfillment and self-awareness in whatever you end up doing. Fear can be a motivating factor both for real estate investors, and for people who are living on a beach somewhere - and to that point, I don't view fear as a negative or positive emotion, because it can be a useful tool to get where you're going. Or - it can trap you in an unhappy life, too. 

For arguments sake, maybe at the end of someone's life sailing and traveling, they might feel less fulfilled than the guy who worked an 80-hour a week job for their whole life but provided for a family with a bunch of kids and grandkids and, to Jay's point, helped some other people in their life journey. 

Anyway, that's what I was thinking after the last few posts... I think everyone agrees you don't want to be psychologically trapped in a life with no internal value. 

@Jay Hinrichs, so I was just reading some market reports the other day. San Mateo county average home price for Q2 2021 went above $2m for the first time ever and the only Bay Area county to do that - speaking of what a home costs here. 

As to the OP question, I don’t know the answer yet. But I do know it’s hard to stop, especially in this environment when you see inflation and housing prices sky rocketing, and you’re wondering what your nest egg will actually be worth coming out of this cycle. Some folks might want to think about raising their numbers!

@Max T., Could be, which is why I'm only talking about my neck of the woods (real estate is local and all that). BUT, something to think about - people like to look at West Coast/California/Bay Area as some weird "never could happen to here" type of place. OR, maybe it's not far fetched to think that what's happened in the Bay Area in terms of politics/supply/demand/rent control is the natural progression of things. Other states have gotten a little taste during the pandemic of what happens when the money/demand spreads across the nation. Imagine what happens if Silicon Valley tech headquarters really do fully decentralize to other locations over time.

@Genny Li, In my opinion, the demand side of the argument in the Bay Area is totally moot. It's about supply and solving some of the affordability problems - neither of which are really addressed by the ADU's - it's just incentivizing the wrong people to build for often the wrong purpose. Just to point out a few things... 1.) If you want the brand new, not nasty corporate apartment with the amenities, you need to afford anywhere from $4500-$6500/month for a 2 bedroom. 2.) Focusing on downtown development might solve some of the problem, but it also cuts out a lot of smaller developers that could be building apartment housing instead of luxury homes. 3.) The rest of the housing stock around here is already 50+ years old.

@Max T., After having seen the first wave of ADU's coming online near me, I'm convinced it's not anything that's going to make a dent on the housing problem in the Bay Area. ADU's are being used to get around local FAR/zoning rules and they're mostly being used to house family members or for offices. Not to mention I'm still wary about what will happen to your property value here if you start treating an SFR as a duplex.

I think the ADU law was passed because there is no political will to eliminate single family residential zoning even though that's really what housing advocates want to do. I've also been thinking about how this idea of the "missing middle" housing is also misguided in how it's being implemented. The missing middle policies should address 2-4 units AND all those 5-20 unit apartment buildings that developers used to be incentivized to build. But a lot of those areas have been down zoned in favor of huge apartment complexes downtown.

@Jay Hinrichs, You're right. California charges foreign business tax at the same rates, and also claws back everything that they can even if you move. Even if you 1031 out, you will have to pay taxes from the time of you exchange out of state if you ever sell in the future. The biggest escape is still stock options that you can sell after you move away. Had I known how bad the taxes were here before I started, I would have planned ahead. 

@Mike Dymski, Would your advice be to lay low until these things work through the system - wait for the tsunami?

@Account Closed, In my opinion, what you're quote is describing is something that's backward looking at this point. If an investor hasn't already prepared their portfolio for the market disruption we are currently experiencing, then they've probably missed the boat. The inevitable has already happened, or some may argue in the process of happening.

@Amit M., There's definitely a whole lot of movement in the short term with people moving in and out, especially in SF proper. One thing I've been considering the last few days is that besides the layoffs, tech companies have given their employees permission to work from home to the end of the year or longer. That does give people a long enough window to relocate if they can get out of their leases, and I think that's happening on some level (even if they end up returning later). But why not go to a beach getaway or even the suburbs somewhere for 6+ months? I was just driving through downtown SF, and it has reached a new level of gross. And now these riots... There's not a ton of reason to shelter in place in the city if you can afford not to. 

@Account Closed, You're kind of making a point for me. Of course nobody can know the exact answer. But any investor who wants to participate in their market needs to form an opinion/make conclusions. There's no point in taking action if you can't come up with your own thesis. In times like these, a PhD doesn't necessarily have any better insight than someone who's trying to take the pulse of their local market. It's not "what I have that they don't", it's "what they have that I have, too" - it's called a brain.

@Greg Scott, No doubt the trouble in the retail sector will have an impact. Do you think that will translate heavily into problems in all rental markets? The bay area is so tech-centric, that I wonder weather we will weather that impact better. 

Is the question what will replace those businesses/jobs and how long will it take for a transition to take place?

I'm trying to reframe the question from too much of the gloom and doom talk, and looking for an informal poll about the way forward. My belief is that anyone analyzing their market needs to look slightly to the future, or at least stay solidly in the legitimate present to take advantage of opportunities. I can't believe that I am still hearing people ask "are we in a recession?" type questions. To me, it's way past the time to be asking that, and largely irrelevant from this point forward. 

Disclaimers - No, you can't time the market exactly, but the general trends can and do affect underwriting. Yes, some people have just continued to operate as normal with conservative underwriting standards, but not everyone or the opportunities they pursue operate that way.

Here's my sense of things from my market:

1.) There was a "Covid discount" that took affect after the shelter in place orders. That wasn't an across-the-board discount, but there have been some fearful sellers in a rush to get in contract/close. However, that is quickly going away now that the dust has settled and shelter in place is ending. 

2.) I don't hear the rumors of certain landlords/developers in financial trouble like I did after 2008. That makes me think people are reasonably capitalized. I'm skeptical of the idea of something bigger hitting 6-12 months out due to forbearance, etc.

3.) April and May rent collections were better than people expected. And people started getting back to work these last couple weeks, so pay checks will be steady again.

4.) Constructions costs have not dropped. If anything they are up due to material supply constraints and a backlog of work.

5.) Lenders tightened up, but seem to be starting to lend with better terms again.

6.) There's definitely shifting going on with rentals (people moving in and out), which is unsettling, but the rents in my neighborhoods have stayed steady. San Francisco has softened, but I think that's temporary due to transition. The suburbs seem stable.

Am I being too optimistic here?