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Thread: Real Estate is the Best Anti-Inflation Play

  1. #61

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    You never fully own real estate, and your property taxes are subject to the whims of bureaucrats. Real estate is not very liquid either. If you needed to leave the country in a hurry most of our stacks would fit tidily in a carryon.

    Just my opinion.



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  3. #62
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    Quote Originally Posted by Jordan View Post
    How is having ownership to a business that invests directly in real estate paper ownership? You're way too comfortable throwing around the word "paper" to basically mean "an investment that I don't like because it isn't metal." I have a right to a portion of the underlying assets and the income generated from those assets. These are real houses. People have bought them. People are living in them. They aren't just pictures I drew on a piece of paper.

    All you have to do is look to pending home sales, construction data, and the price-to-rent ratio chart I posted above to see that real estate isn't overpriced. It's moving faster now than at any point in the last 5 years. How many indicators do I have to post before I stop encountering ridiculous claims without any backing whatsover, such as this:

    What I find remarkable is that this board cannot find a single reason why ANYTHING OTHER THAN GOLD OR SILVER could go up in value. Already four pages in I've heard now that inflation will drive real estate prices down, and so will deflation. If Obama sneezes tomorrow, real estate, stocks, anything but gold and silver will go down. If Obama doesn't sneeze tomorrow, then real estate, stocks, and anything buy gold and silver will go down. There is no consistency in the thought process here with the exception that everything will be worth less tomorrow unless it is sold in a coin shop. It's borderline delusion at this point.
    1.) it's not, that is my point. You own the paper, not the asset. You bought into a derivative, which is backed by nothing more than fiat which is the main reason we have to worry about inflation destroying wealth to begin with.

    2.) right, someone else bought them. You own a share of a company that makes a bet whether or not that person can pay their loan. You are not even betting that the housing market will rebound in price, you are betting that consumer credit has bottomed. You are looking at the wrong charts!

    If you were even talking about owning properties to rent, you'd still need to be more concerned about incomes since you are making the argument that your investment has cash flow. That's only true so long as people can pay rent. In an inflationary environment, you cash flow is getting competition from things like, food, heat, and baby formula.

    I have look at all those charts. The one you are ignoring however is price to income. After you get done with that simple one, you also might want to look at Loan to Value. If if you are really brave, look at consumer credit.

  4. #63

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    Not to mention what happens in a deflationary depression economy. If you're gonna buy real estate maybe it would be best to buy in the depths of the depression, after the collapse.

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    Quote Originally Posted by wgadget View Post
    Not to mention what happens in a deflationary depression economy. If you're gonna buy real estate maybe it would be best to buy in the depths of the depression, after the collapse.
    he's talking about pooling funds with a REIG to buy and flip, or buy and rent. It's a decent way to get a foot in the door, but hardly an inflation beating proposition since even folks with 100% ownership without the overhead of a REIG are gonna have a hard time beating inflation with RE in the current climate.

    If you were a DIY'er, yeah. If you manage your own properties, yeah. If you have access to a line of credit, yeah. If you are willing to buy the worst of the lot, and hold out for the entire neighborhood to rebound (assuming it does) yeah.

    But if you are gonna drop 25k into a REIG and have paper on 25 properties, and get $250 a month income stream, umm.. you are aren't really hedging against inflation. Since its gonna take 8+ years just to get your initial investment assuming no inflation at all. What's worse, you can't even decide to sell those properties when you want cause you are part of a group. You also can't get a line of credit against those properties ASSUMING the value goes up, since again, you don't own them.

    Better to drop that 25k as a down payment on an 80k fixer upper, get a 10-15 year loan with lowest possible rate, make double payments to build equity, and PRAY that the market rebounds in 5 years.

  6. #65

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    Quote Originally Posted by Jordan View Post
    Real estate, much like gold, is safe in that you cannot make more of it. Should interest rates rise due to an increase in the level of inflation, then the cost to build a new home would also increase.
    You contradict yourself here. It's very easy to make more real estate, and we've been doing it since the first mud hut was built.

