Real Estate is the Best Anti-Inflation Play

[PaulConventionWV]

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.

 

[PaulConventionWV]

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.

 

[newbitech]

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.

 

[adams101]

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.

 

[newbitech]

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.

 

[Jordan]

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.

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.

 

[newbitech]

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.

 

[cbc58]

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?

 

[PaulConventionWV]

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.

 

[PaulConventionWV]

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.

 

[PaulConventionWV]

What town & state is this in? How long ago did you purchase it?

It was a small town in WV about 4 months ago.

 

[cbc58]

what's the town?

 

[jclay2]

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.

Thats fine to think that. But most people who have that opinion realize that manipulated and artificially inflated markets usually reverse all of the movement to the other direction. Its fine if you are investing based off what the central bankers do (arnt we all?), but you should not blindly forget that the interventions usually blow up in peoples faces and a large majority of the participants involved. This is my main criticism for you. In all your posts, you have yet to talk once about the negative consequences of central bank/government actions. This is your main risk and you need to adress it.

 

[Zippyjuan]

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.

You have obviously never been here. Your fear of Mexicans seems to cloud your vision.
http://www.utsandiego.com/news/2010/may/25/san-diego-boasts-one-of-nations-lowest-violent/

San Diego continues to rank as one of the safest big cities in the nation.

The city had the third-lowest violent crime rate among cities with populations larger than 500,000 last year, behind Honolulu and San Jose, according to FBI data released Monday.

In property crime, San Diego placed fourth-lowest. Both rankings match 2008 results.

 

[adams101]

You have obviously never been here. Your fear of Mexicans seems to cloud your vision.
http://www.utsandiego.com/news/2010/may/25/san-diego-boasts-one-of-nations-lowest-violent/

Uhhhhhhhh....... I spent more time there than you unless you are over 70 years old. I won't discuss the shortcomings of San Diego with someone named "juan". I see a conflict of interests.

I hope those government "groomed" statistics bring you comfort.

 

[Zippyjuan]

You are assuming that I am Mexican based on my user name? Sorry to disappoint you- I am not. My ancestry is German. But I also assumed that you were not 80 years old (you seem to claim in the above post that you have lived in San Diego 70 years and from earlier posts sounds like you no longer do so I am assuming at least 80). I guess I was wrong as well. I have lived here for 30 years now.

 

[Arklatex]

I'll say the ultimate best investment, is cropland on a river(riparian river rights) in a rural libertarian county.

Hands down. Nothing else compares.

For a medium of money, Gold & Silver.

Houses - screw them. Unless it's a castle built of granite.

 

[Zippyjuan]

If the electric was shut down in San Diego for a few days, no pharmacy, no meds, no gas , no groceries , no cigarettes , no beer.... I imagine the place would be chaos....

That could be true anywhere. We had about an eight hour blackout and everybody did fine. Some businesses (restauraunts, grocery store) were open on limited basis using backup generators. One bar even still had their big screen TVs going. In my place my stove is not gas but all of the courtryards (five- big place!) have gas grills. I used that during the blackout.

Photo I took: Exposure was 30 seconds so anybody walking by disappears. The only one visable is the guy sitting by the light post. See the bright spots on the sidewalk? That is people walking and swinging a light in their hand. The "J" shape is a bicycle with a light on the wheel. Colored squiggles in the background is an aproaching bus.Other streaks are cars. Some stars in the sky (was about 3/4 moon so there was decent ambient light).

Lines at the grocery store (ice and water sold out very quickly):

 

[FreeHampshire]

You have obviously never been here. Your fear of Mexicans seems to cloud your vision.
http://www.utsandiego.com/news/2010/may/25/san-diego-boasts-one-of-nations-lowest-violent/

Your irrational fear and hatred of White people seem to be getting the better of you.



....

Much more recent report:

San Diego’s violent crime rate is increasing after a record 30-year low, according to new data released by the San Diego Association of Governments (SANDAG).
Compared to this time last year, the county’s violent crime rate is up about 8 percent. There were more homicides, rapes, robberies and aggravated assaults, as well as more property crimes, the SANDAG report stated.
The rate is equitable to an average of 32 violent crimes reported every day. Last year, there was an average of about 29.


Source: http://www.nbcsandiego.com/news/loc...ngs-Up-San-Diego-167899215.html#ixzz2Er36YaqU

http://www.nbcsandiego.com/news/local/After-30-Year-Low-Crime-Swings-Up-San-Diego-167899215.html

 

[PaulConventionWV]

what's the town?

Salem. We also have an investment property in Clarksburg now, which is looking promising.