All Forum Posts by: V.G Jason
V.G Jason has started 15 posts and replied 3397 times.
Post: Why markets with low appreciation grow your net worth twice as fast
- Investor
- Posts 3,448
- Votes 3,528
Quote from @Sean Martin:
Quote from @V.G Jason:
Quote from @Sean Martin:
Quote from @V.G Jason:
Quote from @Mike D.:
Quote from @V.G Jason:
Quote from @Dan H.:
Quote from @Mike D.:
Quote from @Becca F.:
This post generated over 100 comments...wow.. I agree with many of the comments about owning a higher quality asset in an appreciating market. I invest in the San Francisco Bay Area and Indianapolis metro area.
My appreciation and net worth from my California properties far surpasses my Indiana ones. For context my appreciating properties in CA and the Class A Indiana were acquired in 2013 or before. Class C Indy purchased in 2023.
I know a lot of multi-millionaires in the Bay Area who had middle class incomes (teacher, librarian, janitors, etc) who bought long ago (as in 2008 or going back to 1970s) with with just one or two rentals. This was when CA was more affordable and home prices weren't out of reach.
Example (not mine but someone I know):
- S.F. Bay Area home 3 bedroom, 2 bath 2100 sq ft (lower level living area brings it up to 2700 sq ft) purchased in 1960s for $68,000
- listed for sale in 2014 for $1.25 million, bidding war, sold for $1.71million.
- New owner renovates it, listed in in 2021 for $2.5million, bidding war sells for $3.078 million. Owner #2 made $1.368 million (minus commission and closing costs) in 7 years. That's a pretty good return to me.
I tried to read every single post but stopped on page 4. I didn't see anyone mention this but in California our property taxes go up a max of 2% a year (from Proposition 13 passed in 1978). Long time owners (primary home owners and investors) benefit from this but newer buyers pay high property taxes.
I had an Indy property management company do an analysis of my 3 homes. Class A could keep for appreciation, doubled in value but my property taxes go up significantly, 17% the last assessment (at this rate the property tax will surpass my California properties in a few years - not joking). For the Class C homes, he said I'm unlikely to get a good return unless I get a great tenant and they stay for a long time and the properties stabilize (repair calls reduce). The tenants will likely be lower income for a very long time. I sold one of the Class C and the other one is still rented. By the time the Class C appreciates enough I'll be over 100 years old.
If I was going to be cash flow negative from the start, I would have bought one higher quality asset instead of 2 Class C homes. To the OP, Mike D. meaning buying in Hamilton County suburbs (where my Class A) instead of east side of Indianapolis.
I think people who live in low cost markets do better investing there instead of investors who live 2000 miles away. I also think there are sub markets with lower cost markets and I recommended to CA investors to buy higher quality assets OOS not the cheapest house they can find.
If I were evaluating Class A vs Class C I would figure out the amount I need to put down to cashflow and then run an ROE calculation on both. Nothing wrong with Class A as long as you understand the difference in return and make a tradeoff you like. Its ROE will be much lower, but less volatile, less maintenance calls, less annoyance.
Yes, the outskirts of Indy such as Hamilton County give truly amazing ROE due to even better cashflow and lower property taxes than Indy and for some reason are neglected by investors.
Thanks for the feedback!
Here are the issues:
1) you already have demonstrated multiple times that you do not know how to calculate ROE. Anything you say on this matter has lost its credibility.
2) you already indicated that your cash flow analysis in the high appreciating markets (maybe all markets) included OO purchases in determining the property value. This perturbs your property cost upwards significantly that increases your negative cash flow calculation.
The underwriting results are only as good as the underwriting inputs and algorithm. Both your numbers and algorithm need work.
I could use virtually any reasonable leveraged LTV you desire and show a purchase from 2000 or 2010 in my market would crush the low appreciating markets. My market would have better cash flow and better appreciation over the hold.
Good luck
Fair points.
The other thing to really discount is this tunnel vision view of ROE. ROE isn't why you invest, it's apart of why you invest. You don't invest for CoC, just cash flow, or just appreciation. You invest in physical RE with multiple things on the horizon; store of value, value add, utility, tax benefits. Those in some shape or form are appreciation, cash flow, and intrinsic value.
If the focus of ROE is on real estate-- you're best off with value adds in primo areas. And re-financing. Those fixes alone are a huge uptick in ROE.
Putting a new bathroom and bedroom in the hood Memphis or primo Memphis will cost you marginally the same, but the ROE is noticeably different. So even if we want to use ROE and cherrypick this, you're still better off in a better area because appreciation is an input for ROE. And interestingly enough, in these bad areas your rental appreciation does stagnate which actually is diminishing ROE. And in good areas, because they are scarce, your rental appreciate grows quicker(likely) and it's a net positive for ROE.
The cash flow and debt paydown are simply functions of LTV and for that I'll continue to say if you want to buy low hanging fruits, go for it. Physical RE is very hard, pay me to wear the risk or let me buy scarcity. I'd take capital almost anywhere else then there in RE-- I want quality!
You can certainly get high returns with value adds, but this post is about passive investing.