  7. #66

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    Quote Originally Posted by gerryb1 View Post
    You contradict yourself here. It's very easy to make more real estate, and we've been doing it since the first mud hut was built.
    There is SO MUCH real estate out there that is either in foreclosure or underwater, giving the owners very little opportunity to move or sell. I believe it's called SHADOW INVENTORY. There is no housing "recovery." The banks have given the leeway to hold onto bad mortgages for up to five years, letting the houses sit vacant, deteriorating, as the Fed buys them up. Fantastic.

  8. #67

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    Quote Originally Posted by Jordan View Post
    What I find remarkable is that this board cannot find a single reason why ANYTHING OTHER THAN GOLD OR SILVER could go up in value. Already four pages in I've heard now that inflation will drive real estate prices down, and so will deflation. If Obama sneezes tomorrow, real estate, stocks, anything but gold and silver will go down. If Obama doesn't sneeze tomorrow, then real estate, stocks, and anything buy gold and silver will go down. There is no consistency in the thought process here with the exception that everything will be worth less tomorrow unless it is sold in a coin shop. It's borderline delusion at this point.
    You will not get consistency from a group called the "board". Your own post is proof of that. Find inconsistencies from the same poster. Like going to the exchange, half will yell "buy" and half will yell "sell". If you are expecting something different, that is your misunderstanding.

  9. #68

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    Quote Originally Posted by jclay2 View Post
    Jordan

    True or False: The real estate market is one of the most heavily manipulated/intervened markets on the planet right now?
    True. Which is why I like investing in it.

    I don't make the rules, I just play by them. Ben Bernanke and company are making homes excellent investments, so I'm just following their lead. Don't hate the player; hate the game.
    Last edited by Jordan; 12-10-2012 at 11:20 AM.

  10. #69

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    Quote Originally Posted by newbitech View Post
    he's talking about pooling funds with a REIG to buy and flip, or buy and rent. It's a decent way to get a foot in the door, but hardly an inflation beating proposition since even folks with 100% ownership without the overhead of a REIG are gonna have a hard time beating inflation with RE in the current climate.

    If you were a DIY'er, yeah. If you manage your own properties, yeah. If you have access to a line of credit, yeah. If you are willing to buy the worst of the lot, and hold out for the entire neighborhood to rebound (assuming it does) yeah.

    But if you are gonna drop 25k into a REIG and have paper on 25 properties, and get $250 a month income stream, umm.. you are aren't really hedging against inflation. Since its gonna take 8+ years just to get your initial investment assuming no inflation at all. What's worse, you can't even decide to sell those properties when you want cause you are part of a group. You also can't get a line of credit against those properties ASSUMING the value goes up, since again, you don't own them.

    Better to drop that 25k as a down payment on an 80k fixer upper, get a 10-15 year loan with lowest possible rate, make double payments to build equity, and PRAY that the market rebounds in 5 years.
    First, the numbers you used are off both as a proportion and in real terms, however, your thinking is ridiculous. Anyone who slaps $25k into something and gets $250 a month out of it in pure cash flow is doing really well; that's 12% per year.

    The way you account for earnings is inaccurate. Over time, the value of the equity will increase as will the rental income stream because that's how inflation works.


    Quote Originally Posted by newbitech View Post
    1.) it's not, that is my point. You own the paper, not the asset. You bought into a derivative, which is backed by nothing more than fiat which is the main reason we have to worry about inflation destroying wealth to begin with.

    2.) right, someone else bought them. You own a share of a company that makes a bet whether or not that person can pay their loan. You are not even betting that the housing market will rebound in price, you are betting that consumer credit has bottomed. You are looking at the wrong charts!

    If you were even talking about owning properties to rent, you'd still need to be more concerned about incomes since you are making the argument that your investment has cash flow. That's only true so long as people can pay rent. In an inflationary environment, you cash flow is getting competition from things like, food, heat, and baby formula.

    I have look at all those charts. The one you are ignoring however is price to income. After you get done with that simple one, you also might want to look at Loan to Value. If if you are really brave, look at consumer credit.
    1) You're a fool for thinking that everything corporate is somehow intangible, but okay.
    2) Once the home is sold, it doesn't matter to me if they cannot pay their bills any more.
    3) Some are rentals, but the best IRR has been in flips thus far, so I hope those keep going until it gets too big for the local market and it has to start buying to hold. Cap rates are incredible. Price to income is very affordable, hence why the home affordability index is hitting new highs.

