All Forum Posts by: Wes Blackwell

 I agree with you about merit... the idea of "merit" is ingrained into much of the American Psyche (at least historically speaking). We like the idea that if you work hard, you'll succeed. Which is why the recent college admissions scandals made national headlines, and why the idea of a UBI is so vehemently opposed (just look at some of the posts in this thread.)

Currently, the internet has allowed for more opportunity than ever, but soon when lower-end jobs at all skill levels are replaced America (and the world) may no longer be such a land of opportunity. 

The average IQ in America is 98, with 68% of people having an IQ between 85 and 115 (approx. 170 million people). So when they're competing for the few jobs left with people at a much higher IQ they will be at an extreme disadvantage.

And let's face it... not everyone is going to be able to "learn to code" and the guy who used to be a janitor probably isn't going to be able to learn how to be an engineer.

I think that given enough time, we could reach a Utopia of sorts (although I HATE to use that word) with much less need for mindless work and allowing mankind to pursue other creative endeavors, but the transition period between now and the time when a robot does all your chores and work for you is going to be a nightmare in my opinion.

 Completely true, which is why I mentioned bread and circuses. Unemployment is DEVASTATING to men, and that 18-35 year old segment are the "fighting age" men that could cause said revolution.

Given our history (this country was founded on a revolution) and our 2nd Amendment, I think that without a job to keep them fed this surely a likely outcome without UBI or some other sort of measure to keep them pacified. 

I think it's highly unlikely that Andrew Yang will be elected, or that we'll see a UBI program within the next decade. By 20-30 years from now when my son is my age the loss of jobs will be so overwhelming some sort of solution must be enacted, and it will probably be too late.

 Perhaps you should enlighten us then.

The other day I was having a discussion with some associates about the upcoming Presidential Election, and one of them brought up the Democratic Candidate Andrew Young and his Universal Basic Income Plan called "The Freedom Dividend."

From his site: https://www.yang2020.com/policies/the-freedom-dividend/

"Andrew would implement a Universal Basic Income, ‘the Freedom Dividend,’ of $1,000/month, $12,000 a year for every American adult over the age of 18. This is independent of one’s work status or any other factor. This would enable all Americans to pay their bills, educate themselves, start businesses, be more creative, stay healthy, relocate for work, spend time with their children, take care of loved ones, and have a real stake in the future."

While I must admit that this seems like a ploy to literally buy votes, I do think that Universal Basic Income (UBI) is an important thing to consider with automation on the horizon in the years to come. 

As a Realtor and real estate investor, I couldn't help but think how this extra $1,000/mo might affect the housing market.

INCREASED HOUSING AFFORDABILITY

The first implication of this extra $1,000/mo is that it would make housing much more affordable in most markets, potentially reducing the monthly costs by 33% or greater for most bread and butter housing markets.

A $250k home with only 5% down and a 4.5% interest rate has a PITI of roughly $1,700/mo. With the full $1,000 going towards the mortgage, this payment would basically be reduced to $700/mo, about the same if they had purchased a home for $100k at the same terms.

This is obviously a complete game changer for the housing market, allowing many people to afford homes that couldn't afford one without this plan, increasing the housing demand particularly at the lower end of the housing market.

INCREASED HOUSING DEMAND, WITHOUT INCREASED SUPPLY

At the bottom end of the market, this UBI of $1,000/month would suddenly allow many people who could not afford a home without it to suddenly purchase one. 

Using a DTI Ratio of 45%, a married couple would have an extra $900/mo (45% of $2,000/mo) to allocated to their housing expenses, allowing them to more than double their pre-approval amount in some cases.

Without UBI: Max Purchase Price = $117k at $800/mo

With UBI: Max Purchase Price = $250k at $1,710/mo (+$900/mo to take new DTI to 45%)

(Note: I'm not a lender, and surely there is more to this calculation than I am sharing here, this is merely just meant for illustrative purposes)

Further, the extra money would allow many people who already have the income and credit but no down payment to suddenly be able to save up for the down payment, creating additional buyers at the lower price ranges.

But without increasing the supply of available homes, the base floor price for housing would certainly be raised. Simple supply and demand.

MORE POTENTIAL MOVE-UP BUYERS

With more income available for housing, some buyers will be tempted to "trade up" and purchase more housing than they could normally afford. 

Suddenly you'd be able to move into that better school district or nicer neighborhood instead of settling for what you could previously afford. Thereby creating more demand in the mid-range markets as well (Under $500k in most areas).

