8
0

Are We Headed Into Another Real Estate Collapse?


 share                
2022 Mar 15, 2:47am   2,222 views  121 comments

by WillyWanker   ➕follow (0)   💰tip ()  

I haven't posted in a while, though I've been a member since 2008. I remember this forum as it was one of my favorites in the aughts because I, along with most people who followed Patrick Killelea, believed the frothy real estate market was ready to burst.

I see most people here now post about politics and the Wuhan Flu. I'm in agreement with most here: I'm a former liberal who voted for Bill Clinton but I voted for Donald J. Trump in 2016 and in 2020.

Today the world is in crisis and real estate prices in the US are crazy high.

I have friends who have just put their homes on the market. And others, who should know better, who are awaiting real estate lotto to be 'able to purchase' homes in communities in Arizona and Florida. I don't think I've heard people speak about waiting in line to buy up a tract house in a gated community since 2006. What gives?

https://www.realtor.com/news/trends/how-record-high-gas-prices-soaring-inflation-will-affect-homebuyers-and-owners/?source=patrick.net

« First        Comments 82 - 121 of 121   

82   GNL   2022 Mar 18, 9:21am  

zzyzzx says
Are We Headed Into Another Real Estate Collapse?

Is there really any doubt in your mind?

When? How?
83   Waitup   2022 Mar 18, 9:26am  

Slowdown maybe, collapse? I don't think so.
Look at the buyer profile who purchased in the last decade. Look at the Demand to supply ratio.
84   Eman   2022 Mar 18, 9:31am  

FJB says
Eman says
As a real estate flipper


In case you haven't heard, it's looking like they are going to outlaw flipping here in CA.


Yes, this issue was discussed on the board last week. Let’s see how it goes.
85   Eman   2022 Mar 18, 9:34am  

zzyzzx says
Are We Headed Into Another Real Estate Collapse?

Is there really any doubt in your mind?


Yup, there are doubts. Will it be a slow drop, a correction, or a full blown crash? The housing market has been having a lack of inventory issue rather than oversupply. The rise in interest rates will put a dampen on the appreciation for sure. Next year will likely be the top.
86   Eman   2022 Mar 18, 9:38am  

GreaterNYCDude says
For me personally the price of entry has always been too high for me to dip my toe into the waters of real estate investing.


This is what I’ve learned. The barrier of entry is always too high. This is to keep most people out of the game. Once you got it figured out, real estate is a great vehicle to build wealth. Your kids will get a stepped up in basis and walk away with millions tax-free. If your kids can manage the assets and build on top of it, it can become generational wealth.

If it were easy, everyone would be doing it.
87   B.A.C.A.H.   2022 Mar 18, 11:31am  

FJB says
If you want rental property do it in a red state.


Yeah, not to own rental property, but as a landing spot if he or his family changes their minds. Rental SFH in California at today's prices is a horribly sucky value. But if a tenant can pay the carrying cost while they settle in (or not) then they won't be locked into the relocation as soon as they set foot on the ground in Idaho.
88   NuttBoxer   2022 Mar 18, 4:24pm  

WineHorror1 says
zzyzzx says
Are We Headed Into Another Real Estate Collapse?

Is there really any doubt in your mind?

When? How?


This year when the printing finally catches up to the criminals and the economy implodes.

Fiat currency economies operate on bullshit, because if they were honest, they'd die. So diving head first into the details doesn't help you to understand, just makes you smell like shit. You have to look at the big picture, separate the truth from the lies. Only then will you understand probable outcomes.
89   Booger   2022 Mar 18, 4:46pm  

WineHorror1 says
When? How?


IMO, the combination of the ending of the foreclosure and eviction moratoriums and higher interest rates is going to be the catalyst for a housing downturn at some point. This is going to free up a lot of units, but it will take time.
90   Onvacation   2022 Mar 18, 4:59pm  

B.A.C.A.H. says
But if a tenant can pay the carrying cost

As long as they don't tear out your walls to get pipe and copper wire or blow up the garage with a meth lab.