  11. #70

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    Quote Originally Posted by The Free Hornet View Post
    You will not get consistency from a group called the "board". Your own post is proof of that. Find inconsistencies from the same poster. Like going to the exchange, half will yell "buy" and half will yell "sell". If you are expecting something different, that is your misunderstanding.
    Even from a single poster I can't get consistency.

    Gold goes up over time because of inflation, I recognize that. Real estate goes up over time because of inflation and it cash flows during the period. No one is willing to admit that.

  12. #71

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    Quote Originally Posted by Jordan View Post
    True. Which is why I like investing in it.

    I don't make the rules, I just play by them. Ben Bernanke and company are making homes excellent investments, so I'm just following their lead. Don't hate the player; hate the game.
    Back in 2004, GWBush and Alan Greenspan were making homes excellent investments. We all know how that worked out.

  13. #72

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    Meantime, Dodd-Frank legislation is giving the Too Big to Fails fits...The US and the UK are teaming up to slay the dragon. Derivatives, anyone?

    http://blogs.marketwatch.com/thetell...to-fail-banks/

  14. #73

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    Quote Originally Posted by wgadget View Post
    Back in 2004, GWBush and Alan Greenspan were making homes excellent investments. We all know how that worked out.
    Incredibly well for people who bought, rented, and held? Yep.

    This is a great time to buy real estate. Look at the spreads between carrying costs and rents.
    Last edited by Jordan; 12-10-2012 at 12:07 PM.

  15. #74

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    Quote Originally Posted by Jordan View Post
    Incredibly well for people who bought, rented, and held? Yep.

    This is a great time to buy real estate. Look at the spreads between carrying costs and rents.
    We have not yet reached bottom. There is a hidden glut.

  16. #75

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    Quote Originally Posted by wgadget View Post
    We have not yet reached bottom. There is a hidden glut.
    Okay, we'll see how that plays out.

    How much further do you think national housing prices will fall and by when? Please quantify your predictions so that we can come back and see how well you do.

  17. #76

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    A real estate broker told me that 2 out of 5 homes in my neighborhood are either already foreclosed on or in the process. I heard there are 5 million homes nationwide in this status. So...I guess the market might be cleared in oh...10 or 15 years? I'm gonna guess prices will go down another 20% or so in the near-term (2 to 5 years). Not sure how well the banks' ability to hold onto empty homes for five years is gonna bode with "the neighborhood." As in, "There goes the neighborhood." Dilapidated homes in "the neighborhood" do not make for rising prices, imho.

    Also, as the municipalities get more and more desperate for "revenues," property taxes will rise. It's not rocket science.
    Last edited by wgadget; 12-10-2012 at 12:22 PM.

  18. #77

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    Quote Originally Posted by gerryb1 View Post
    You contradict yourself here. It's very easy to make more real estate, and we've been doing it since the first mud hut was built.
    +1 great point.

    Perhaps zoning laws and building inspectors are a way to force artificial scaricity on an unscarce product. Power center cities like DC are another way to create artificial scarcity. The same might be true with tech cities and IP laws. The tech stays there because IP law demands it stay with specific companies. Likewise with public education and medical industry regulation. Centralize the resources and close down anything not under Uncle Sam's thumb (e.g., make running a rural ER prohibitively expensive by forcing them to treat regardless of ability to pay not to mention licensing and medicine/FDA/IP costs).

    That said, there does seem to be a limited amount of hip but only a few cities benefit from this effect.

  19. #78

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    Quote Originally Posted by Jordan View Post
    Even from a single poster I can't get consistency.
    OK - so not a single consistent poster here???

    Quote Originally Posted by Jordan View Post
    Gold goes up over time because of inflation, I recognize that. Real estate goes up over time because of inflation and it cash flows during the period. No one is willing to admit that.
    The first post (#1), made that admission: "Which means that real estate is a good anti-inflation play that actually generates cash flow - unlike gold - and like gold, you cannot make more real estate out of thin air".