But still, the increased demand would be felt at the bottom end of the price range where it already exists. I recently received 9 offers in the first weekend for a $150,000 home in Phoenix, and could easily see that number doubling to 20+ offers with a UBI plan for an extra $1,000/mo.

EFFECTS ON THE RENTAL MARKET

You'd likely see a similar trend in the rental market, with people moving out of their relative's house and into their own rental who couldn't afford to do so before. 

Also, you'd see renters at the lower end in not-so-nice neighborhoods suddenly move out into nicer neighborhoods that are safer with better schools.

The big question is how many landlords are going to jump ahead of this demand and automatically bump the rents a superficial amount now that everyone has an extra $1,000 every month.

QUESTION: If you were a landlord and had a 10-unit apartment building, and suddenly all your tenants are now receiving an extra $1,000/mo, how tempted would you be to raise the rent sharply for no other reason?

If that happens, you might see an even greater increase in demand for purchasing lower level housing, with tenants perceiving they're getting a bad deal in their current rental, motivating them to finally buy a home instead.

EFFECTS ON SHORT TERM RENTALS (STR)

Since short term rentals are associated with travel, which itself is somewhat of a luxury, I don't think UBI would have as much impact on the STR market.

Surely, more people that couldn't afford to travel in the past would suddenly be able to, but they may choose to spend that money elsewhere instead.

And that's the whole rub with UBI. When everyone has a larger supply of money, the demand for ALL things naturally increases. People will spend money they didn't have in the past on new non-essential items (things they only wished they could afford in the past, but suddenly now can).

LOW PRICED MARKETS BUBBLE FROM INVESTORS

With extra income every month, and a resulting increase in local housing costs, real estate investors would swamp lower priced housing market like Ohio where homes are under $100k. 

Investors who may not be able to invest locally because of the increased demand and raising of the lower home prices would look to other states where homes are already more affordable.

This could have a devastating effect on those markets who are already experiencing fierce demand in the lower price ranges from owner occupants, with an additional demand coming from out of state investors, making the housing situation worse than it was previously.

INCREASED PURCHASING POWER FOR MULTI-GENERATIONAL & EXTENDED FAMILIES

Probably the biggest opportunity for aspiring investors would be pooling the UBI funds with fellow family members to drastically increase their purchasing power.

Imagine a family of four adults: A married couple, one of their retired parents, and one child who is an adult teenager getting ready for college. Together, they would have $4,000/mo in UBI to spend every month, or $48k/year.

Which just so happens to be roughly the amount needed to put a 20% down payment on a $250k property, and be able to do this every single year.

Together they could purchase their first $250k home and owner occupy, paying the $1,350/mo PITI with the retiree's social security. The working income from the two parents could pay all other living expenses, and they could still save $4,000/mo from the UBI.

They could easily repeat this process every year, or even buy cheaper homes in other states as investments (see above). Sure, they'll run into a little trouble once they get enough loans, but if they took a break in buying from years 5-10 and focused on increasing the current properties value or accelerated loan pay-down, they could pick this strategy back up and continue to purchase property.

By the time the 18 year old teenager is 40, he'd be absolutely loaded. And this is just with a family of four. Imagine if an extended family of 10-20 people pooled their money together. They'd have $120-240k per year to invest in real estate, stocks, and other businesses.

UNIVERSAL BASIC INCOME CAN'T BE UNDONE

Probably the biggest consideration with enacting a UBI program is that it can't be undone. NO ONE will vote to give themselves less money and handouts, even if it's shown that maintaining the program is unfeasible.

For example, just look at social security. Since 2010, Social Security's Cash Expenses have exceeded it's income, with the combined reserves likely to be fully depleted by 2034.

https://www.pewresearch.org/fact-tank/2015/08/18/5-facts-about-social-security/

We've known this for quite some time, yet we all are still complicit in keeping the system up and running. Millennials pay into a system they'll likely never receive the benefits from, and Boomers would start a revolution if the benefits are suddenly taken away after paying in for their entire lives. Same thing with the coming Gen X getting ready to retire.

More likely, the system will be altered to keep it afloat and kick the can down the road to future generations, by changing the benefit formulas, raising the payroll tax, or makes other changes such as raising the cap on taxable wage income.