Regarding this: "So even if we want to use ROE and cherrypick this, you're still better off in a better area because appreciation is an input for ROE. And interestingly enough, in these bad areas your rental appreciation does stagnate which actually is diminishing ROE. And in good areas, because they are scarce, your rental appreciate grows quicker(likely) and it's a net positive for ROE."
What you're missing is that you aren't going to be able to invest in these high appreciation areas without a very significant down payment--otherwise you take on major negative cashflow--and that lowers ROE by increasing the denominator side. The appreciation will not typically come close to making up for it and my initial example shows why and how. If you are willing and able to deal with negative cashflow, that's another story, but most investors are not.
Also, if investing in a true warzone area in a declining city, yes, the depreciation diminishes ROE. This argument might apply to certain areas of say Detroit or Gary Indiana and I would not advise investing there for that reason. By capturing modest appreciation in a growing area of say Indianapolis or Memphis, you do come out ahead.
No, I do get that. That's why I keep telling you my cash has options. Rather go to equities than go to bottom feeder places.
Physical RE is hard and nasty, if I'm going through this pain, I better be getting those characteristics I've mentioned above. Otherwise, it's onto equities, timber, oil, Bitcoin, etc.
Gary, Indiana isn't worth it.
Guys, I like hearing from both sides as it is educating. But Mike has stated multiple times he is not talking about bottom of the barrel cities like Gary. There are half decent cash flow type cities around the country that are not total war zones.
Being specific on the cities is asking how much dirtier your dirt is. It's futile, the premise sticks.
Same thing could be said for Memphis and Nashville.
Post: Why markets with low appreciation grow your net worth twice as fast
- Investor
- Posts 3,448
- Votes 3,528
Quote from @Sean Martin:
Quote from @V.G Jason:
Quote from @Mike D.:
Quote from @V.G Jason:
Quote from @Dan H.:
Quote from @Mike D.:
Quote from @Becca F.:
This post generated over 100 comments...wow.. I agree with many of the comments about owning a higher quality asset in an appreciating market. I invest in the San Francisco Bay Area and Indianapolis metro area.
My appreciation and net worth from my California properties far surpasses my Indiana ones. For context my appreciating properties in CA and the Class A Indiana were acquired in 2013 or before. Class C Indy purchased in 2023.
I know a lot of multi-millionaires in the Bay Area who had middle class incomes (teacher, librarian, janitors, etc) who bought long ago (as in 2008 or going back to 1970s) with with just one or two rentals. This was when CA was more affordable and home prices weren't out of reach.
Example (not mine but someone I know):
- S.F. Bay Area home 3 bedroom, 2 bath 2100 sq ft (lower level living area brings it up to 2700 sq ft) purchased in 1960s for $68,000
- listed for sale in 2014 for $1.25 million, bidding war, sold for $1.71million.
- New owner renovates it, listed in in 2021 for $2.5million, bidding war sells for $3.078 million. Owner #2 made $1.368 million (minus commission and closing costs) in 7 years. That's a pretty good return to me.
I tried to read every single post but stopped on page 4. I didn't see anyone mention this but in California our property taxes go up a max of 2% a year (from Proposition 13 passed in 1978). Long time owners (primary home owners and investors) benefit from this but newer buyers pay high property taxes.
I had an Indy property management company do an analysis of my 3 homes. Class A could keep for appreciation, doubled in value but my property taxes go up significantly, 17% the last assessment (at this rate the property tax will surpass my California properties in a few years - not joking). For the Class C homes, he said I'm unlikely to get a good return unless I get a great tenant and they stay for a long time and the properties stabilize (repair calls reduce). The tenants will likely be lower income for a very long time. I sold one of the Class C and the other one is still rented. By the time the Class C appreciates enough I'll be over 100 years old.
If I was going to be cash flow negative from the start, I would have bought one higher quality asset instead of 2 Class C homes. To the OP, Mike D. meaning buying in Hamilton County suburbs (where my Class A) instead of east side of Indianapolis.
I think people who live in low cost markets do better investing there instead of investors who live 2000 miles away. I also think there are sub markets with lower cost markets and I recommended to CA investors to buy higher quality assets OOS not the cheapest house they can find.
If I were evaluating Class A vs Class C I would figure out the amount I need to put down to cashflow and then run an ROE calculation on both. Nothing wrong with Class A as long as you understand the difference in return and make a tradeoff you like. Its ROE will be much lower, but less volatile, less maintenance calls, less annoyance.
Yes, the outskirts of Indy such as Hamilton County give truly amazing ROE due to even better cashflow and lower property taxes than Indy and for some reason are neglected by investors.
Thanks for the feedback!
Here are the issues:
1) you already have demonstrated multiple times that you do not know how to calculate ROE. Anything you say on this matter has lost its credibility.
2) you already indicated that your cash flow analysis in the high appreciating markets (maybe all markets) included OO purchases in determining the property value. This perturbs your property cost upwards significantly that increases your negative cash flow calculation.
The underwriting results are only as good as the underwriting inputs and algorithm. Both your numbers and algorithm need work.
I could use virtually any reasonable leveraged LTV you desire and show a purchase from 2000 or 2010 in my market would crush the low appreciating markets. My market would have better cash flow and better appreciation over the hold.
