All Forum Posts by: Vaughn K.

One thing we agree on is we need a TON more antibody testing! They've finally got that rolling in my area, and so I'm going to talk to my doc to see about getting tested, as I had 2 CV like illnesses (maybe one long drawn out one) since this kicked off.

A few quotes from you:

"We will won't know a more accurate prevalence for months, if not a year or more." Yup. And this is a big part of the problem, and why we simply can't afford to take the extremely cautious route. Not with the rough figures we have now. Why is it that it's okay to crash the entire global economy based on even less solid figures than we have now, but it's not okay to reopen based on real world outcomes and slightly improved data? One can only take the precautionary principle so far before it breaks and just doesn't make sense.

"This virus quite clearly has an R-naught north of 4 (for context, flu is ~2)... All told, most likely north of 6+. Making it far more dangerous and difficult to contain." Yup. It spreads too easily to contain it, even if we wanted to, which is why NYC probably already has 22% infection rate even with all the crazy actions. Hence if it will spread anyway, even with our best efforts, then we don't need to bother trying to on net prevent cases, just spread them out ever so slightly to help the ICU staff! Less than full lock down has achieved that in most places... Sooo where's the argument for full lock down?

And "Back to the math, this is quite clearly NOT the flu. I agree the denominator for COVID is most likely off by factors and the mortality rate from COVID, once known, will fall. But it's not just about numbers... this is about an invisible enemy we know very little about."

First part is important... The second part of that is essentially just being scared for the sake of being scared. That's a problem. It IS just about the numbers. Getting all irrational and playing to the lowest common denominator that freaks out about stuff is NOT the way to handle a major situation like this. You don't make national policy based on the fact that some people freak out and can't handle reality because they have no fortitude. I'm not saying you do mind you, but politicians are playing to that freaking out crowd as if making them feel good is the most important thing... It's not. Let them freak out, and don't destroy everybody elses lives because some people can't handle life

The fact is looking at the antibody tests coming in shows the number of major issues (death or otherwise) per case is not that bad. More people will catch it than a flu by far, because no vaccines or immunity is built up... But I reiterate WE CANNOT KEEP EVERYTHING SHUT DOWN until we have a vaccine, cure, or whatever. It just isn't possible. This is not the black death killing 25% of London, it's not even shaping up to be as bad as the Spanish Flu. We know enough to know THAT much at this point. So the unfortunate fact is we're just going to have to suck it up and accept we're in for a bumpy ride. We need to keep working at improving the data, but it's painfully clear we're not going to be seeing anything close to the deaths that made everybody freak out in the first place. If they'd reported the data we're probably going to be looking at now up front, and presented it in a calm manner, there is 0% chance any of the major actions would have been taken, because it's uncalled for.

If I had to guess now, I'd say we might hit 150-300K deaths if we eased up to having limited closures vs limited openings on businesses, with 100-200K range being more likely if we're maintaining mid range levels of closure and precautions. That's not a call for the kind of stuff that's going on, and the damage that it is doing to everybody. People in the west have become incredibly soft and delusional about the realities of life, because we've had such cushy lives. People die. Especially old and weak people. Even if we cram 3-5 flu seasons into a single year, it's not cause for destroying the economy. Lots of people get this, and lots of people seem to be in the denial stage. Even if it was higher than 300K, it'd have to be a LOT higher to call for shutdowns. Like orders of magnitude higher. And it's not going to be.

I think you're right that this thing is going nowhere, and so the fact is we're realistically going to see most/all of those deaths no matter WHAT we do anyway, because there will be no vaccine come next fall! It's a question of how much damage we inflict on ourselves at this point.

As far as the immunity thing, technically we don't know... But preliminary tests show the monkeys didn't re-catch it, show that most people who had already caught it didn't get reinfected even when surrounded by sick people, and people tend to get immunity from most other corona viruses... So the assumption should be that we DO gain immunity, but probably only short-mid length immunity, not lifetime. SARS/MERS seem to have 2+ year immunity, which is plenty good enough for our current situation if this virus is similar.


The bottom line to me is that we just can't stay shutdown long enough for it to make any real, significant, long term difference either way... Even if we wanted to. Some estimates are showing millions will now starve to death in the 3rd world that wouldn't have just because of the actions already taken... We could be talking about people starving to death in the USA if we even contemplated staying shut down for months on end or a year. So that option just isn't on the table, no matter what the risk averse people wish. We're just going to have to deal with the deaths from this thing, period. It's not the way anybody wants it to be, but it is the way it actually is.

 First, you sound like you're being pretty fair, balanced, and not hyperbolic with the way you're looking at this thing. That puts you ahead of 90% of politicians, and a huge chunk of the medical professionals... At least the ones the media has decided to quote.

You're right that we just straight up need more testing and more data. That said, I think it's starting to look pretty obvious that this thing is MORE virulent than we initially thought, but less severe in outcomes. Both deaths and other major issues. Whether one is talking deaths or major complications, if the total number of cases is 10-85 times higher as these antibody tests are showing, that RADICALLY changes the picture. NYC was running 22% or so in positive antibody results when they released some of their preliminary results... TWENTY TWO PERCENT.