BIGGER PROBLEMS AHEAD

But combine this with Artificial Intelligence Experts predicting as much as 45% of all jobs could be replaced by automation by 2035, and we've got a serious problem on our hands.

Serious changes are ahead, and the government only has so much "bread and circuses" (UBI being the bread) before seriously addressing the issues at hand.

For now, UBI is presented as Social Security 2.0, but instead of just the retired population too old for most work it's going to affect everyone because soon there will be very little work at all.

And with humans projected to live 3-8 years longer than previously expected by 2050, and even with just the current US adult population of 250 million over 18 (UBI recipients under Andrew's plan), that's an additional $3 trillion per year UBI would cost us BEYOND the additional $3.2 to $8.3 trillion we hadn't planned to spend with our erroneous calculations.

Further, with an annual inflation of 3%, the buying power of a dollar today will equivalent to $2.50 in 2050, begging the question if $1,000/mo will even be enough by then?

And if Andrew does win the next election and successfully implements the Freedom Dividend of $1,000/mo, what's to stop a later presidential candidate like Elizabeth Warren from running on a platform where the freedom dividend is expanded to $2,000/mo or more?

Interesting times for sure... much to consider with the big changes ahead.

DISCUSSION QUESTIONS:

1. If you received $1,000/mo in UBI, how would your family use this money to better your lives?

2. What market are you in? How do you think $1,000/mo in UBI would affect your local housing market?

3. Would you automatically increase the rent on your investment properties because your tenants are now receiving an extra $1,000/mo?

So, here's where I am confused...

You have a goal of financial freedom. 

You don't currently own any property, but work at a job that apparently allows you to work remotely, as you mention possible buy in Sacramento and living there before moving back. 

Living in San Francisco and working at your job has allowed you to save $2,500/year for 10 years, while essentially renting a room for $1,600/mo and not owning the property.

You have the opportunity to move to Sacramento and put that $25,000 down on a $250,000 property. That would make for a mortgage payment less than your rent (PITI of $1,590.96 @ 4.5% interest rate).

You could rent out the other two rooms for $500/mo (kinda like you're doing now), and drop your share of the monthly payment to only $600 or so before utilities.

This would increase your savings per year by $12,000 per year (+480%), which would allow you spend that money paying down the current mortgage at an accelerated rate, make renovations to the property to increase it's value, and save up for your second property. In 5 years you could have 20% ($60k) to put down on an investment property worth $300k.

Yet, you still want to live in San Francisco... despite it's financial drain on your wallet.

Here's my advice...

Move out of the Bay Area. It's ridiculously expensive, and that makes it at odds with your goal of financial freedom given your current income.

At the current rate of savings, you will have another $50k saved up by the time you're 65 and able to retire (assuming you're 45 now), making for a total of $75k if you don't spend any of the savings you do have currently. Which is assuredly a whole lot less than you're going to need to live comfortably.

But if you move and implement the plan I'm advising you to follow, every 5 years you could potentially purchase another $300k property, and own 5 of them by the time you retire. 

I'll take that over $75k, fresh crab and ocean views any day. 

Just my 2 cents, but giving your current situation and goals, remaining in San Fran doesn't offer nearly as many advantages as moving to Sacramento.

@Ahmed Sublaban

Here are a couple resources to get you pointed in the right direction:

https://www.nolo.com/legal-encyclopedia/overview-l...

http://www.hcd.ca.gov/manufactured-mobile-home/mob...

https://www.american-apartment-owners-association.org/landlord-tenant-laws/california/

@Ahmed Sublaban

Generally speaking, if you're going to be doing renovations then you're going to want to get rid of the tenant. Otherwise it's quite the disturbance and they're not going to be too happy about it.

Plus, while you may be able to justify a higher rent to a new tenant for the paint and countertops, the current tenant might say they're perfectly fine with the countertops and paint they already have.

Not like that really means anything legally, just that you risk breaking rapport with the tenants. And since you're the new owner and won't have much to start with, not the best first impression.

As far as getting rid of them, it all depends on the leases. If they've got time left, you can offer them some incentive to move out (like cash). If they are on month to month, then just provide proper notice depending on their length of tenancy in the property.

For raising rents, they'll need to be on a month-to-month lease, and once again you'll have to provide proper notice. Look up the laws regarding this. You're going to be a landlord soon so you'll need to know this stuff.

Sellers aren't likely to remove the tenants, because if the deal falls through with you they are stuck with an empty property and a mortgage payment. So unless you hold the upper hand in the negotiation you don't want to ask for that. Not likely to be agreed upon.