Good luck
Fair points.
The other thing to really discount is this tunnel vision view of ROE. ROE isn't why you invest, it's apart of why you invest. You don't invest for CoC, just cash flow, or just appreciation. You invest in physical RE with multiple things on the horizon; store of value, value add, utility, tax benefits. Those in some shape or form are appreciation, cash flow, and intrinsic value.
If the focus of ROE is on real estate-- you're best off with value adds in primo areas. And re-financing. Those fixes alone are a huge uptick in ROE.
Putting a new bathroom and bedroom in the hood Memphis or primo Memphis will cost you marginally the same, but the ROE is noticeably different. So even if we want to use ROE and cherrypick this, you're still better off in a better area because appreciation is an input for ROE. And interestingly enough, in these bad areas your rental appreciation does stagnate which actually is diminishing ROE. And in good areas, because they are scarce, your rental appreciate grows quicker(likely) and it's a net positive for ROE.
The cash flow and debt paydown are simply functions of LTV and for that I'll continue to say if you want to buy low hanging fruits, go for it. Physical RE is very hard, pay me to wear the risk or let me buy scarcity. I'd take capital almost anywhere else then there in RE-- I want quality!
You can certainly get high returns with value adds, but this post is about passive investing.
Regarding this: "So even if we want to use ROE and cherrypick this, you're still better off in a better area because appreciation is an input for ROE. And interestingly enough, in these bad areas your rental appreciation does stagnate which actually is diminishing ROE. And in good areas, because they are scarce, your rental appreciate grows quicker(likely) and it's a net positive for ROE."
What you're missing is that you aren't going to be able to invest in these high appreciation areas without a very significant down payment--otherwise you take on major negative cashflow--and that lowers ROE by increasing the denominator side. The appreciation will not typically come close to making up for it and my initial example shows why and how. If you are willing and able to deal with negative cashflow, that's another story, but most investors are not.
Also, if investing in a true warzone area in a declining city, yes, the depreciation diminishes ROE. This argument might apply to certain areas of say Detroit or Gary Indiana and I would not advise investing there for that reason. By capturing modest appreciation in a growing area of say Indianapolis or Memphis, you do come out ahead.
No, I do get that. That's why I keep telling you my cash has options. Rather go to equities than go to bottom feeder places.
Physical RE is hard and nasty, if I'm going through this pain, I better be getting those characteristics I've mentioned above. Otherwise, it's onto equities, timber, oil, Bitcoin, etc.
Gary, Indiana isn't worth it.
Guys, I like hearing from both sides as it is educating. But Mike has stated multiple times he is not talking about bottom of the barrel cities like Gary. There are half decent cash flow type cities around the country that are not total war zones.
Being specific on the cities is asking how much dirtier your dirt is. It's futile, the premise sticks.
Post: Where does house hacking still work in Chicago?
- Investor
- Posts 3,448
- Votes 3,528
Quote from @Paul De Luca:
Quote from @V.G Jason:
Quote from @Paul De Luca:
Quote from @V.G Jason:
Quote from @Paul De Luca:
Quote from @V.G Jason:
The risks of self managing and disrupting family/independence just isn't worth the material risk for anyone over 25, maybe 28 years old.
House hacking is the low hanging fruit to get in. But people never explain those aforementioned risks.
Think most of us want to find properties that exhibit intrinsic valuation or aren't terribly deep OTM and show vast extrinsic applied to it. That's really showing something if you can get that. This is just kind of expected and can be done anywhere, pay the least down, get the most rooms then rent each room.
Still likely overpaying for the property once you consider it's at market, and if you had to use a DSCR or a normal conventional way you would not qualify.
What are the risks of self-managing? If you're saying house hacking as a family with children can limit your privacy or be less desirable than owning a detached single family home, I don't disagree. However, many families rent or owner-occupy apartments in 2-4 unit buildings, condos, or townhomes. House hacking is essentially the same situation with the exception of the owner/landlord aspect to it. For me, I would rank house hacking as a more desirable situation than any of the above I laid out. What are these material risks you're alluding to?
Setting the age limit for self-managing or house hacking at 25-28 seems pretty arbitrary as well. Many people are now delaying buying homes or starting families until later in life (30s or even 40s+).
What risks are there for self managing? The grandest of them all... liability. This is why most RE agents shouldn't be giving advice, they never see the blind spots.
Do you have any specific examples of greater liability when self-managing?
Do you need examples? Or do you not understand what you're asking?
Yes, that's why I asked.
Are you talking about only self-managing while you live in the property or are you talking about self-managing any properties in general, whether owner-occupied or not?
All of the above. Besides being a point of contact, a property manager is best. You want to deflect any and all areas of liability.
Just being exposed is the most basic issue, but beyond that being in constant contact let alone living with/near them is enough to define it as "greater" liability.
Post: Where does house hacking still work in Chicago?
- Investor
- Posts 3,448
- Votes 3,528
Quote from @Paul De Luca:
Quote from @V.G Jason:
Quote from @Paul De Luca:
Quote from @V.G Jason:
The risks of self managing and disrupting family/independence just isn't worth the material risk for anyone over 25, maybe 28 years old.