    Disregarding the 'cash flow' aspect. What is nice about real estate is that you can leverage real estate to get more real estate. Someone starting off with one tennant may work their way up to dozens or thousands. An ounce of gold will always be an ounce of gold and it is not as easy leverage your way into more gold (you could sell it and buy velocity shares that double the price trends and use those profits to buy more gold).

    My beefs with real estate are that it is a job to manage and I already have a job. More so, I am both willingly and unwillingly exposed to too much local real estate market. As such, any real estate plays for me would have to be externally managed (farmland, e.g.) or something that doesn't need management (like a vacant lot) and preferable sufficiently far away.

    Quote Originally Posted by Jordan View Post
    Okay, we'll see how that plays out.

    How much further do you think national housing prices will fall and by when? Please quantify your predictions so that we can come back and see how well you do.
    You're forgetting the 3 most important things about real estate: location, location, location. Who gives a damn about "national housing prices"? Which city will be the next Detroit or Las Vegas? Where is the next DC or San Diego? That's what I want to know.

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    Quote Originally Posted by The Free Hornet View Post
    Disregarding the 'cash flow' aspect. What is nice about real estate is that you can leverage real estate to get more real estate.
    yes, i am nitpicking...

    anyway, the leveraging comes in the form of credit lines. One cannot successfully lever up whilst disregarding cash flow, since the cash flow is required to maintain the credit line. So Rents - Credit Maintenance - Real Estate Maintenance = Cash flow. That is the simple formula.

  21. #80

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    Quote Originally Posted by Jordan View Post
    How much further do you think national housing prices will fall and by when? Please quantify your predictions so that we can come back and see how well you do.
    I think the values are declining by $40B a month, soon to be $85B a month.

    So glad they don't need to clear the market! It's much better to instead have empty houses, jobs will be created in the future in the form of salvage and demolition crews. Woohoo!

  22. #81

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    Quote Originally Posted by newbitech View Post
    he's talking about pooling funds with a REIG to buy and flip, or buy and rent. It's a decent way to get a foot in the door, but hardly an inflation beating proposition since even folks with 100% ownership without the overhead of a REIG are gonna have a hard time beating inflation with RE in the current climate.

    If you were a DIY'er, yeah. If you manage your own properties, yeah. If you have access to a line of credit, yeah. If you are willing to buy the worst of the lot, and hold out for the entire neighborhood to rebound (assuming it does) yeah.

    But if you are gonna drop 25k into a REIG and have paper on 25 properties, and get $250 a month income stream, umm.. you are aren't really hedging against inflation. Since its gonna take 8+ years just to get your initial investment assuming no inflation at all. What's worse, you can't even decide to sell those properties when you want cause you are part of a group. You also can't get a line of credit against those properties ASSUMING the value goes up, since again, you don't own them.

    Better to drop that 25k as a down payment on an 80k fixer upper, get a 10-15 year loan with lowest possible rate, make double payments to build equity, and PRAY that the market rebounds in 5 years.
    What's an REIG? And how on earth did you figure $250/month? If you have 25 properties, your income should be well over $10k/month if they are in good condition.
    "The greater the number of prescriptions, the more people's sense of personal responsibility dwindles." ~Hans Monderman

  23. #82

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    Quote Originally Posted by wgadget View Post
    A real estate broker told me that 2 out of 5 homes in my neighborhood are either already foreclosed on or in the process. I heard there are 5 million homes nationwide in this status. So...I guess the market might be cleared in oh...10 or 15 years? I'm gonna guess prices will go down another 20% or so in the near-term (2 to 5 years). Not sure how well the banks' ability to hold onto empty homes for five years is gonna bode with "the neighborhood." As in, "There goes the neighborhood." Dilapidated homes in "the neighborhood" do not make for rising prices, imho.