I'm a believer in the idea of taking actions to keep ICUs from overflowing... That's kind of what you're implying with our interventions preventing deaths, right? The thing is that didn't happen basically anywhere but NY. Which is to say we went farther than we needed to in every location in the USA, except NY. Being that we will probably not have a treatment or vaccine anytime soon, we need to let it spread as much as possible, as fast as possible, with as few economic repercussions as possible, while still keeping ICUs from overflowing. Anything else just doesn't make sense. It's too virulent to completely eradicate... So what's the other option? Commit mutual financial suicide to make somebody get sick and die next October instead of in May or June? Everybody is going to have to get it. If 22% of NYC has already had it, the death rates aren't that high, and it will be fine as long as ICUs don't overflow.

As you said yourself "Until we reach herd immunity." The thing is taking the level of action we have been, if the ICUs aren't overflowing, just doesn't make sense. There is clear evidence that FAR less severe social distancing is enough to prevent ICUs from getting overwhelmed... So where is the benefit in the extreme levels if they're not needed, and everybody will eventually have to get sick anyway?

With the rest of that, you're doing exactly what most experts in a field would suggest: Taking the cautious, by the book approach. Thing is, we CANNOT just keep the entire economy shut down if we have ~.2% mortality rates and a couple percent other major issues. We simply can't do it. The carnage economically will be worse than the issues we're avoiding. Cramming 3 flu seasons into 1 is preferable to a global depression that might last for who knows how long.

So if we have reasonable data showing we have lower death rates, because the total number of cases is vastly higher than thought, all of the fancy "by the book" way of dealing with this goes out the window. If it was rocking that preposterously high 3.4% death rate, or even 1-2% I might be with you on that... But that's looking like it's completely improbable with the new data.

If the death rate is ~.2%, who cares about all of those other steps? Nobody except epidemiologists who spend their whole life obsessing over this type of stuff, and irrationally scared people with no spine. Should sick people still get tested and stay home? Obviously. Should we try to do some level of contact tracing? Sure. But the full tilt boogie "ZOMG It's the end of the world!" treatment just isn't really necessary at that point. And we certainly can't keep the entire economy shut down.

If we can develop the testing capacity to do that level of stuff, it's not a bad idea. The tests are cheap enough to where it would be well worth it... But if we can't roll it out fast enough, which it's looking like we can't, then we just need to move along and open up, and do whatever testing we can when/where we can. Because the alternative is even worse.

As I said previously, I think that keeping major events shut down, telling people to keep washing their hands like they have OCD, and probably no bars/clubs might be reasonable. This is something we may need to keep up through next fall into spring. But no matter what the death toll is, we can't keep the economy in full lock down, or take the level of precautions epidemiologists are demanding. It just won't work in the real world.

In truth, if anybody/anything should be on lockdown, we should just tell old people and severely health compromised people to stay home, and everybody else should be TRYING to catch the darn thing. Most of the rest of the population would be better off just getting this thing and getting over it, and then we'd be done. We could have already done that and been over this entire thing weeks ago if we'd handled it like that. Kept schools open, kept everything humming, and just told ALL old people to stay home. We'd already have herd immunity, and the death rate probably would have been comparable or lower than it has been so far.

I forgive the bad decisions made, because we didn't have the data... But the more info we get, the worse the way much of the world has handled it is becoming. I think hindsight will show Sweden, Utah, and other places that didn't go too over the top had the right idea. 

 So without trying to get TOO OCD, there are a lot of funky bits if you really get into the weeds with this stuff. For instance, a huge number of flu deaths aren't counted in regular years, they're often written off as just an old person dying of old age. With Covid they're attributing deaths to it that weren't even necessarily caused by CV, but it was found to be present postmortem. There have been cases being reported of people having heart attacks or other obvious causes of death, no CV symptoms at all pre death, but when they found CV in their postmortem test they called it CV. Is that legit? Kinda, kinda not. Nobody really knows how prevalent it is either, but it's a thing. 

Generally speaking though, I agree this is worse than a typical flu season... But if you go back a bit further than that wiki page shows we have annual rates that have got close to or hit the ~100K mark, and nobody freaked out about those. Did the universe grind to a halt when 61K died in 2017-2018? No. So this is a BAD flu season level of death. It may well surpass the worst flu seasons we ever have, other than the proper pandemic ones... That's not because the death rate is higher though, it's because more people are going to catch it. No vaccine and no built up immunity is the cause there.

But the thing is, if they'd come out and said "OMG we're going to have 2-3 years worth of regular flu season deaths amongst people that are on their death beads already!!! We need to tank the entire global economy and ruin everyone's lives STAT!!!" basically nobody would have been okay with that. They've moved the goalposts from this killing millions, including young people, to killing minuscule numbers of people, while keeping the fear factor maxed out as if everybody is still gonna die. That's to cover their rear ends. The real death rate for non old people that don't have serious preexisting conditions is basically zero. IIRC when NY was at 10-12K deaths overall they'd had 26 or so deaths of people under 60 who didn't have major pre existing health issues, and only a couple hundred period. But all those people were basically super screwed up young people but a handful. 

So the whole thing is just being misrepresented all the way up and down, even with official numbers and stats used as the basis to argue against a lot of the paranoia. 