House hacking is the low hanging fruit to get in. But people never explain those aforementioned risks.
Think most of us want to find properties that exhibit intrinsic valuation or aren't terribly deep OTM and show vast extrinsic applied to it. That's really showing something if you can get that. This is just kind of expected and can be done anywhere, pay the least down, get the most rooms then rent each room.
Still likely overpaying for the property once you consider it's at market, and if you had to use a DSCR or a normal conventional way you would not qualify.
What are the risks of self-managing? If you're saying house hacking as a family with children can limit your privacy or be less desirable than owning a detached single family home, I don't disagree. However, many families rent or owner-occupy apartments in 2-4 unit buildings, condos, or townhomes. House hacking is essentially the same situation with the exception of the owner/landlord aspect to it. For me, I would rank house hacking as a more desirable situation than any of the above I laid out. What are these material risks you're alluding to?
Setting the age limit for self-managing or house hacking at 25-28 seems pretty arbitrary as well. Many people are now delaying buying homes or starting families until later in life (30s or even 40s+).
What risks are there for self managing? The grandest of them all... liability. This is why most RE agents shouldn't be giving advice, they never see the blind spots.
Do you have any specific examples of greater liability when self-managing?
Do you need examples? Or do you not understand what you're asking?
Post: Where does house hacking still work in Chicago?
- Investor
- Posts 3,448
- Votes 3,528
Quote from @Paul De Luca:
Quote from @V.G Jason:
The risks of self managing and disrupting family/independence just isn't worth the material risk for anyone over 25, maybe 28 years old.
House hacking is the low hanging fruit to get in. But people never explain those aforementioned risks.
Think most of us want to find properties that exhibit intrinsic valuation or aren't terribly deep OTM and show vast extrinsic applied to it. That's really showing something if you can get that. This is just kind of expected and can be done anywhere, pay the least down, get the most rooms then rent each room.
Still likely overpaying for the property once you consider it's at market, and if you had to use a DSCR or a normal conventional way you would not qualify.
What are the risks of self-managing? If you're saying house hacking as a family with children can limit your privacy or be less desirable than owning a detached single family home, I don't disagree. However, many families rent or owner-occupy apartments in 2-4 unit buildings, condos, or townhomes. House hacking is essentially the same situation with the exception of the owner/landlord aspect to it. For me, I would rank house hacking as a more desirable situation than any of the above I laid out. What are these material risks you're alluding to?
Setting the age limit for self-managing or house hacking at 25-28 seems pretty arbitrary as well. Many people are now delaying buying homes or starting families until later in life (30s or even 40s+).
What risks are there for self managing? The grandest of them all... liability. This is why most RE agents shouldn't be giving advice, they never see the blind spots.
Post: Why markets with low appreciation grow your net worth twice as fast
- Investor
- Posts 3,448
- Votes 3,528
Quote from @James Hamling:
Quote from @V.G Jason:
Quote from @Mike D.:
Quote from @V.G Jason:
Quote from @Dan H.:
Quote from @Mike D.:
Quote from @Becca F.:
This post generated over 100 comments...wow.. I agree with many of the comments about owning a higher quality asset in an appreciating market. I invest in the San Francisco Bay Area and Indianapolis metro area.
My appreciation and net worth from my California properties far surpasses my Indiana ones. For context my appreciating properties in CA and the Class A Indiana were acquired in 2013 or before. Class C Indy purchased in 2023.
I know a lot of multi-millionaires in the Bay Area who had middle class incomes (teacher, librarian, janitors, etc) who bought long ago (as in 2008 or going back to 1970s) with with just one or two rentals. This was when CA was more affordable and home prices weren't out of reach.
Example (not mine but someone I know):
- S.F. Bay Area home 3 bedroom, 2 bath 2100 sq ft (lower level living area brings it up to 2700 sq ft) purchased in 1960s for $68,000
- listed for sale in 2014 for $1.25 million, bidding war, sold for $1.71million.
- New owner renovates it, listed in in 2021 for $2.5million, bidding war sells for $3.078 million. Owner #2 made $1.368 million (minus commission and closing costs) in 7 years. That's a pretty good return to me.
I tried to read every single post but stopped on page 4. I didn't see anyone mention this but in California our property taxes go up a max of 2% a year (from Proposition 13 passed in 1978). Long time owners (primary home owners and investors) benefit from this but newer buyers pay high property taxes.
I had an Indy property management company do an analysis of my 3 homes. Class A could keep for appreciation, doubled in value but my property taxes go up significantly, 17% the last assessment (at this rate the property tax will surpass my California properties in a few years - not joking). For the Class C homes, he said I'm unlikely to get a good return unless I get a great tenant and they stay for a long time and the properties stabilize (repair calls reduce). The tenants will likely be lower income for a very long time. I sold one of the Class C and the other one is still rented. By the time the Class C appreciates enough I'll be over 100 years old.
If I was going to be cash flow negative from the start, I would have bought one higher quality asset instead of 2 Class C homes. To the OP, Mike D. meaning buying in Hamilton County suburbs (where my Class A) instead of east side of Indianapolis.
