All Forum Posts by: Rick P.

The problems in China are not overstated.  The issue isn't spotting the credit bubble, it's in timing when it's going to pop.  Chanos has been bearish on China since at least '08-'09 & famed investor Jim Rogers was calling for massive inflation in the United States since the 1980s because of money printing.  Conversely, Japan has been pushing on a string for 30 yrs trying to jump start their economy with endless amounts of money printing and they continue to be mired in stagnation.  

What are the limits of debt?  What are the limits of debt in a world where $13.5 trillion in govt bonds is trading at a negative yield?  I don't know the answers to this and frankly nobody else does.  You can't let it get in the way of you achieving your goals though.  The powers that be are going to do what they do.  All you can do is invest prudently and play the hand your dealt.  

There are definitely bubbles in some markets in the United States and around the globe.  There are many reasons for this.  Low interest rates and global capital flight probably being the two largest.  It's important to remember that when you see the sky high prices in NYC, SF, LA, Miami, Boston, etc they are being completely distorted by the fact that these are global markets that are benefiting from a global flight to safety.  This same paradigm is at work in the stock market.  As long as the global elite perceive the United States as being the clean shirt in a pile of dirty laundry we will continue to see capital deployed in these markets.   

On the other hand, the  majority of markets, especially in middle America and the southeast, are still very affordable at present.  Many of them are still slowly but surely working off foreclosures and are still way below all time bubble highs.  In fact, in the majority of America housing will most likely never reach a new inflation adjusted all time high.  So, what does it all mean?  Well, I think prudently investing in markets near large job centers or in expanding population centers like the southeast will continue to work.  

San Diego's median housing prices are roughly 8x the median income of a family of 4 in San Diego.  At roughly a current median home price of $500,000, prices are near their peak of $517,000 in November of 2005.  Obviously prices in hot parts of the city or places like LaJolla make that median metro price look like a comparative bargain. Things are outrageously overpriced in all of coastal California and that is not going to change as long as people want to live on the ocean.  Sure, there will be massive corrections in San Diego, along with Greater Los Angeles and the Bay Area at some point.  These are classic boom-bust markets.  When will that happen?  I don't know.  These aren't local markets.  Buyers come from all over the world to purchase property in these areas.  As Russell hinted at, a large percentage of these buyers are all cash buyers, often from overseas.  We're living through interesting times with $10 trillion plus in negative yielding bonds around the globe.  Emerging markets like Brazil and China have been spooked.  Investors are chasing 2 cap and lower apartment and commercial buildings in NYC and SF.  In my opinion it's a global flight to safety that has inflated our stock market and our top housing markets.  Unfortunately the end result is people being frozen out of the market.  

Scott is right on with what he's saying.  The majority of my properties outside of the city of Chicago are in Northwest Indiana.  I'd still love to know what town we're talking about.  Please don't say Ford Heights.  

Terrific to have another Chicagoan aboard for the ride.  Get out there and make it happen.

For some perspective, I have owned 4 plex's in Lansing, IL,  a south suburb of Chicago that borders Indiana.  At the time of this writing I currently still own 1 of them.  I purchased it for $180,000 & the gross rents are approximately $3,000/mo.  On the surface everything looks great.  However, the number one thing you need to pay attention to in the south suburbs of Chicago (Really all of Chicagoland) when evaluating a building is the tax rate.  The tax rates in these suburbs will absolutely kill you.  Do your research and pay attention to the trajectory of the taxes.  The effective property tax rate in Illinois is 2.25% (2nd behind NJ but not for long)  and that will be revised higher after the property tax hike in Chicago gets implemented.  In some of these south suburbs such as Harvey, Dolton, Park Forest, etc it is not uncommon to see effective tax rates of 4-6%, sometimes even higher.  I know this sounds absurd but it is true.  That means for every $100,000 you shell out you may be on the hook for $4,000-6,000 a yr in property taxes.  I am currently paying an effective tax rate of over 4% on my 4 plex in Lansing.  I hope this helps some.  

Currently in the midst of handing over a dozen or so 4 to 6 unit buildings in one of my LLC's to a management company. Before that, I had self managed this particular group of buildings. They are all in B- to C+ areas and over a period of time what worked best for me was keeping a level of distance between myself and my tenants. All checks were made out to a separate management company account. Considering you are going to be at the upper end of the rental market I'm guessing this isn't going to much of an issue for you. That said, I'd still go with the separate account for deposits since it was your original inclination.

1 yr leases are generally the way to go.  I have occasionally done an 18 month or 2 yr lease but do not prefer it.  Everything about a five yr lease at a fixed rate is in favor of the renter.  Not an ideal situation for a landlord.  

What Every Real Estate Investor Needs To Know About Cash Flow & 36 Other Key Financial Measures by Frank Galinelli.  It's def a bit more in depth than your average Real Estate get rich quick book.  At times you may even feel like you are back in school.  I know, most people are scared when confronted by a little math.  However, after you've read it you will be miles beyond even most seasoned real estate investors.  Good luck 

Darian, 

Great to have ya aboard.  Now get out there and start making it happen.  If there's anything I regret when I first got into Real Estate it was not getting out there and meeting more people.  Took me nearly a yr before I finally slammed the accelerator.  Hit the local REIAs like Chad suggested and let people in your circle know what you're after.  Feel free to reach out if ya ever have a question.  Good luck to ya.