I don't want to sound callous, which is what all the people freaking out irrationally keep calling rational people, but it's REALLY not turning out to be a big deal. If these antibody tests are remotely correct (And I bet they are... Every one across the world agrees, come on.), it's looking like we probably won't barely even hit .2% fatality rate. Which is right in the range of a bad flu. Granted, more people might catch it, but it's not a big deal. I have a grandma who's up there in years... My father has respiratory issues... I don't want them to die. Obviously. But the level of freak out and reactions is completely out of proportion with the level of the problem.

As I said, I'll cut them slack for taking some of these actions (even though many were obviously flawed even with older data), but there's just no reason for them to keep going down the road to self destruction at this point. IMO we need to keep stadium concerts etc **** down, and maybe even bars/clubs... But there's no reason the other 99% of businesses shouldn't be open and working. 

Hi Michael, as you probably noticed from subtle statements in my previous posts I have not bought any RE yet. Which obviously makes all that rambling something to take with a grain of salt :) But that should be said of all opinions, especially on the internet! I am not new to the business world in general though, just didn't get into RE yet. I'm only in my early 30s which doesn't put me too far behind the curve in a crazy expensive metro area, even though it's not quite where I wanted to be with RE investment at this point!

I don't have analysis paralysis at all though. Without getting into my life story too deep, I was going to buy several years (2012-2013ish) ago in Seattle, with an investors mindset. RE is something I had always planned on doing since I was a teenager, but that was the first time I was really in a good position to do it in a relatively expensive market like Seattle, especially considering where lending guidelines were during the peak of the GR. Right when I was in the middle of shopping for properties was when prices shot up ~10% in a month, inventory went to next to nothing overnight, and everybody started skipping inspections, no contingencies, etc! It wasn't even that the prices scared me, back then by my reckoning there was a TON of potential upside left in Seattle. It was more I didn't want to get stuck with $80K in foundation repairs on my first deal. So I decided to give it a little time to cool down and return to normalcy in that regard. Obviously that never happened! Who woulda thunk we'd have such an insane run up immediately following a massive recession caused by excessive real estate speculation??? Not 20 something year old me. I gave people too much credit :)

I actually own my own business, and so after several months of just keeping an eye on things I decided to reinvest the cash I had for the down payment back into my business instead. I can't regret that as I did get some mileage out of that investment, but in hindsight I should have just pulled the trigger on a property, I would have made faaar more money. Hindsight is 20/20, such is life! After that I had some setbacks that took me some time to dig out of, and as of not long ago I'm really in position to consider buying for the first time since then.

So no paralysis, just life circumstances that kind of dictated how things needed to go down. Awhile back I decided on wanting to leave here myself, and investing elsewhere as well. I personally don't have faith in large scale short to mid term appreciation here (but I'm quite sure it will do fine over the longer term), and because of the tax/regulatory/political situation. Seattle is just not the town for me anymore, and trending worse IMO. If I had been planning on trying to stick around here I probably would have already tried to swing something in the area, but since I'm bailing I'm in no rush. I already know with my income I'm going to be in such a good spot once I'm out of here I hardly even care. It's kind of a liberating feeling really, whereas the pressure here has always been to rush into something because if you don't who knows if you ever can! That kinda thing is no fun, but that's half of what's driving RE in these types of places, at least at the consumer level. I've just been casually getting my ducks even more in a row than they already are, which is kind of a nice spot to be in. 

I was starting to get weary of the rapid run up in the Spokane/CDA area, as the numbers there are far less appealing than a couple years ago when I first started keeping an eye on the area, but I'm hoping Covid knocks things down a notch or two. Covid has probably kicked off the recession the economy was overdue for. How bad it will get, and what it will do specifically to RE is still a bit up in the air. If it doesn't do much in that region I have enough long term faith in that area and the numbers to pull the trigger on the right deal anyway. 

As far as things go, I may not have actually bought any rentals yet, but I am not a burger flipper living in my moms basement either. I have owned a couple businesses over the years, having a peak of 26 or 28 employees (I can't even recall the exact number) at one of them. I'm no Bill Gates or anything, but I do have a fair amount of real world experience in how things work outside of RE. RE is part of the broader economy, and I have studied economics and business a lot over the years because I actually find understanding how things REALLY work to be interesting in and of itself. It's as much for fun and just to understand the world as it is for any practical benefits from knowing such things.

I suppose you could say I'm a bit unorthodox in some areas of economics (the Austrians are right!!!), and a bit pessimistic (but not completely apocalyptic) in some ways, but I trust my own critical thinking skills more than talking heads on TV or most "experts" out there... Especially since they seem to be wrong so very, very often. The thing that really makes it all so interesting/crazy is that everything is COMPLETELY screwed by the actual numbers and facts... And it's basically just peoples (irrational IMO) faith holding everything together and keeping things from falling apart. So when does the faith run out? That's when we'll really be in for a mess.

But circling back to RE, I don't think anybody can pick the EXACT high or EXACT low... But I think only fools think you can't tell when we're getting CLOSER TO a top or CLOSER TO a bottom. Massive numbers of people with common sense were saying that things can't go on like this before the GR, and the same common sense people were saying it the last while too... Because the math was getting out of whack with historical norms. If CV hadn't come along I think we still would have had things go south, but obviously to a lesser degree. And that's really all ya need much of the time.