I think people who live in low cost markets do better investing there instead of investors who live 2000 miles away. I also think there are sub markets with lower cost markets and I recommended to CA investors to buy higher quality assets OOS not the cheapest house they can find.
If I were evaluating Class A vs Class C I would figure out the amount I need to put down to cashflow and then run an ROE calculation on both. Nothing wrong with Class A as long as you understand the difference in return and make a tradeoff you like. Its ROE will be much lower, but less volatile, less maintenance calls, less annoyance.
Yes, the outskirts of Indy such as Hamilton County give truly amazing ROE due to even better cashflow and lower property taxes than Indy and for some reason are neglected by investors.
Thanks for the feedback!
Here are the issues:
1) you already have demonstrated multiple times that you do not know how to calculate ROE. Anything you say on this matter has lost its credibility.
2) you already indicated that your cash flow analysis in the high appreciating markets (maybe all markets) included OO purchases in determining the property value. This perturbs your property cost upwards significantly that increases your negative cash flow calculation.
The underwriting results are only as good as the underwriting inputs and algorithm. Both your numbers and algorithm need work.
I could use virtually any reasonable leveraged LTV you desire and show a purchase from 2000 or 2010 in my market would crush the low appreciating markets. My market would have better cash flow and better appreciation over the hold.
Good luck
Fair points.
The other thing to really discount is this tunnel vision view of ROE. ROE isn't why you invest, it's apart of why you invest. You don't invest for CoC, just cash flow, or just appreciation. You invest in physical RE with multiple things on the horizon; store of value, value add, utility, tax benefits. Those in some shape or form are appreciation, cash flow, and intrinsic value.
If the focus of ROE is on real estate-- you're best off with value adds in primo areas. And re-financing. Those fixes alone are a huge uptick in ROE.
Putting a new bathroom and bedroom in the hood Memphis or primo Memphis will cost you marginally the same, but the ROE is noticeably different. So even if we want to use ROE and cherrypick this, you're still better off in a better area because appreciation is an input for ROE. And interestingly enough, in these bad areas your rental appreciation does stagnate which actually is diminishing ROE. And in good areas, because they are scarce, your rental appreciate grows quicker(likely) and it's a net positive for ROE.
The cash flow and debt paydown are simply functions of LTV and for that I'll continue to say if you want to buy low hanging fruits, go for it. Physical RE is very hard, pay me to wear the risk or let me buy scarcity. I'd take capital almost anywhere else then there in RE-- I want quality!
You can certainly get high returns with value adds, but this post is about passive investing.
Regarding this: "So even if we want to use ROE and cherrypick this, you're still better off in a better area because appreciation is an input for ROE. And interestingly enough, in these bad areas your rental appreciation does stagnate which actually is diminishing ROE. And in good areas, because they are scarce, your rental appreciate grows quicker(likely) and it's a net positive for ROE."
What you're missing is that you aren't going to be able to invest in these high appreciation areas without a very significant down payment--otherwise you take on major negative cashflow--and that lowers ROE by increasing the denominator side. The appreciation will not typically come close to making up for it and my initial example shows why and how. If you are willing and able to deal with negative cashflow, that's another story, but most investors are not.
Also, if investing in a true warzone area in a declining city, yes, the depreciation diminishes ROE. This argument might apply to certain areas of say Detroit or Gary Indiana and I would not advise investing there for that reason. By capturing modest appreciation in a growing area of say Indianapolis or Memphis, you do come out ahead.
No, I do get that. That's why I keep telling you my cash has options. Rather go to equities than go to bottom feeder places.
Physical RE is hard and nasty, if I'm going through this pain, I better be getting those characteristics I've mentioned above. Otherwise, it's onto equities, timber, oil, Bitcoin, etc.
Gary, Indiana isn't worth it.
There is nothing "passive" about being a Landlord.
And ever so more true the lower the price/quality class get's.
VOO is "passive".
I can invest from the bath-tub. Monitor at will or, never at all. And liquidate with the swipe of a button.
Agreed, I should've stopped at that point.
"Passive".
That doesn't exist and sure as heck does not in Gary, Indiana. If anything, you want passive. Your best bet is actually again better properties in better cities.
Post: Why markets with low appreciation grow your net worth twice as fast
- Investor
- Posts 3,448
- Votes 3,528
Quote from @Mike D.:
Quote from @V.G Jason:
Quote from @Dan H.:
Quote from @Mike D.:
Quote from @Becca F.:
This post generated over 100 comments...wow.. I agree with many of the comments about owning a higher quality asset in an appreciating market. I invest in the San Francisco Bay Area and Indianapolis metro area.
My appreciation and net worth from my California properties far surpasses my Indiana ones. For context my appreciating properties in CA and the Class A Indiana were acquired in 2013 or before. Class C Indy purchased in 2023.
I know a lot of multi-millionaires in the Bay Area who had middle class incomes (teacher, librarian, janitors, etc) who bought long ago (as in 2008 or going back to 1970s) with with just one or two rentals. This was when CA was more affordable and home prices weren't out of reach.