But you can always buzz down from Idaho and take care of business. If your neighborhood is getting as bad as you say, sell now and cash out on the stupid prices.

You don't want to move back anyway.
91   Onvacation   2022 Mar 18, 5:06pm  

NuttBoxer says
probable outcomes.

We're all going to die and all have to pay taxes.

I agree that the system has to implode. I'm surprised it has gone on this long. Without making any definite predictions I don't think it can last more than a couple more centuries.
92   FortwayeAsFuckJoeBiden   2022 Mar 18, 5:27pm  

Eman says
Fortwaynemobile says
Why take equity out vs just getting a loan?


Take equity out = do a cash out refinance aka getting a new loan with cash (equity) out.

With single units, like a condo or SFH, the rent/price ratio is not favorable. Duplex to 4plex get a little better ratio. To get more favorable ratio, one has to look at 5+ unit apartment. In fact, the more units/building, the better the ratio. I’m looking to scale up to 20 units rather than staying at 6-12 units.

Congrats on the house in Idaho. 🚀🚀


Thank you
93   GNL   2022 Mar 18, 6:46pm  

Booger says
WineHorror1 says
When? How?


IMO, the combination of the ending of the foreclosure and eviction moratoriums and higher interest rates is going to be the catalyst for a housing downturn at some point. This is going to free up a lot of units, but it will take time.

I thought the moratorium were over. If not, why not?
94   Booger   2022 Mar 18, 7:01pm  

WineHorror1 says
I thought the moratorium were over. If not, why not?


LA just extended it to 2023.
Otherwise mostly ended, but will take forever to hear all those court cases. And that is just for rentals. The people that haven't paid their mortgage are to take longer to kick out. But if housing values start dropping, some are going to sell as quickly as they can before their equity disappears.
95   Hircus   2022 Mar 18, 9:12pm  

Eman says
As a real estate flipper


If I were flipping, I wouldnt be using that calc either. At least not using it conventionally.

But the calc isn't meant to aid flipping decisions - it's meant to compare renting vs buying for typical cases where the owner stays put for multiple years, and to also help you understand how heavily each of the factors influence the result. I think it works pretty well for that.

Maybe you haven't looked at it lately, but it has many inputs, and all are adjustable, so using local market parameters is not only possible, but a centerpiece of the calc.
96   Eman   2022 Mar 18, 9:20pm  

Hircus says
Eman says
As a real estate flipper


If I were flipping, I wouldnt be using that calc either. At least not using it conventionally.

But the calc isn't meant to aid flipping decisions - it's meant to compare renting vs buying for typical cases where the owner stays put for multiple years, and to also help you understand how heavily each of the factors influence the result. I think it works pretty well for that.

Maybe you haven't looked at it lately, but it has many inputs, and all are adjustable, so using local market parameters is not only possible, but a centerpiece of the calc.


Someone posted a house in Sunnyvale sold for $2.8M. The guesstimate is the house rents for around $4.2k/month. Let’s say the seller came to you and said he’d sell it to you for $1.8M, what would you say? Also, if the housing market were to drop/crash, do you, or anyone here, think this house would drop below $1.8M?
97   Hircus   2022 Mar 18, 9:49pm  

Eman says
Someone posted a house in Sunnyvale sold for $2.8M. The guesstimate is the house rents for around $4.2k/month. Let’s say the seller came to you and said he’d sell it to you for $1.8M, what would you say? Also, if the housing market were to drop/crash, do you, or anyone here, think this house would drop below $1.8M?


I'd consider 1.8 a big discount, and would buy it. If this weren't a hypothetical, I would be very suspicious that something was very wrong to warrant the fire sale price when other houses aren't also on sale.