Even if there's a couple more years of rapid growth in SF or Seattle, I don't see it going on long. I see the potential for loss being far more likely than the potential for huge gains. Warren Buffett likes to protect his downside as much or more than making huge gains, I agree. If you REQUIRE a massive boom/bull run just to make things work out OKAY, well that doesn't sound like a great plan to me. And unless you believe in $20 million dollar 3 bedroom houses, one certainly can't get a couple more decade run in these types of areas under any circumstances. So where does that leave things? As I said, I'd go for an Austin, Nashville, Boise, etc that have indications they may future big appreciation areas vs the last couple decades biggest winners. IMO simple math and logic is all that's needed to come to that conclusion, if you're in it for the long haul anyway. Or just go for the fat cash flow, which one can verify with a simple spreadsheet formula can work out comparably well. I still wish I could find that darn study! Stupid Google...

I'm a really logically minded, data driven kinda guy. So saaay a month or month and change ago I was what I would call rationally pessimistic. I didn't think it was the end of the world like the people proper freaking out, but figured it would be a BIG mess. That was because of the data we had. It made things look really bad.

Thing is, now that we're getting in newer, better data, it's becoming pretty obvious that the whole thing was completely blown out of proportion. Antibody tests all over THE ENTIRE WORLD are showing that somewhere between 10-85 TIMES (read 1,000-8,500%) more people have caught this than we thought, and most of them didn't even know they were sick at all. What does this mean? The death rate is VASTLY lower than we thought. So low that if we'd known it upfront we wouldn't have taken ANY of these crazy measures beyond maybe killing sporting events and clubs.

Look up antibody testing in LA county, Santa Clara county, NY state, Germany, Denmark, etc. If it were only one or two showing sky high infection rates I'd be more cautious... But it's literally EVERY SINGLE TEST EVERYWHERE IN THE WORLD. Some scientists are trying to dismiss them as not being definitive... Sure no one study is, but that every single one all over the world shows the same thing... Logically speaking, it's highly likely it just spread more than anybody ever knew. They're trying to cover their own asses because they were spouting doom and gloom stories, and now that that's clearly not the case they don't want to admit their data/theories were BS.

The thing that scares me is the politicians who went all in on it being the end of the world seem to not be willing to admit it was all a mistake either. IMO it was an honest one, as I was OKAY with fairly strict measures when the data looked worse myself. I think with many aspects they overstepped their bounds even with the bad data we had a month ago, but it certainly called for more than the current numbers do. If they just came out and admitted it wasn't as bad as everybody thought people would forgive them... But they don't want to admit it, because they're spineless politicians, and are willing to further tank the economy and ruin peoples lives just to theoretically protect their polling numbers. Personally, I think this tact will bite them in the rear more than admitting things, as it's not a secret that can be kept under cover for long. You can't go from estimates of millions dying to estimates of LESS than a normal flu year without admitting it ended up being exponentially less deadly than initially thought!

So really, I just hope that sane politicians take the newer data and run with it ASAP. That's the only thing that will stop us from having an even bigger catastrophe on our hands. Other than people who have severe mitigating health issues or are really old, I'm pretty sure you can safely stop worrying about catching this thing. You may have already had it, and even if you haven't it seems like the true death rate is basically about the same as an especially gnarly annual flu. Don't trust me, google the data and make up your own mind about it!

First let me start off by saying I am about ready to beat my head against a brick wall! Not from anything you said, but because I just spent more time than I care to admit trying to find that stupid study! Google (and DuckDuckGo) have both let me down! No matter what combo of keywords I tried all it kept kicking me out was generic news articles, blog posts, and other irrelevant click bait type nonsense that had the various keywords in their title. Bigger Pockets actually was close to the top with a few articles in all the searches. :) Interestingly the CS report didn't come up either. Google seems to have legitimately become a worse and worse search engine over the years as it tries to be more clever in choosing what it THINKS you should see...

So you can think I'm a jackass if you want, but I did see such a study a few years ago. I actually mentioned it once in a forum post and somebody else knew the one I was talking about, so I know I'm not crazy! I'm sorry I can't give you a link as it had some interesting stats in there. Sometimes I wish I was one of those guys who is OCD about bookmarking things or even downloading information.

IIRC the study showed both markets over the long term tended to bring overall returns of a little over 10%. I think technically the appreciation markets were a few tenths higher, like it was 10.1% vs 10.3% or something to that effect. Keep in mind one of the key things here is that this study assumed REINVESTMENT. Obviously buying only a single property and holding it would be better in an appreciation market, but that's not what investors tend to do, and structuring it like that actually removes one of the greatest advantages cash flow markets bestows to investors there: the ability to double down rapidly with minimal risk. So they assumed reinvestment. I think they may have even done a version of the math using leverage and one without IIRC. 

But just to further the discussion without my awesome study, there are a few reasons for this one can think out logically. Most are common statements in the argument between the two strategies, but for n00bs I'll say them anyway. Plus I think I have a few semi novel thoughts. 

Let me also say, I don't actually disagree with the idea of investing with appreciation in mind... I think it's a good idea. It would probably actually be better to say I don't believe the markets you guys think will appreciate a ton going forward are going to be the ones that actually do, in percentage terms at least. I'll circle back around to this later.