Example (not mine but someone I know):
- S.F. Bay Area home 3 bedroom, 2 bath 2100 sq ft (lower level living area brings it up to 2700 sq ft) purchased in 1960s for $68,000
- listed for sale in 2014 for $1.25 million, bidding war, sold for $1.71million.
- New owner renovates it, listed in in 2021 for $2.5million, bidding war sells for $3.078 million. Owner #2 made $1.368 million (minus commission and closing costs) in 7 years. That's a pretty good return to me.
I tried to read every single post but stopped on page 4. I didn't see anyone mention this but in California our property taxes go up a max of 2% a year (from Proposition 13 passed in 1978). Long time owners (primary home owners and investors) benefit from this but newer buyers pay high property taxes.
I had an Indy property management company do an analysis of my 3 homes. Class A could keep for appreciation, doubled in value but my property taxes go up significantly, 17% the last assessment (at this rate the property tax will surpass my California properties in a few years - not joking). For the Class C homes, he said I'm unlikely to get a good return unless I get a great tenant and they stay for a long time and the properties stabilize (repair calls reduce). The tenants will likely be lower income for a very long time. I sold one of the Class C and the other one is still rented. By the time the Class C appreciates enough I'll be over 100 years old.
If I was going to be cash flow negative from the start, I would have bought one higher quality asset instead of 2 Class C homes. To the OP, Mike D. meaning buying in Hamilton County suburbs (where my Class A) instead of east side of Indianapolis.
I think people who live in low cost markets do better investing there instead of investors who live 2000 miles away. I also think there are sub markets with lower cost markets and I recommended to CA investors to buy higher quality assets OOS not the cheapest house they can find.
If I were evaluating Class A vs Class C I would figure out the amount I need to put down to cashflow and then run an ROE calculation on both. Nothing wrong with Class A as long as you understand the difference in return and make a tradeoff you like. Its ROE will be much lower, but less volatile, less maintenance calls, less annoyance.
Yes, the outskirts of Indy such as Hamilton County give truly amazing ROE due to even better cashflow and lower property taxes than Indy and for some reason are neglected by investors.
Thanks for the feedback!
Here are the issues:
1) you already have demonstrated multiple times that you do not know how to calculate ROE. Anything you say on this matter has lost its credibility.
2) you already indicated that your cash flow analysis in the high appreciating markets (maybe all markets) included OO purchases in determining the property value. This perturbs your property cost upwards significantly that increases your negative cash flow calculation.
The underwriting results are only as good as the underwriting inputs and algorithm. Both your numbers and algorithm need work.
I could use virtually any reasonable leveraged LTV you desire and show a purchase from 2000 or 2010 in my market would crush the low appreciating markets. My market would have better cash flow and better appreciation over the hold.
Good luck
Fair points.
The other thing to really discount is this tunnel vision view of ROE. ROE isn't why you invest, it's apart of why you invest. You don't invest for CoC, just cash flow, or just appreciation. You invest in physical RE with multiple things on the horizon; store of value, value add, utility, tax benefits. Those in some shape or form are appreciation, cash flow, and intrinsic value.
If the focus of ROE is on real estate-- you're best off with value adds in primo areas. And re-financing. Those fixes alone are a huge uptick in ROE.
Putting a new bathroom and bedroom in the hood Memphis or primo Memphis will cost you marginally the same, but the ROE is noticeably different. So even if we want to use ROE and cherrypick this, you're still better off in a better area because appreciation is an input for ROE. And interestingly enough, in these bad areas your rental appreciation does stagnate which actually is diminishing ROE. And in good areas, because they are scarce, your rental appreciate grows quicker(likely) and it's a net positive for ROE.
The cash flow and debt paydown are simply functions of LTV and for that I'll continue to say if you want to buy low hanging fruits, go for it. Physical RE is very hard, pay me to wear the risk or let me buy scarcity. I'd take capital almost anywhere else then there in RE-- I want quality!
You can certainly get high returns with value adds, but this post is about passive investing.
Regarding this: "So even if we want to use ROE and cherrypick this, you're still better off in a better area because appreciation is an input for ROE. And interestingly enough, in these bad areas your rental appreciation does stagnate which actually is diminishing ROE. And in good areas, because they are scarce, your rental appreciate grows quicker(likely) and it's a net positive for ROE."
What you're missing is that you aren't going to be able to invest in these high appreciation areas without a very significant down payment--otherwise you take on major negative cashflow--and that lowers ROE by increasing the denominator side. The appreciation will not typically come close to making up for it and my initial example shows why and how. If you are willing and able to deal with negative cashflow, that's another story, but most investors are not.
Also, if investing in a true warzone area in a declining city, yes, the depreciation diminishes ROE. This argument might apply to certain areas of say Detroit or Gary Indiana and I would not advise investing there for that reason. By capturing modest appreciation in a growing area of say Indianapolis or Memphis, you do come out ahead.
No, I do get that. That's why I keep telling you my cash has options. Rather go to equities than go to bottom feeder places.
Physical RE is hard and nasty, if I'm going through this pain, I better be getting those characteristics I've mentioned above. Otherwise, it's onto equities, timber, oil, Bitcoin, etc.