I think it's easily possible a crash could take its value under 1.8, especially since values jumped so far so fast recently. But, I also think such a crash would likely be fairly temporary, and so the banking cartel would push govt very hard to reinflate RE, at least partly, within some short years. I think some serious SHTF would need to happen to make it fall far, and stay down.
98   Blue   2022 Mar 18, 11:14pm  

Given the out of control gov. spending, its hard to expect downturn in prices for longer periods.

https://realwealth.com/learn/housing-market-predictions/?source=patrick.net

11 More Housing Market Predictions for 2022, 2023, 2024 & 2025

Looking for a real estate forecast for the next 5 years? You’re in luck. This is the only article on the web that includes real estate market predictions beyond 2022. And we go even further than that, outlining our predictions through the year 2025!

Here are my top 11 predictions for the housing market for 2022, 2023, 2024 and 2025:

Low mortgage interest rates through 2021
Home prices should continue to rise in many markets
99   AmericanKulak   2022 Mar 19, 2:34am  

Investors will probably swoop in and buy SFHs then rent them out as the market tanks.

You'll own nothing and you'll be happy.
101   Smellytuna   2022 Mar 19, 10:35am  

I found this site a little over 10 years ago when I was homeless saving money from my $30hr job in order to have a down-payment for a roach infested dog house someday. But, in march/2012 I bought my 2-bedroom townhome for 45.8k which was the amount I had saved (actually 50k) and it's now hovering in the 275k range. I never trusted the stock market and have been waiting 10 years for another opportunity while saving more $$$. I'm hoping to buy one more and eventually have 2 rentals with a monthly income of around 3k after taxes. I'm in California so every move you make here you could end up stepping in dog shit so if nothing else I want to buy another property before the dollar becomes worthless.
102   just_passing_through   2022 Mar 19, 11:02am  

Eman says
Yes, this issue was discussed on the board last week. Let’s see how it goes.


More crazy shiite:

https://www.youtube.com/watch?v=AjpuRxK_AO4&source=patrick.net

"Wall street getting rid of appraisers"
103   just_passing_through   2022 Mar 19, 11:08am  

B.A.C.A.H. says
Yeah, not to own rental property, but as a landing spot if he or his family changes their minds.


But in California once you start renting out your place your disposition changes and you lose all sorts of rights. Like who you can sell it to for instance if you ever want to do that.

I believe a new law was just passed (or is about to) where in multi-family your tenants can ban together and say, "The rent is too damn high", and the state will simply take it the fuck away from you. Oh, here it is:

https://www.youtube.com/watch?v=EQfSwHgwJsQ&source=patrick.net

"San Francisco to seize all rental property"

As bad as recent shit is just think how bad it will become. I don't see any long term future for investing in real estate in California. Short term sure...
104   HeadSet   2022 Mar 19, 11:16am  

FJB says
I believe a new law was just passed (or is about to) where in multi-family your tenants can ban together and say, "The rent is too damn high", and the state will simply take it the fuck away from you. Oh, here it is:

Somehow, this law will not apply to Blackrock.
105   just_passing_through   2022 Mar 19, 11:21am  

HeadSet says
Somehow, this law will not apply to Blackrock.


Can't agree with that any more strongly. I'm evacuating CA this year and fortunately my rentals are out of state. I think Ft Wayne should just go and not look back - except to watch the news in amazement when several years from now there are enough illegals to overturn prop-13.

People will lose their shit.
106   Eman   2022 Mar 19, 11:47am  

FJB says
But in California once you start renting out your place your disposition changes and you lose all sorts of rights. Like who you can sell it to for instance if you ever want to do that.


And that are where opportunities come. People see problems and they run away. In real estate, the more problems you can solve/navigate, the more money you make.

There are a ton of opportunities in San Francisco. That’s why the big money has been moving in and scooping up these apartments at deep discount prices. They let time do the heavy lifting.

Big money has deep pockets, and they can win by appeal to higher courts on stupid rules established by crazy SF lefties.
107   Eman   2022 Mar 19, 11:54am  

Hircus says
I'd consider 1.8 a big discount, and would buy it.


This is what I do on a daily basis. For single family homes, I’ll flip to put food on the table. For apartments, I let time do the heavy lifting. Since I buy at a discount, I do a cash out refinance, get all my equity out of the building, and let the tenants pay-off the building. Rinse and repeat.