@Deepak Arora

Yes, if you're coming from the Bay Area and want to stay in California, then Sacramento is a great place to look. If the price is too high, then consider Stockton as an alternative.

If neither work because of the numbers and prices being too high, I suggest Phoenix. Instead of a two hour drive it's a two hour flight, but median home price is down around $270k or so making it quite affordable.

For Sacramento Neighborhoods, here's where I would drive around for the nicer areas:

Tahoe Park
Northern Oak Park
Curtis Park
Land Park
Midtown / Downtown
East Sacramento
Fair Oaks
Carmichael
South Natomas

There's more to see, but that's a decent start to begin with. Some of those neighborhoods are priceier areas so that doesn't mean the number will work though.

Rent is going to vary by location, property type, and condition. But lots of people are moving from the Bay Area and everything looks like a steal comparatively so generally decent ROI.

If the numbers don't work, but you love the property and area, you'll just need to put more down. This particularly becomes an issue at the higher price ranges. ($450k+)

@Keith Torsen

If you're house-hacking, your goal should really just be to get as close as possible to $0 for your share of the mortgage payment, with the majority of it being paid for by the other tenants.

That's because you're losing the income from the unit you are living in. So of course the gross income will be reduced. It will be a different deal when you move out though, so you can take that into some consideration.

Here's the cheapest triplex on the market in Sacramento:

4961 Mascot Ave, Sacramento, CA 95820 - $325k

"Affordable investment opportunity with the ability to hit the one percent rule with a little elbow grease. Two of the three units are leased grossing $2025, tenants on a month to month. All three units have indoor laundry and are habitable in current condition but mostly in original condition. Selling as-is."

If you lived in the small 2/1, 450 sq ft unit, you could rent the other two units out for a combined $2,025.

But even with 20% down your PITI will be $2,438.98 per month, leaving a balance of roughly $415/mo you'll have to pay AND include your share of utilities, etc. With only 3.5% down it's $836.64/mo before utilities and other expenses.

What's the benefit? You now own and control a $325k property for less than a thousand dollars a month. And if you move out in a year or two and rent the third unit for $500/mo the property will almost pay for itself. Perhaps with a little cosmetic renovation it will even go above that and net you a little money.

Having an extra unit would help (fourplex), but trying to get one for under $400k is going to be slim pickings in Sacramento (2 on the market at that price) and so they will be the worst quality properties in the worst quality areas.

House-hacking really isn't intended for cash-flow unless you're putting a fat chunk of money down. It's meant to allow you to own a property for far less per month than you would normally have to pay and get your foot in the door to owning investment property. Perhaps when you move out and rent the unit you were living in you'll have some cash-flow, but you'll also have to pay for the place you move out to so it may offset.

I would consider looking at duplexes where you end up paying the same per month as you are now (renting, I'm assuming), as you'll own instead of rent, have a nicer quality property in a nicer area which will attract better tenants and give you less repairs and maintenance issues and costs in the future, and allow you to own a property for the same you're paying in rent that you can one day move out of and rent that unit to possibly cash-flow. 

But trying to go for cash-flow when you're house-hacking isn't really going to work for the price range you're in and amount you're putting down.

@Skyler Harrington

Welcome to BiggerPockets! You're in the right place! We have a great group located here in Phoenix, and can definitely help guide you in your first transaction.

If you're going to do some type of house-hacking where you live in one unit or room and rent out the others, my first advice is to decide on where you want to live. After all, you have to be comfortable with the property condition and neighborhood, and this will be twice as important if you have kids or a spouse / girlfriend. They'll need to be comfortable too. Plus you have other considerations like commute time, local amenities, etc. 

Just because some neighborhood offers the best price-to-lease ratio doesn't mean you want to live there. I would consider the places you're willing to live first, and THEN look at what ROI you can get from the different cities / neighborhoods in the Phoenix Metro Area.

Once you've got that decided, then look in those areas to see what might be possible. If it's a duplex or triplex, find out what other units that size are renting for in the area. If it's a room you'll be renting out, see what rooms are renting for in the area. This is easy to do on HotPads, Craigslist, Zillow, etc. Once you're further along, an agent can help show you the recent closed leases nearby so you'll know not just what people are asking for rent, but what people are actually paying.

How familiar are you with the Phoenix area? What part of town where you hoping to live in to accomplish this plan?