Gary, Indiana isn't worth it.
Post: Why markets with low appreciation grow your net worth twice as fast
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Quote from @Alan F.:
Quote from @V.G Jason:
Quote from @Dan H.:
Quote from @Mike D.:
Quote from @Becca F.:
This post generated over 100 comments...wow.. I agree with many of the comments about owning a higher quality asset in an appreciating market. I invest in the San Francisco Bay Area and Indianapolis metro area.
My appreciation and net worth from my California properties far surpasses my Indiana ones. For context my appreciating properties in CA and the Class A Indiana were acquired in 2013 or before. Class C Indy purchased in 2023.
I know a lot of multi-millionaires in the Bay Area who had middle class incomes (teacher, librarian, janitors, etc) who bought long ago (as in 2008 or going back to 1970s) with with just one or two rentals. This was when CA was more affordable and home prices weren't out of reach.
Example (not mine but someone I know):
- S.F. Bay Area home 3 bedroom, 2 bath 2100 sq ft (lower level living area brings it up to 2700 sq ft) purchased in 1960s for $68,000
- listed for sale in 2014 for $1.25 million, bidding war, sold for $1.71million.
- New owner renovates it, listed in in 2021 for $2.5million, bidding war sells for $3.078 million. Owner #2 made $1.368 million (minus commission and closing costs) in 7 years. That's a pretty good return to me.
I tried to read every single post but stopped on page 4. I didn't see anyone mention this but in California our property taxes go up a max of 2% a year (from Proposition 13 passed in 1978). Long time owners (primary home owners and investors) benefit from this but newer buyers pay high property taxes.
I had an Indy property management company do an analysis of my 3 homes. Class A could keep for appreciation, doubled in value but my property taxes go up significantly, 17% the last assessment (at this rate the property tax will surpass my California properties in a few years - not joking). For the Class C homes, he said I'm unlikely to get a good return unless I get a great tenant and they stay for a long time and the properties stabilize (repair calls reduce). The tenants will likely be lower income for a very long time. I sold one of the Class C and the other one is still rented. By the time the Class C appreciates enough I'll be over 100 years old.
If I was going to be cash flow negative from the start, I would have bought one higher quality asset instead of 2 Class C homes. To the OP, Mike D. meaning buying in Hamilton County suburbs (where my Class A) instead of east side of Indianapolis.
I think people who live in low cost markets do better investing there instead of investors who live 2000 miles away. I also think there are sub markets with lower cost markets and I recommended to CA investors to buy higher quality assets OOS not the cheapest house they can find.
If I were evaluating Class A vs Class C I would figure out the amount I need to put down to cashflow and then run an ROE calculation on both. Nothing wrong with Class A as long as you understand the difference in return and make a tradeoff you like. Its ROE will be much lower, but less volatile, less maintenance calls, less annoyance.
Yes, the outskirts of Indy such as Hamilton County give truly amazing ROE due to even better cashflow and lower property taxes than Indy and for some reason are neglected by investors.
Thanks for the feedback!
Here are the issues:
1) you already have demonstrated multiple times that you do not know how to calculate ROE. Anything you say on this matter has lost its credibility.
2) you already indicated that your cash flow analysis in the high appreciating markets (maybe all markets) included OO purchases in determining the property value. This perturbs your property cost upwards significantly that increases your negative cash flow calculation.
The underwriting results are only as good as the underwriting inputs and algorithm. Both your numbers and algorithm need work.
I could use virtually any reasonable leveraged LTV you desire and show a purchase from 2000 or 2010 in my market would crush the low appreciating markets. My market would have better cash flow and better appreciation over the hold.
Good luck
Fair points.
The other thing to really discount is this tunnel vision view of ROE. ROE isn't why you invest, it's apart of why you invest. You don't invest for CoC, just cash flow, or just appreciation. You invest in physical RE with multiple things on the horizon; store of value, value add, utility, tax benefits. Those in some shape or form are appreciation, cash flow, and intrinsic value.
If the focus of ROE is on real estate-- you're best off with value adds in primo areas. And re-financing. Those fixes alone are a huge uptick in ROE.
Putting a new bathroom and bedroom in the hood Memphis or primo Memphis will cost you marginally the same, but the ROE is noticeably different. So even if we want to use ROE and cherrypick this, you're still better off in a better area because appreciation is an input for ROE. And interestingly enough, in these bad areas your rental appreciation does stagnate which actually is diminishing ROE. So again ROE is not why you invest and it needs to not be so hung up on.
The cash flow and debt paydown are simply functions of LTV and for that I'll continue to say if you want to buy low hanging fruits, go for it. I'd take capital almost anywhere else then there in RE-- I want quality!
What? Value add in primo areas!
shhh.....lol
I am sure you know this better than anybody else. Go put a new hvac, water heater, and floors. Just basic fixes say back in 2014. Will cost you $25-35k, but you can smack $500k on the house in San Jose.
Post: Why markets with low appreciation grow your net worth twice as fast
- Investor
- Posts 3,448
- Votes 3,528
Quote from @Dan H.:
Quote from @Mike D.:
Quote from @Becca F.:
This post generated over 100 comments...wow.. I agree with many of the comments about owning a higher quality asset in an appreciating market. I invest in the San Francisco Bay Area and Indianapolis metro area.