    Also, as the municipalities get more and more desperate for "revenues," property taxes will rise. It's not rocket science.
    If I'm looking for rental property and the prices go down, that's a good thing for me. That means less of an investment for roughly the same rental income. We spent $28k on an apartment building and we are making almost 2k/month gross from it. Net, it's about 1400/month. And guess what, the rent's about to go up. Think this will drive away renters? Think again. We have no shortage of renters as my last advertising campaign showed me. People were begging us to lease to them, and that was in a crummy old town circling the drain. I just don't see how people could possibly argue against that kind of cash flow, liquidity or no liquidity. If you are making positive cash flow for little work, then you have more money to buy gold and also more time to work for some extra cash. I don't see how this is a bad thing.
    "The greater the number of prescriptions, the more people's sense of personal responsibility dwindles." ~Hans Monderman

  24. #83
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    Quote Originally Posted by PaulConventionWV View Post
    What's an REIG? And how on earth did you figure $250/month? If you have 25 properties, your income should be well over $10k/month if they are in good condition.
    real estate investment group. I just came off the top of my head. 25k spread over 25 properties is an average of 1k per property invested. Like 1% share per property if they invested in cash deals that are out there.

    I wasn't looking for specific numbers really, just showing the model of what happens when you put money in with an investment group.

    But yeah if he actually owned those 25 properties, which he does not, then he'd not be worrying so much about trying to get into real estate to beat inflation. He'd realized that just like any other source of income, inflation is going to take a nice bite out of his fixed income investment, which is exactly what real estate is.

    Rents don't go up every time a lease renews. Rents like anything else are subject to supply and demand. If housing was so attractive, he's lose rental demand. Of course he also mentioned that the properties he is a minority owner in (whatever that means) are already bought and people are living in them. So if these aren't rents, then what he's invested in is mortgage backed securities. That being the case, he's even more on a fixed income since I doubt any good investment is sitting on an adjustable rate. More than likely locked in at the lowest rates. That means he has no room to see his income stream increase with values, even in a positive equity scenario, since rates can do nothing but go up, it is unlikely that anyone will buy out his MBS because he's already at the tightest margin he can find. He is counting on flipping. And that comes as no surprise as that is the exact nature of the investors I see in the field who are trying to jump start the bandwagon.

    The hawks that I know, are still waiting and if they are getting in its because they are already in and accumulating and adding to their positions of actual 100% ownership. They are doing it with essentially free money in the form of large cash downs and extremely low rate. They aren't waiting for equity, they are storing their own cash positions and create instant equity by investing the capital to rehab in select neighborhoods. This is still tenuous at best, since the cost of rehab in both material and labor is being driven up because of... ta daaaa, inflation.

    Housing as a sector and the drivers that create growth in the industry are still correcting. Wages are lagging, consumer credit is still well above pre bubble levels even tho it is painfully coming down. Sure housing caught a bid here recently, but that is cyclical. Money is rotating through asset classes. People with capital are looking for the least negative return, not the most positive. Sure there will be some big winners, but I don't think it will be minority owners in the MBS or REIG channels, especially when 100% owners/landlords are still riding out the storm.

    Next down leg takes prices down 20-30% bottom in probably 5-8 years, recovery where wages are finally able to support actual growth in the market, 15-20 years.

  25. #84

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    Quote Originally Posted by Carson View Post
    I wouldn't underestimate San Diego as a place to be during a crisis. I grew up there.

    San Diego has a lot of military families. It is also a good place to take it easy. Free people taking it easy are not likely to eagerly jump on every band wagon you shove in front of them. I see them as very independent that way.

    I haven't lived a lot of places but I rate them up there on the flipping you off or mooning you index if you try pulling anything on them.

    You must be joking. A city with 1.5 million AND the largest border city in the US?

    Good luck getting to use any hospitals etc with a million transient illegals using them for their homes during the crisis. You have hundreds of thousands of just plain Mexican transients wandering all over just looking for opportunities to take advantage of in a crisis. They grew up in one and really know how to work a socialist system and a crime wave with not enough law enforcement.

    Maybe tolerable if you could ride it out on Coronado but that is an island and that has challenges. The rest of San Diego would be a giant crime wave of Mexicans. Once the people in Mexico hear everything has broken down there would be an influx of literally millions in a month or less.

