***Official Real Estate Thread***

bluemarlin04

Michael Peterson status
Aug 13, 2015
2,565
2,383
113
Knowing where NOT to build is an art few appreciate.
Knowing when to sell and exit a market is also a skill.

Real estate is a difficult game.

Most don’t realize or they refuse to understand that real estate is transactional. It’s not like stocks where you just click a button and your out. You got to find a buyer and then on top of that pay massive transactional costs to sell and a real estate commission.

For every “winner” there is also a “loser”.

Lot of people gonna be left holding the bag this go around with high interest rates.

Part of why I sold the beach rental. Owed about 520 and it was worth 1,000,000+. The problem is in these expensive beach towns is that the house costs are so high that cash flow isn’t that great. Like 2-3% CAP rate (which is terrible. One month vacancy in the year and that’s your cash flow).

Lot of grifters on Tik Tok have convinced everyone it’s easy to do real estate investing
 

grapedrink

Duke status
May 21, 2011
25,945
14,735
113
A Beach
Knowing when to sell and exit a market is also a skill.

Real estate is a difficult game.

Most don’t realize or they refuse to understand that real estate is transactional. It’s not like stocks where you just click a button and your out. You got to find a buyer and then on top of that pay massive transactional costs to sell and a real estate commission.
This is the main drawback from an investment standpoint. Like you said it's not like day trading, especially if you live in the house and have to figure out where you are going next. Even a vacant house can take months to get your funds, and the agreed upon price can change with inspections, contingencies, holding costs etc.

Lot of people gonna be left holding the bag this go around with high interest rates.
Those who can make their payments can ride it out and refi when rates go back down in 18-24ish months. Those who bought at the top based on their high dollar work from home tech salary, or even couples with modest jobs that require 2 paychecks to pay the bills, are in for a rude awakening. I heard that Google just called everyone back to the office and said if you insist on working from home then you aint working for us :roflmao:

Ultimately though it is good for the economy to let these mortgages wash out and funnel those units back into the market at a lower price so that more people can get in. Sucks for those people but that's life.

Part of why I sold the beach rental. Owed about 520 and it was worth 1,000,000+. The problem is in these expensive beach towns is that the house costs are so high that cash flow isn’t that great. Like 2-3% CAP rate (which is terrible. One month vacancy in the year and that’s your cash flow).
Low Return on Equity is the term for this. I imagine it's tough to let go of a property like that but from an investment standpoint it's the right call.

Lot of grifters on Tik Tok have convinced everyone it’s easy to do real estate investing
Easy is the wrong word for it, but if you buy in a growing market and you can ride out some years it is almost fool proof in terms of returns. On par with long term index funds, and potentially far better if you pick the right market.
 

sdsrfr

Phil Edwards status
Jul 13, 2020
5,857
11,267
113
San Diego
Knowing where NOT to build is an art few appreciate.
too bad many folks fall in love with a neighborhood before ever checking flood and fire areas.

I had insurance quotes on houses before I ever made an offer. Nothing made me fall out of love with a home faster than the insurance company saying “will not insure due to X”. Usually X was unmaintained canyon area fire risks.

Lot of grifters on Tik Tok have convinced everyone it’s easy to do real estate investing
I joked with honeybunny that someone will ultimately try and sue HGTV for the misrepresentation of costs on all the husband/wife’s duo home flip shows.
 

bluemarlin04

Michael Peterson status
Aug 13, 2015
2,565
2,383
113
One thing I really overlooked was the cost of maintenance on my property.

Upkeep costs money. New paint every 10 years is 10k+ (If you’re lucky) plus you gotta compensate the tenant for the inconvenience or you gotta do when they’re not living there which means you’re eating the mortgage payments those months.

New appliances every 7-10 years costs about 10k (W/D, Fridge, range, water heater, etc).

Other things that get worn down over time need replacing as well. Pipes, drains, yards.

Insurance is expensive too. Especially in hawaii.

So I did the math and indexed all these maintenance costs and the materials alone is about 2-3k a year over a 10 year span. That’s not even including labor and that’s in todays money.

When I looked at those numbers, the true numbers and not just what I was making monthly over the mortgage I realized I was going to be, at best, maybe breaking even cash flow wise and the rest was just speculation on the homes value.

and I was renting it for 700 dollars over my mortgage.

That’s 8400 a year.

Take 4 percent GET off the top. Then you get taxed federal and state as income.

So to be generous ill say that leaves 7,000 per year.