It’s not easy. It requires patience, great network, and it’s a full-time job to hunt for these deals. However, it pays much better than a W2, and the stress is much less. You also get an opportunity to build multigenerational wealth. Look at John Sobrato’s family, Trump’s family, Barry Swenson Builder, Todd Spieker’s family to name a few.
108   just_passing_through   2022 Mar 19, 12:13pm  

Eman says
Big money has deep pockets, and they can win by appeal to higher courts on stupid rules established by crazy SF lefties.


Well, your history is impressive and if you can keep it going congrats!

I personally don't see that strategy lasting though. We're seeing tons of crazy shit at the Federal level these past few years I never would have imagined would happen.

Now if we're talking Black Rock sort of deep pockets then yeah.
109   B.A.C.A.H.   2022 Mar 19, 1:48pm  

FJB says
I personally don't see that strategy lasting though. We're seeing tons of crazy shit at the Federal level these past few years I never would have imagined would happen.

Said Casey Serin.
110   B.A.C.A.H.   2022 Mar 19, 2:14pm  

FJB says
"San Francisco to seize all rental property"


Yeah, you have a point.

The article I linked to a couple of comments above, was about an SF house that was vacant because the Hipster owners were waiting on permits for remodeling. Squatters took over and trashed the place. Neighbors called the police to complain. The police only arrested one of the squatters, for an outstanding warrant. The other squatters were released because the new DA in SF will not prosecute squatters.

So, even if the city doesn't seize the property, the conditions the city created with super-long permitting process and a Progressive DA, have created a certain set of facts on the ground.

On a side note, because of the high cost of living in SF, most of the recent hires in civil servant jobs (like police) are Super Commuters from very far away where housing is less expensive. Those mercenary cops have no connection to the community, - they don't care.
111   Eman   2022 Mar 19, 2:35pm  

FJB says
I personally don't see that strategy lasting though.


I don’t know either. It’s a formula that has been working for my partner and I. We’re up over $10M in equity in the last 8 years, not including the stuff we own by ourselves. We go at our own pace and not trying to force deals that don’t pencil out. We only take on deals where we can get our equity out in 5-7 years. It was 3-5 years in the early years, but the market has taken off since. Haven’t been able to buy any apartments in the last 2.5 years.

It’s not stress free due to homelessness in downtown San Jose. However, I’d rather deal with these issues than a W2 and the politics. I work 2-3 hours/day and can take off anytime I want. No boss to report to. I can pay others to make the headaches go away. Can’t do that with a W2.

With commercial real estate, banks don’t over lend. If a building brings in $10k/mo with $4k/mo in expenses, the maximum the bank will lend is $5k/mo in debt service out of the $6k/mo net cash flow. It’s called 1.2 DSCR (debt service coverage ratio). Bank underwrites with 5% vacancy so the break even is 15% vacancy, and investors lose money after that. In our case, we under-leverage a little so our break even is around 25% vacancy.

In 2020 during the pandemic year, our actual vacancy was 1.2%. In 2021, 2% vacancy. Rentability is strong in San Jose.

My partner and I have a $25M real estate portfolio together. We owe $14M on it. At an average annual appreciation for Bay Area real estate, how much does our net worth increase each year? Also, the tenants pay down $250k/year in principal. Net cash flow is around $200k/year, $100k for each guy.

Every year, we make an effort to convert $500-$800k in equity from our buildings, and use the proceeds for new acquisitions. If there’s nothing to buy, I use the money to pay down debt on the stuff I own at 3.5-4% interest. Then obtain a HELOC on them so the liquidity is there if I ever need it. The plan has been working…..until it doesn’t of course.
112   HeadSet   2022 Mar 19, 2:58pm  

Eman says
I do a cash out refinance, get all my equity out of the building, and let the tenants pay-off the building. Rinse and repeat.