    Border cities are insane.
    Last edited by adams101; 12-10-2012 at 06:08 PM.

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    Quote Originally Posted by PaulConventionWV View Post
    If I'm looking for rental property and the prices go down, that's a good thing for me. That means less of an investment for roughly the same rental income. We spent $28k on an apartment building and we are making almost 2k/month gross from it. Net, it's about 1400/month. And guess what, the rent's about to go up. Think this will drive away renters? Think again. We have no shortage of renters as my last advertising campaign showed me. People were begging us to lease to them, and that was in a crummy old town circling the drain. I just don't see how people could possibly argue against that kind of cash flow, liquidity or no liquidity. If you are making positive cash flow for little work, then you have more money to buy gold and also more time to work for some extra cash. I don't see how this is a bad thing.
    you prolly gonna have to flesh out those numbers.

    how much did you spend to renovate. surely this building was unoccupied at the time. how many units. I have a hard time seeing someone walk from 2k/month for 28k. 14 months... at most you have what 4 units in a quad? you got this off the foreclosure block? tax deed?

    if properties were going like that around here i'd be a land baron in 6 months.

  27. #86

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    Quote Originally Posted by The Free Hornet View Post
    My beefs with real estate are that it is a job to manage and I already have a job. More so, I am both willingly and unwillingly exposed to too much local real estate market. As such, any real estate plays for me would have to be externally managed (farmland, e.g.) or something that doesn't need management (like a vacant lot) and preferable sufficiently far away.



    You're forgetting the 3 most important things about real estate: location, location, location. Who gives a damn about "national housing prices"? Which city will be the next Detroit or Las Vegas? Where is the next DC or San Diego? That's what I want to know.
    I'm not investing any time in the real estate that I own a partial interest in. Returns are still acceptable.

    I'm not forgetting anything about location. Not at all. Time and time again on this board I've discounted the claim of there being extreme levels of shadow inventory because it's all in the same localized markets and relatively unimportant. I asked wgadget about his thoughts on national prices because he routinely talks about national prices and national concerns (like shadow inventory.) Since he keeps talking about shadow inventory, a national phenomenon, I wanted to ask the question in such a way that he can answer. Pretty simple logic to follow.

    Quote Originally Posted by newbitech View Post
    real estate investment group. I just came off the top of my head. 25k spread over 25 properties is an average of 1k per property invested. Like 1% share per property if they invested in cash deals that are out there.

    I wasn't looking for specific numbers really, just showing the model of what happens when you put money in with an investment group.

    But yeah if he actually owned those 25 properties, which he does not, then he'd not be worrying so much about trying to get into real estate to beat inflation. He'd realized that just like any other source of income, inflation is going to take a nice bite out of his fixed income investment, which is exactly what real estate is.

    Rents don't go up every time a lease renews. Rents like anything else are subject to supply and demand. If housing was so attractive, he's lose rental demand. Of course he also mentioned that the properties he is a minority owner in (whatever that means) are already bought and people are living in them. So if these aren't rents, then what he's invested in is mortgage backed securities. That being the case, he's even more on a fixed income since I doubt any good investment is sitting on an adjustable rate. More than likely locked in at the lowest rates. That means he has no room to see his income stream increase with values, even in a positive equity scenario, since rates can do nothing but go up, it is unlikely that anyone will buy out his MBS because he's already at the tightest margin he can find. He is counting on flipping. And that comes as no surprise as that is the exact nature of the investors I see in the field who are trying to jump start the bandwagon.

    The hawks that I know, are still waiting and if they are getting in its because they are already in and accumulating and adding to their positions of actual 100% ownership. They are doing it with essentially free money in the form of large cash downs and extremely low rate. They aren't waiting for equity, they are storing their own cash positions and create instant equity by investing the capital to rehab in select neighborhoods. This is still tenuous at best, since the cost of rehab in both material and labor is being driven up because of... ta daaaa, inflation.

    Housing as a sector and the drivers that create growth in the industry are still correcting. Wages are lagging, consumer credit is still well above pre bubble levels even tho it is painfully coming down. Sure housing caught a bid here recently, but that is cyclical. Money is rotating through asset classes. People with capital are looking for the least negative return, not the most positive. Sure there will be some big winners, but I don't think it will be minority owners in the MBS or REIG channels, especially when 100% owners/landlords are still riding out the storm.