A stat I saw a few years back was that the LONG TERM AVERAGE appreciation on California RE was 5.x percent (5.3 or 5.4 IIRC), vs around 3% nationally. That IS a big difference, especially compounded over decades. I will admit SF as a sub market is probably higher, but I don't know a figure for there off the top of my head, and am not going to try to find them because I'm angry at Google for failing me with finding that study!

People focus too much on the upswings, and not on the declines or slow rise years. Here's the thing though: If you buy in an area where you can nail the 1% rule (or even higher) vs the .5% (or lower) rule (this "rule" doesn't really exist, because it's a horrible rule!) in appreciation markets... You're potentially making an extra several percent a year in cash flow alone. There are mitigating circumstances that reduce that, like that toilets cost ABOUT the same nation wide etc. But it's easy to see how you can make up that 2.x% difference on an annual basis. That's one major point in comparing the two, and it's just simple math. 

Further, as I already mentioned, "cash flow" markets don't NOT appreciate. Look at average home prices in such markets in 1970, 1980, 1990, 2000, 2010. Every single one of them has gone up considerably in nominal dollars over those decades, some perhaps not doing so during any given decade, but over the long haul they're all up plenty. When people back of napkin math things they always plug in 10% a year for fancy cities, and 0% a year for boring cities... When it's really 5.x% vs 3.x%, or something close to that. Rent growth likewise goes up just like in more expensive cities.

Then there's the fallacy of timing again... YES, if you invested in SF in 2010 vs Kansas City you will probably have made better returns to now... But what about over the next 30 years? I suspect the reversion to the mean will put the figures a LOT closer. You can't make an argument that stocks perform better than RE by using examples of buying at every low in the Dow, and selling right before it crashes every time. Nobody can time things like that, yet it's always what people do when they argue for appreciation in RE being the bees knees.

Also, the 80s and beyond in and of itself is a bit of an overheated super cycle for fancy pants coastal city RE, and is NOT the historical norm from before that period. So an intelligent person must ask ones self will that new and anomalous trend continue for much longer? Remember major/hip US cities have NEVER been as unaffordable as they are RIGHT NOW in all of history, barring the couple years right before the last bust. We're in uncharted territory. And it's not just that some cities went from being lame to cool, that can be a legitimate transformation, it's that the cities that have ALWAYS been cool are insanely more expensive than they ever were.

At any point in all of history a white collar professional could comfortably buy a house in any major US city, including NYC or SF, without killing them self financially. That is no longer true. Heck, even middle-middle class people could generally afford to buy without much trouble in ANY city in the USA up until recently. Was NYC not a super hip, ultra cool, world class city in 1995, or 1975, or 1955? So what validates the difference in income to price ratios between the two eras? How long can a situation where doctors, lawyers, engineers, can't even buy a mediocre house go on for? There's a reason people talk about a crisis of affordability, and it's because the math bears out that recent times have been completely out of whack with historical norms. I myself am a microcosm for people saying "Screw this BS, I'm moving." There are MANY people like me... When does that segment of the population become enough to crash the never ending growth? 

I think the real key difference between the two though is one that is always mentioned by pro cash flow guys: You can continue to expand EASILY during a down market if you have the cash flow. It's very much a tortoise vs the hare situation. The hare leaps ahead every time it goes for a sprint, but then has to rest in between sprints. The tortoise just keeps plugging away at a steady pace the whole time, and at the end of the day you're essentially crossing the finishing line at about the same time.

How many appreciation investors lost their rear ends in 2008? How many guys that were in cash flow markets? Who was better positioned to take advantage of the aftermath of 2008, the guy upside down AND running negative cash flow, or the guy putting tons of cash in his pocket every month? Anybody who doesn't see the risk adjusted difference between the two situations isn't thinking clearly. Your example of having better cash flow in appreciation markets is 100% relying on the timing (2010 through 2018, talk about cherry picking start and end dates to prove a point! Not that it's your fault that's the period they used, but honestly it's just not a useful set of numbers for long term planning.), which would be not true during many other randomly selected periods.

Circling back to my not actually being against investing for appreciation: I'm not. Look at my post above though towards the end. Let's say Seattle CAN have $2.5 million 3 bedroom houses. Sweet! Can a 3 bedroom be $5 million? $10 mil? $20 friggin' million dollars??? When does it become sooooooo out of line that it just breaks? Do you really think the average income is going to be $500K a year in SF in several years, or a million a year in a decade and a half or two? I can't imagine such a situation materializing under ANY circumstances. Past performance is not indicative of future performance.

In Seattle as neighborhoods hit the $1 million mark, they have completely flat lined, and the growth moved to the next most desirable areas that then shot up crazy fast. Rinse and repeat. That seems to indicate to me that around $1 million is a breaking point for the local market, at least for now. In all fairness Seattle is running behind SF, and potentially has more room to inflate... But whatever amount of headroom either markets have, I would suggest SF has less headroom than us overall because their average income is barely higher than Seattle.