Over long term with the cost of maintaining a house and service calls. That’s nothing. One month of vacancy would eat in to close to 40 percent of that. And that’s if you find a tenant quick. 2 months of vacancy and your mortgage payments took the cash flow for the year.


Which I don’t need to point out- that’s not real estate investing, that’s speculating.

Add to that I had my accountant run the numbers on depreciation recapture tax year over year over a 10 year span and that alone made it clear it was turning out to be purely speculation on my part and in no way an investment. Add to that the capital gains tax and everything else.

It made it easy to let go of the prop and move the equity to a paid off property with a CAP rate of 9 percent.

Had I mistimed that sale- I’d be holding the prop for at least another 10 years speculating it’d come back up and I could offload.

when you run the numbers- it’s not worth speculating.
 
Last edited:

ghost_of_lewis_samuels

Phil Edwards status
Oct 27, 2019
6,194
4,063
113
One thing I really overlooked was the cost of maintenance on my property.

Upkeep costs money. New paint every 10 years is 10k+ (If you’re lucky) plus you gotta compensate the tenant for the inconvenience or you gotta do when they’re not living there which means you’re eating the mortgage payments those months.

New appliances every 7-10 years costs about 10k (W/D, Fridge, range, water heater, etc).

Other things that get worn down over time need replacing as well. Pipes, drains, yards.

Insurance is expensive too. Especially in hawaii.

So I did the math and indexed all these maintenance costs and the materials alone is about 2-3k a year over a 10 year span. That’s not even including labor and that’s in todays money.

When I looked at those numbers, the true numbers and not just what I was making monthly over the mortgage I realized I was going to be, at best, maybe breaking even cash flow wise and the rest was just speculation on the homes value.

and I was renting it for 700 dollars over my mortgage.

That’s 8400 a year.

Take 4 percent GET off the top. Then you get taxed federal and state as income.

So to be generous ill say that leaves 7,000 per year.

Over long term with the cost of maintaining a house and service calls. That’s nothing. One month of vacancy would eat in to close to 40 percent of that. And that’s if you find a tenant quick. 2 months of vacancy and your mortgage payments took the cash flow for the year.


Which I don’t need to point out- that’s not real estate investing, that’s speculating.

Add to that I had my accountant run the numbers on depreciation recapture tax year over year over a 10 year span and that alone made it clear it was turning out to be purely speculation on my part and in no way an investment. Add to that the capital gains tax and everything else.

It made it easy to let go of the prop and move the equity to a paid off property with a CAP rate of 9 percent.

Had I mistimed that sale- I’d be holding the prop for at least another 10 years speculating it’d come back up and I could offload.

when you run the numbers- it’s not worth speculating.
So how does anyone make money with real estate other than the speculative investment on the market going up?
 
  • Like
Reactions: casa_mugrienta

Muscles

Michael Peterson status
Jun 1, 2013
2,596
3,597
113
California/Hawaii
Everything is speculation including stocks. No one would buy real estate or stocks if they expected to lose money.

Now, whether a RE investor wants to be negative cash flow for their investment is a separate discussion. Most real estate investors want cash flow for their effort and risk since it involves massive leverage, operating expense, and monthly liabilities in the form of PITI.

Bubbles don't pop because of speculation alone. They pop because the mechanism driving the crazy demand disappears. For 2006 it was the credit default swap blowup and lending grinding to a halt. For 2022/23 it is the Fed slamming the brakes on the economy because inflation spiraled out of control from keeping the FFR at near zero since 2008.

Both actions killed demand and RE prices dropped.
 

grapedrink

Duke status
May 21, 2011
25,945
14,735
113
A Beach
So how does anyone make money with real estate other than the speculative investment on the market going up?
By buying cheap properties in cheap markets (such as the midwest) and by doing so at scale with multifamily.

Or they buy in a better market/neighborhood where the appreciation is a safe bet and bite the bullet on poor returns for the first several years. As years go on they slowly raise the rent, and by years 5 to 10 you can have some pretty decent cash flow.
 
  • Like
Reactions: bluemarlin04

bluemarlin04

Michael Peterson status
Aug 13, 2015
2,565
2,383
113
Buying certain single individual stocks is speculating (I.e. GameStop). Using a 401k or large index fund Is most definitely NOT speculating on your money. Neither is buying shares in large cap companies that pays dividends.

Also to not point out the obvious differences is you can sell the stock immediately at any time and it doesn’t cost you any type of maintenance, carrying fees, or a monthly mortgage where if you don’t pay they’ll take the entire thing from you.

Is speculating on price appreciation investing or closer to gambling?