    Next down leg takes prices down 20-30% bottom in probably 5-8 years, recovery where wages are finally able to support actual growth in the market, 15-20 years.
    You're not paying attention to what I'm saying at all.

    The company owns real estate that it rents and real estate which it flips. It does both, just depending on what the best deal is at the time. If someone wants to rent, cool - if someone wants to buy the house at a premium giving the company a huge IRR, also good.

    I don't own MBS. That's ridiculous. I already said something to the extent that I don't care what happens to the owner's cash flow after they buy a home in a flipped deal. Why would I say that? Hmm, IDK, probably because I don't own the note on the home. Follow the logic, man, seriously.

    Minority owner means someone who does not own a control position in a company. Basically, someone who owns less than 50% of voting shares - you probably shouldn't be participating in investment discussion without knowing that. I mentioned it because at the time it was important to note that the person managing the company is a pretty big shareholder and thus has a lot of his capital invested in the company, so he's not going to make decisions that he wouldn't make with his own money. Only reason it's relevant - oh, and because I can compound without having to buy into a whole property. Additionally, it gives me diversification, in that rather than owning...say 10 properties at 100%, I can own 10% of 100 properties. Finally, scale has its own advantages. Cheaper per hour to hire a full time electrician than hire one once, or a plumber, or carry working capital and fixed investments like a truck. It has its advantages, too.

    Also, keep in mind that I'm not remotely concerned about beating inflation, by the way, since inflation is so incredibly low and will be for some time. Rather, I wanted to introduce the concept and idea to people on RPF, since RPF is obsessed with inflation. I thought it'd be a good thing to discuss. Instead it's turning out to be taxing, since it seems that this board is full of people who have plenty of opinions and very little skin in the game.
    Last edited by Jordan; 12-10-2012 at 06:36 PM.

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    Quote Originally Posted by Jordan View Post
    I'm not investing any time in the real estate that I own a partial interest in. Returns are still acceptable.

    I'm not forgetting anything about location. Not at all. Time and time again on this board I've discounted the claim of there being extreme levels of shadow inventory because it's all in the same localized markets and relatively unimportant. I asked wgadget about his thoughts on national prices because he routinely talks about national prices and national concerns (like shadow inventory.) Since he keeps talking about shadow inventory, a national phenomenon, I wanted to ask the question in such a way that he can answer. Pretty simple logic to follow.



    You're not paying attention to what I'm saying at all.

    The company owns real estate that it rents and real estate which it flips. It does both, just depending on what the best deal is at the time. If someone wants to rent, cool - if someone wants to buy the house at a premium giving the company a huge IRR, also good.

    I don't own MBS. That's ridiculous. I already said something to the extent that I don't care what happens to the owner's cash flow after they buy a home in a flipped deal. Why would I say that? Hmm, IDK, probably because I don't own the note on the home. Follow the logic, man, seriously.

    Minority owner means someone who does not own a control position in a company. Basically, someone who owns less than 50% of voting shares - you probably shouldn't be participating in investment discussion without knowing that. I mentioned it because at the time it was important to note that the person managing the company is a pretty big shareholder and thus has a lot of his capital invested in the company, so he's not going to make decisions that he wouldn't make with his own money. Only reason it's relevant - oh, and because I can compound without having to buy into a whole property. Additionally, it gives me diversification, in that rather than owning...say 10 properties at 100%, I can own 10% of 100 properties. Finally, scale has its own advantages. Cheaper per hour to hire a full time electrician than hire one once, or a plumber, or carry working capital and fixed investments like a truck. It has its advantages, too.

    Also, keep in mind that I'm not remotely concerned about beating inflation, by the way, since inflation is so incredibly low and will be for some time. Rather, I wanted to introduce the concept and idea to people on RPF, since RPF is obsessed with inflation. I thought it'd be a good thing to discuss. Instead it's turning out to be taxing, since it seems that this board is full of people who have plenty of opinions and very little skin in the game.
    ok, I think that everyone can hedge with gold, so gold is naturally the best play. whereas RE market is tiny so maybe good for some bad for other but certainly out of reach for most.