This exact same trend has been playing out over the years with whole cities. Not that many years ago Seattle was a 2nd rate also ran in most peoples eyes... It blew up because SF, and other traditionally cool coastal cities, were getting too crazy, and we were a pressure release valve for their growth. In relative terms we were "cheap" back then, and pretty cool to boot! Then we started to spill over ourselves as we got some of the same problems that drove people out of the earlier cool cities, and you ended up with the rapid ascendance of Denver, Austin, etc. Now you're seeing Nashville and the next round of places shooting up rapidly. It seems to me that the next round of cities always start to blow up before the previous round have even fully peaked, so there's always some place in different phases of "blowing up" so to speak at any given time. IMO SF and Seattle are in the "mature" phase where there isn't much more blood to be squeezed out of the turnip. Austin/Denver/etc are in kind of a middle phase, places like Boise, Nashville etc are more early phase. 

What does this mean? With math requiring $10-20 million dollar 3 bedroom houses in just a couple decades to continue the appreciation levels in percentage terms seen in SF and other trendy places, and other cities being a lot cheaper right now, but clearly poised for getting hipster-ized... I'm gonna have to say that there's no way in hell SF has $10-20 million dollar 1500 square foot 3 bedrooms in not that many years, BUT that Nashville may well have $1 million dollar ones. Because math. And common sense. Apple or Google would have been some of the best investments to make over the last decade or two... But I highly doubt they will be the best to own over the NEXT decade or two. They'll probably do okay, like a GE or Exxon or Coca Cola usually does... But not the same percentage growth they've seen. This is a known thing in stock investing (past rapid growth companies are rarely future rapid growth companies), and I don't see why RE people always assume the exact opposite.

So you see I'm not necessarily against trying to invest in the next hot spot, especially if getting in reasonably early... But I think the thinking is very flawed that sees ZERO limit in how long LA, NYC, SF can keep doubling every few years. Maybe we haven't hit that limit yet, but there IS a limit. Personally I think we're one major hiccup away (Covid anybody? We'll see...) from those markets getting a good haircut, and maybe not recovering from it for quite a long time.

Also, what about macro trends? SF and Seattle have exploded EXCLUSIVELY because of the tech explosion... But big tech is FINALLY wising up and realizing they can trim operational costs by opening up offices in more than a couple cities in the whole USA, especially less expensive ones. If Big Tech starts doing 50% of their expansion (Not firing anybody at HQ even mind you, just expansion!) outside of traditional tech centers, what does that do to the Bay Area and other tech cities? It's all a house of cards depending on ever more rapid growth, and once something goes wrong it has the potential to fall apart rapidly. Amazon HQ2 alone will probably make a sizable dent in pricing in Seattle vs if they'd hired all those people in this region.

You know where else was a city build almost entirely on the back of a single incredibly lucrative industry? A city that had a higher average income than NYC at it's peak? A city that thought it could do no wrong with it's overbearing government policies? Detroit. What, you didn't know Detroit was once a richer city than NYC per capita? Gotta buff up on history man! I bet if you looked at the numbers, Detroit was probably the A #1 BEST city to invest in real estate in from maybe 1900-1960... And one of the worst ones after that. Now SF probably won't become Detroit, but it could very well stabilize and become something more like a Chicago that just kind of teeters at about the same population and income levels, or perhaps goes to slow growth, vs growing insanely fast as SF has the last couple decades.

Honestly, I still believe that by applying a little logic, and basic math, it's pretty easy to see how cash flow markets can be comparable over the long haul... The one exception to that would be if you correctly time your entry into up and coming markets. However I don't think that the top performing cities of the last couple decades will be the top performing cities of the NEXT few decades. There's just not enough room in the math for them to keep doubling the way they have been. This isn't to say they will "crash," maybe they won't... But I don't think we'll be seeing generic nothing special 3 bedrooms in the BA selling for 7.5 million in a decade.

I really don't care about trying to "convert" anybody to the cash flow religion... Although I will post a quote from a thread that came up when I was trying to find that study. It was in regard to somebody asking why some people choose appreciation investing vs cash flow investing.

"99% of appreciation investors do so because that is the economics of their local area and they primarily invest in SFHs, no other reasons. Investors in high appreciation areas like CA have few options investing locally. It is natural for them to create justification for their decision to invest for appreciation. They will promote it because it is what is available to them. Highly unlikely you will find many OOS investors choosing to invest in CA. CA investors are faith investors for obvious reasons. If you already have plenty of money you can park it in real estate till you decide to cash out and reap the benefits (maybe). The principal works until it doesn't work."

I think it really explains a lot of people... They live in areas where they are faced with what most metrics say are not good investments, so people try to explain away all the issues with investing in such properties. They've been lucky for so long thanks to no effort or brilliance of their own (Thanks Google! Thanks Facebook!), and take it on faith that it will magically continue, even with much evidence to the contrary. If I wanted to invest for appreciation, I'd look at ANY other cities than the ones that have gone up the most over the last decade, that's all I'm sayin'!

I actually rather agree about the investing in your own backyard thing. I know lots of people invest across the country, but I really don't like the idea. I especially think it's a bad idea for somebody who is new. I'm a firm believer in learning how to do something yourself, so that when you hire it out you know it's being done right. Hard to do that from 1500 miles away. If I really wanted to stay around here I would probably be thinking about north or south of Seattle, and then doing some value add/clever stuff as you suggest. You CAN make things work if you're smart, but IMO unless you're sooooooo in love with living in a place that has as many issues as Seattle does, what's the point? I just came to the conclusion awhile back that instantaneously drowning in money every month from my current income, while enjoying 2-3x the standard of living sounded a lot more appealing than being a 7 minute drive to Golden Gardens! But to each his own.