After doing it for 5 years and coming very close to being on the wrong side- I consider speculating more the latter and closer to gambling.
 

bluemarlin04

Michael Peterson status
Aug 13, 2015
2,565
2,383
113
By buying cheap properties in cheap markets (such as the midwest) and by doing so at scale with multifamily.

Or they buy in a better market/neighborhood where the appreciation is a safe bet and bite the bullet on poor returns for the first several years. As years go on they slowly raise the rent, and by years 5 to 10 you can have some pretty decent cash flow.
This the answer.

The cash flow is primarily in smaller markets like the Midwest and south and usually multi family.

But they rarely appreciate well so you’re buying for cash flow.

Kind of a double edge. You either get the cash flow and weak appreciation or you get appreciation and low cash flow.

Unless you’re in the STR game in desireable areas then you can have both.
 

grapedrink

Duke status
May 21, 2011
25,945
14,735
113
A Beach
This the answer.

The cash flow is primarily in smaller markets like the Midwest and south and usually multi family.

But they rarely appreciate well so you’re buying for cash flow.

Kind of a double edge. You either get the cash flow and weak appreciation or you get appreciation and low cash flow.

Unless you’re in the STR game in desireable areas then you can have both.
Basically. It's the age old debate. You can only live off cash flow if you have dozens if not 100+ units. Whereas if you buy for appreciation in a growing market, the early years will be rough but will get cash flow eventually. I could net $1000-1200/month on my primary home, easy. But that's after owning it for 7 years and the rent market going bonkers. If I bought it as a rental I would've been underwater for at least 3-4 years, and the low rates I was able to refi into were an anomaly that will likely not repeat itself in my lifetime.

STR is a way to get both, however you have to be in a market where there isn't room for too much more saturation than there already is.
 
  • Like
Reactions: bluemarlin04

bluemarlin04

Michael Peterson status
Aug 13, 2015
2,565
2,383
113
When I was looking for STR. I searched and found a spot and bought the condo in a commercially zoned neighborhood where it’s legal.

My zoning is C2 rather then R2 which allows for ST as long as my license with the city is in good standing.

Not gonna lie. Was difficult to buy. Any that went for sale were constantly bid up. And people very rarely sell. Finally got one off market that needed some work.

Getting a STR in a place with no in place laws or murky legal reqs is a gamble. Lots of people going to be losing if their city outlaws it and their zoned residential
 
  • Like
Reactions: grapedrink

sdsrfr

Phil Edwards status
Jul 13, 2020
5,857
11,267
113
San Diego
My buddy got in on STR‘s in Boise and Austib before the market kicked.

Boise was purely speculative and leveraging of Airbnb Wild West. Austin, it had an adu that he lived out of and rented to himself as an LTR while maintaining the primary as an Airbnb STR.

both seem to have worked out for him. he also has a full time job, wife does the design/mgmt so they charge above market rate for instagram approved vacation renters.
 

grapedrink

Duke status
May 21, 2011
25,945
14,735
113
A Beach
When I was looking for STR. I searched and found a spot and bought the condo in a commercially zoned neighborhood where it’s legal.

My zoning is C2 rather then R2 which allows for ST as long as my license with the city is in good standing.

Not gonna lie. Was difficult to buy. Any that went for sale were constantly bid up. And people very rarely sell. Finally got one off market that needed some work.

Getting a STR in a place with no in place laws or murky legal reqs is a gamble. Lots of people going to be losing if their city outlaws it and their zoned residential
Solid. I did a similar strategy. Just outside of the city limits of a hot up-and-coming city, in a red state that made a law that unincorporated areas are STR safe from county regs. It will take a major legal shitshow to flip that so I'm not worried. The home also has an oddball zoning code that is allowed to STR, and I would have to be annexed by the city for that to apply, which I am allowed to refuse.

Where people are going to lose their arse are those who bought expensive homes in saturated markets. They simply won't have high enough occupancy to pay the bills and will eventually cut their losses and bail. Do a search on AirBnb for Joshua Tree for this weekend and you will literally see 400+ available. Many of them very nice with professional designs and photos. It's bonkers. I look for markets where most rentals look pretty average, because with a little effort you can slay it.
 
  • Like
Reactions: bluemarlin04

hammies

Duke status
Apr 8, 2006
15,587
14,215
113
With very few exceptions the coast from Coronado to Santa Barbara and a couple miles inland is always gonna go up, long-term. Maybe a couple of bad years here and there but in 10 or 20 years people will look back fondly at the time when you could get a house for less than $2M.