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    We spent $28k on an apartment building and we are making almost 2k/month gross from it. Net, it's about 1400/month.
    What town & state is this in? How long ago did you purchase it?

  30. #89

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    Quote Originally Posted by newbitech View Post
    real estate investment group. I just came off the top of my head. 25k spread over 25 properties is an average of 1k per property invested. Like 1% share per property if they invested in cash deals that are out there.

    I wasn't looking for specific numbers really, just showing the model of what happens when you put money in with an investment group.

    But yeah if he actually owned those 25 properties, which he does not, then he'd not be worrying so much about trying to get into real estate to beat inflation. He'd realized that just like any other source of income, inflation is going to take a nice bite out of his fixed income investment, which is exactly what real estate is.

    Rents don't go up every time a lease renews. Rents like anything else are subject to supply and demand. If housing was so attractive, he's lose rental demand. Of course he also mentioned that the properties he is a minority owner in (whatever that means) are already bought and people are living in them. So if these aren't rents, then what he's invested in is mortgage backed securities. That being the case, he's even more on a fixed income since I doubt any good investment is sitting on an adjustable rate. More than likely locked in at the lowest rates. That means he has no room to see his income stream increase with values, even in a positive equity scenario, since rates can do nothing but go up, it is unlikely that anyone will buy out his MBS because he's already at the tightest margin he can find. He is counting on flipping. And that comes as no surprise as that is the exact nature of the investors I see in the field who are trying to jump start the bandwagon.

    The hawks that I know, are still waiting and if they are getting in its because they are already in and accumulating and adding to their positions of actual 100% ownership. They are doing it with essentially free money in the form of large cash downs and extremely low rate. They aren't waiting for equity, they are storing their own cash positions and create instant equity by investing the capital to rehab in select neighborhoods. This is still tenuous at best, since the cost of rehab in both material and labor is being driven up because of... ta daaaa, inflation.

    Housing as a sector and the drivers that create growth in the industry are still correcting. Wages are lagging, consumer credit is still well above pre bubble levels even tho it is painfully coming down. Sure housing caught a bid here recently, but that is cyclical. Money is rotating through asset classes. People with capital are looking for the least negative return, not the most positive. Sure there will be some big winners, but I don't think it will be minority owners in the MBS or REIG channels, especially when 100% owners/landlords are still riding out the storm.

    Next down leg takes prices down 20-30% bottom in probably 5-8 years, recovery where wages are finally able to support actual growth in the market, 15-20 years.
    I see what you're saying. The whole REIG is admittedly kind of foreign to me. My partner and I have invested in property with 100% ownership. We paid for our first two investments in cash. It's still a struggle since we have a limited supply of capital, but getting over the hump is the hard part. Once you do that, real estate investing can be a major source of cash flow.
    "The greater the number of prescriptions, the more people's sense of personal responsibility dwindles." ~Hans Monderman

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    Quote Originally Posted by newbitech View Post
    you prolly gonna have to flesh out those numbers.

    how much did you spend to renovate. surely this building was unoccupied at the time. how many units. I have a hard time seeing someone walk from 2k/month for 28k. 14 months... at most you have what 4 units in a quad? you got this off the foreclosure block? tax deed?

    if properties were going like that around here i'd be a land baron in 6 months.
    The 2k/month is gross. Like I said, the net is more like 1400/month since we pay the electric and water bills. It has 5 units, and no, it was not a foreclosure. Three units were already being rented and the property manager lived in one for free. We got all units filled with paying renters within a few weeks after renovating the inside of the apartments with new carpet, paint, toilet, and a new ceiling. We fixed the roof on the place ourselves since my partner is a contractor. Overall we haven't spent more than ~$4k renovating. The owners at the time that we bought it lived in Alabama and just wanted to get it off their hands, so we took it from them for significantly lower than the asking price.
    "The greater the number of prescriptions, the more people's sense of personal responsibility dwindles." ~Hans Monderman

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