On that 2nd bit... This is a bit more esoteric shall we say, but from all the countless hours I have spent reading about economics and economic theory in general, I think we're in a major "super cycle" of inflated values for a LOT of assets. It's been cheap money combined with irrational optimism. I think according to the numbers, it simply can't last forever. Things that can't last forever DON'T last forever.

I was just a kid back then, but IIRC my facts correctly (It's something I've been told verbally, and read in places, but never verified to be true), in the late 80s the real estate in Tokyo alone had a higher valuation than ALL the real estate in the USA combined... On paper anyway. It had shot up and up for decades, and Tokyo clearly is a world class city... All the reasonable fundamentals were completely out the window, not to be paid attention to. Then the crash happened, after decades of insane, "guaranteed" growth. Tokyo is still a VERY expensive city, but after inflation adjusting it's nowhere near what it once was. 

One thing you have to keep in mind in SF or here is that the number of homes sold is only a small percentage of the total homes available. If all homes had to be sold tomorrow, the income levels there could NEVER support anything close to current evaluations. A modest number (overall) of extremely affluent people moving into an area in vast numbers (proportionally) over a short period of time may well be able to buy the few homes that go for sale at insane prices...

But what happens when an area stops growing as rapidly? Maybe it's even still growing at a good clip, but just not QUITE as fast. In effect, as soon as you have a few too many homes for sale vs buyers at a given price, prices come down. Maybe a lot. Which is when median incomes start to matter again. Median incomes in Seattle could probably support about a $500K average price, maybe a touch above, but not north of $700-800K. The bay area is even more out of whack.

We've seen MASSIVE growth in a short span of time, all in really high income brackets. We've had decades worth of high income earner growth move in in a matter of a decade. Bay Area had the same thing, but at an even larger scale. We've had a flood of $250K a year households come in that weren't here before. But what if that number stabilizes? What if that number starts growing at a rate only comparable to or lower than the amount of new construction hitting the market? Then you're looking to sell to the $100K a year "new average" Seattleite, and he can't afford 2-3 million dollar houses. Just a slight swing in the number of buyers vs houses for sale can swing prices wildly either direction. We've seen one side of that equation play out the last 10 years... What about the other side?

All the cities you listed are either far larger than here, or have only seen such crazed price levels for relatively short periods of time, just like here. As far as Bay Area vs here, bear in mind the Bay Area has 3-4 times the population Seattle does within an hour or hour and change drive. This means there are 3-4 times the number of ultra affluent people, if Seattle has comparable proportions of such people to the Bay Area, which it's probably lower here by a bit. This means the ultra primo spots have 3-4 times as many people competing for them. This is why NYC can have their priciest neighborhoods as VASTLY more expensive than Seattle, while the averages are actually quite comparable. Same applies to Bay Area.

But, for the sake of argument, let us say that Seattle can and does hit 2.5 million for a normal house... What then? Do you really think the Bay Area can double or triple yet AGAIN in the next decade or so? That such houses will be 5 million, or 7.5 million. What about the decade after that? Same again? $10-20 million dollar 3 bedrooms??? Call Seattle several years behind BA, can Seattle have $5 million dollar Ballard 3 bedroom craftsmen homes in the not too distant future? I don't see it. 

At some point it just doesn't work anymore... See my response to Dan for more thoughts along the same lines. 

 Hey. I'm not home right now, but will try to find it later when I am. I imagine a few variables alone could explain different outcomes.

1. I think the CS study only looked at buying and holding a given property. IIRC this other study assumed reinvestment. If you run positive cash flow day one you can go from 1 to 2 properties faster, 2 to 4 etc. Especially since you can continue this doing this during a down economy in cash flow markets, but won't be getting any cash out refis when values are down in SF.

2. Start and end time bias. Stock market returns from 1960-2007 look a lot better than from 1960-2009. This study was done a few years ago, so the last couple years may tweak numbers a bit... But I would suggest it'll all revert to a mean as the cycles continue.

I have other thoughts, but typing on the phone is too laborious :)

 Such places exist! When I was looking around here, you'd occasionally see a really big house that popped up. When you look at home prices, as a general rule, the more bedrooms the lower the cost PER bedroom. A 6 bedroom will almost always cost less than two 3 bedroom houses in the same area. Hence if you buy a huge place, maybe convert a basement on top of it, and then rent by the room, you can make some headway in income vs cost compared to a smaller/more regular house.

This can obviously flip once you get to certain extremes, like 15 bedroom mansions on the water and stuff like that... But I remember seeing an 8-9 bedroom in Shoreline that barely cost more than 4-5 bedroom houses in the same area. It was a borderline mansion in terms of rooms and square footage, but didn't have a view or anything. It had originally been built as a private house, but had previously been used as an old folks home or something like that so had a straight up commercial kitchen and tons of bathrooms. Would have been PERFECT for renting by the room with maybe minimal tweaks. Such things are out there. They're not as common as a 3 bedroom 2 bath generic house, but if you keep an eye out you'll find them.