My appreciation and net worth from my California properties far surpasses my Indiana ones. For context my appreciating properties in CA and the Class A Indiana were acquired in 2013 or before. Class C Indy purchased in 2023.
I know a lot of multi-millionaires in the Bay Area who had middle class incomes (teacher, librarian, janitors, etc) who bought long ago (as in 2008 or going back to 1970s) with with just one or two rentals. This was when CA was more affordable and home prices weren't out of reach.
Example (not mine but someone I know):
- S.F. Bay Area home 3 bedroom, 2 bath 2100 sq ft (lower level living area brings it up to 2700 sq ft) purchased in 1960s for $68,000
- listed for sale in 2014 for $1.25 million, bidding war, sold for $1.71million.
- New owner renovates it, listed in in 2021 for $2.5million, bidding war sells for $3.078 million. Owner #2 made $1.368 million (minus commission and closing costs) in 7 years. That's a pretty good return to me.
I tried to read every single post but stopped on page 4. I didn't see anyone mention this but in California our property taxes go up a max of 2% a year (from Proposition 13 passed in 1978). Long time owners (primary home owners and investors) benefit from this but newer buyers pay high property taxes.
I had an Indy property management company do an analysis of my 3 homes. Class A could keep for appreciation, doubled in value but my property taxes go up significantly, 17% the last assessment (at this rate the property tax will surpass my California properties in a few years - not joking). For the Class C homes, he said I'm unlikely to get a good return unless I get a great tenant and they stay for a long time and the properties stabilize (repair calls reduce). The tenants will likely be lower income for a very long time. I sold one of the Class C and the other one is still rented. By the time the Class C appreciates enough I'll be over 100 years old.
If I was going to be cash flow negative from the start, I would have bought one higher quality asset instead of 2 Class C homes. To the OP, Mike D. meaning buying in Hamilton County suburbs (where my Class A) instead of east side of Indianapolis.
I think people who live in low cost markets do better investing there instead of investors who live 2000 miles away. I also think there are sub markets with lower cost markets and I recommended to CA investors to buy higher quality assets OOS not the cheapest house they can find.
If I were evaluating Class A vs Class C I would figure out the amount I need to put down to cashflow and then run an ROE calculation on both. Nothing wrong with Class A as long as you understand the difference in return and make a tradeoff you like. Its ROE will be much lower, but less volatile, less maintenance calls, less annoyance.
Yes, the outskirts of Indy such as Hamilton County give truly amazing ROE due to even better cashflow and lower property taxes than Indy and for some reason are neglected by investors.
Thanks for the feedback!
Here are the issues:
1) you already have demonstrated multiple times that you do not know how to calculate ROE. Anything you say on this matter has lost its credibility.
2) you already indicated that your cash flow analysis in the high appreciating markets (maybe all markets) included OO purchases in determining the property value. This perturbs your property cost upwards significantly that increases your negative cash flow calculation.
The underwriting results are only as good as the underwriting inputs and algorithm. Both your numbers and algorithm need work.
I could use virtually any reasonable leveraged LTV you desire and show a purchase from 2000 or 2010 in my market would crush the low appreciating markets. My market would have better cash flow and better appreciation over the hold.
Good luck
Fair points.
The other thing to really discount is this tunnel vision view of ROE. ROE isn't why you invest, it's apart of why you invest. You don't invest for CoC, just cash flow, or just appreciation. You invest in physical RE with multiple things on the horizon; store of value, value add, utility, tax benefits. Those in some shape or form are appreciation, cash flow, and intrinsic value.
If the focus of ROE is on real estate-- you're best off with value adds in primo areas. And re-financing. Those fixes alone are a huge uptick in ROE.
Putting a new bathroom and bedroom in the hood Memphis or primo Memphis will cost you marginally the same, but the ROE is noticeably different. So even if we want to use ROE and cherrypick this, you're still better off in a better area because appreciation is an input for ROE. And interestingly enough, in these bad areas your rental appreciation does stagnate which actually is diminishing ROE. And in good areas, because they are scarce, your rental appreciate grows quicker(likely) and it's a net positive for ROE.
The cash flow and debt paydown are simply functions of LTV and for that I'll continue to say if you want to buy low hanging fruits, go for it. Physical RE is very hard, pay me to wear the risk or let me buy scarcity. I'd take capital almost anywhere else then there in RE-- I want quality!
Post: Where does house hacking still work in Chicago?
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The risks of self managing and disrupting family/independence just isn't worth the material risk for anyone over 25, maybe 28 years old.
House hacking is the low hanging fruit to get in. But people never explain those aforementioned risks.
Think most of us want to find properties that exhibit intrinsic valuation or aren't terribly deep OTM and show vast extrinsic applied to it. That's really showing something if you can get that. This is just kind of expected and can be done anywhere, pay the least down, get the most rooms then rent each room.
Still likely overpaying for the property once you consider it's at market, and if you had to use a DSCR or a normal conventional way you would not qualify.