 Hi Michael,

I think you're on the same page as I was before I decided to blow out of this whole area! I was in fact thinking either south Seattle, or Shoreline/Mountlake Terrace. I was going to do a large house, preferably 5 bedrooms maybe PLUS a convertible basement, and rent by the room. I was especially looking for one that already had an ADU or mother in law apartment. I haven't been keeping up on stuff around here, so don't know how the relative upside of north of Seattle vs south has changed, but back then they were comparable-ish.

I can totally believe you can still eek out the numbers you're talking about by:

1. Buying a rehab job, and getting it done on budget.

2. Renting by the room.

Thing is, that's all stuff you don't have to do in most of the USA to barely break even on cashflow. You can close your eyes and just point at a random house for sale on Zillow and cashflow that much almost everywhere geographically in the USA. In most of the country going through that amount of extra effort will net you like 2% rule or better!

It never ceases to amaze me how few people have heard of this before on here, but a major study that looked at something like a century (give or take) of RE data in the USA found that the overall rate of return in cash flow vs appreciation markets was basically identical over the long term. They were both 10 point something percent over the long haul I believe. They looked at cash flow, appreciation, pay down, basically all the major metrics one would think to cover to get a good picture. IIRC the study was done at some big university (Harvard maybe?) by a fancy economist. You can probably find it if you google.

The short version of the story is this: All the positive cash flow, instead of negative or minimal, allows you to reinvest in more properties faster. Also all appreciation markets are more volatile, seeing periods of rapid upswings, and down. Cash flow comes in steadily. Everybody focuses on the years where SF or Seattle goes up 10% a year, ignoring the flat or outright negative years in between. Once it's averaged out, it's not nearly as impressive. "Cash flow" markets also DO tend to appreciate, just not at amounts much higher than inflation... But when you have fixed debts, 2-3% a year still adds up a lot over decades. In truth, the risk adjusted return is actually higher in positive cash flow areas, as you don't have the volatility. 

Main reason I don't want to invest in Seattle is because I don't want to live here anymore, and I'd prefer to invest in the general area where I will be moving to. Washington state, and Seattle in particular, are becoming RABIDLY anti business. That's the main reason I'm not sticking around this area. I don't trust Seattle to not pass some insane law that completely ruins my life. Also, other non financial laws are becoming far too oppressive around here too. I'm an American, some sides of my family have been on this continent since the 1600s, multiple fought in the Revolutionary War... I like my freedom. Washington in general, and Seattle in particular, are no longer good places to be for people who like freedom from government oppression. 

Only reason I may live in Spokane when I go over there is because I can pack up and move the 15-30 minutes down I90 at the drop of a dime when it suits me if Washington state passes something too stupid to want to tolerate. By my rough calculations I'm still slightly better off financially in WA for the moment because of the lack of an income tax, but if that ever changes, or if incremental changes in other laws get too bad, ID will be right there waiting for me! And I won't have to completely upend my life, make new friends, learn a new area etc. Just live 15 minutes further down the road!

I have read plenty of stats over the years, and IMO by the metrics I think are most important, there is just not much upside left in Seattle in the near  to mid term. As an agent, were you aware that as neighborhoods in Seattle approached the 1 million dollar average sale price they almost all stopped going up a penny? Some of them peaked 4-5 YEARS ago and haven't budged since. What then happened is cheaper neighborhoods rapidly shot up. Why? Because even in flashy Seattle, high income tech people can STILL only afford to spend so much. That is essentially the upper bounds, there's no more blood to be squeezed from Seattle area residents. Look at the average price here, and the number of areas that are well below that. Maybe south Seattle has a tiny bit of room, but not another 10 years of 10% appreciation. How exactly is ANYBODY, including dual income 6 figure earners going to be able to spend 2 million or 3 million on a 3-4 bedroom house in 10 years? Because that's where it would have to land to see similar appreciation in percentage terms to what happened the last decade. It just isn't possible. No upside.

Also, being that the average prices here are way above what many traditional metrics say is sustainable, all it ever would have taken was for one little hiccup (A recession, Amazon shifting to hiring elsewhere, other cities getting more tech jobs in general... Oh wait, all of those are starting to happen! Uh oh!) to hit, and the prices have PLENTY of room to drop. So, little potential for the rapid and magical appreciation that has made the last several years a big money maker, and lots of potential to drop... Not good cash flow... Doesn't sound like the kind of place I want to put my money.

More power to people who want to live in a place like this, invest in their backyard, and jump the extra hoops to make it all work. I wish them all the best! But I don't want to be that guy. The only way I would ever invest here is if prices dropped like they did in '08, and then I would probably sell out within a few years of the bounce back and invest elsewhere. But even then with the anti landlord laws we have, and more inevitably to come, I don't know that I would even want to do it then.

Not trying to knock you since you're an agent around here, you have to try to sell houses, and it sounds like you're on point for making the best of the Seattle area situation for investors... But again, just not my cup of tea around here anymore. I wish it was. If you'd asked me 15 years ago I probably would have told you I'd live in Seattle for the rest of my life, but the way things have gone down since then that just ain't gonna happen.