A tip of the hat to you. Around here, it is very difficult to get banks to loan on rental property.
113   Eman   2022 Mar 19, 4:15pm  

Blue says
Given the out of control gov. spending, its hard to expect downturn in prices for longer periods.

https://realwealth.com/learn/housing-market-predictions/?source=patrick.net

11 More Housing Market Predictions for 2022, 2023, 2024 & 2025

Looking for a real estate forecast for the next 5 years? You’re in luck. This is the only article on the web that includes real estate market predictions beyond 2022. And we go even further than that, outlining our predictions through the year 2025!

Here are my top 11 predictions for the housing market for 2022, 2023, 2024 and 2025:

Low mortgage interest rates through 2021
Home prices should continue to rise in many markets


This is Kathy Fettke of Realwealth Network. Unlike what she claimed in the article, she got hurt pretty bad during the last housing bust. However, she was able to pivot and does quite well for herself so more credit to her. To me, she’s nothing more than a glorified used house salesperson, who collects her commissions by connecting clients with out of state (OOS) turnkey providers.

With respect to her predictions, she basically stole those talking points from Bruce Norris. Bruce is considered “the oracle of real estate” in the real estate investing community.

Thanks for sharing the article. It brought back old memories of Geraldine Barry, who was the president/founder of SJREI. She tragically passed away. Lori Greymont, who took over SJREI, let’s just say be careful taking her advice.

Good luck.
114   GNL   2022 Mar 19, 4:21pm  

Eman says
by connecting clients with out of state (OOS) turnkey providers.

What is a turnkey provider?
115   just_passing_through   2022 Mar 19, 6:06pm  

Eman says
The plan has been working…..until it doesn’t of course.


Those are fantastic numbers!

Well, if CA goes from Facist to full Commie with your skills you could make that work in any state in the union. For that matter, from what I've read that strategy works in virtually every nation on the planet.
116   Eman   2022 Mar 20, 10:54am  

WineHorror1 says
Eman says
by connecting clients with out of state (OOS) turnkey providers.

What is a turnkey provider?


Turnkey providers are people who sell old housing stocks in rough and declining neighborhoods to the naive, unsuspected folks in the expensive markets, who are chasing faux cash flow.

In general, there are more bad turnkey providers than good ones. Turnkey houses tend to sell above appraised value so investors are in the hole from the get go, but they’re buying for cash flow so who cares right? Well, the tenant profiles are bad to begin with and they don’t treat your property with respect so every time they move out or getting evicted, your property is destroyed. You would spend so much money fixing it up. All your faux cash flow is gone and more.

There are a ton of them on Biggerpockets looking for fresh meet. There are a few brokers in the Bay Area as well as SoCal who would throw you to these turnkey shysters and collect their outrageous commissions. We’re taking about 5-8% a pop.
117   Eman   2022 Mar 20, 10:57am  

FJB says
Eman says
The plan has been working…..until it doesn’t of course.


Those are fantastic numbers!

Well, if CA goes from Facist to full Commie with your skills you could make that work in any state in the union. For that matter, from what I've read that strategy works in virtually every nation on the planet.
FJB says
Those are fantastic numbers!

Well, if CA goes from Facist to full Commie with your skills you could make that work in any state in the union. For that matter, from what I've read that strategy works in virtually every nation on the planet.


Thanks. Anything is possible. We all make bets and live with the consequences.

People actually told me that. If I could make it in the Bay Area, I should be able to make it elsewhere. I hope I don’t have to move from the Bay Area. Life is great…except the politics, intolerance and homelessness are getting crazy around here.
118   GNL   2022 Mar 20, 11:31am  

Eman says
Turnkey providers are people who sell old housing stocks in rough and declining neighborhoods to the naive, unsuspected folks in the expensive markets, who are chasing faux cash flow.

Caveat emptor
119   Eman   2022 Mar 20, 11:45am  

The formula for the Bay Area is pretty good. Once you got it figured out, you no longer wanted to go out of state and chase the faux cash flow.

We’re grossing $1.7M on our apartments. An average 3% annual rent increase = $51k/year. Let’s say $15k goes to pay for the increase in expenses, we net $36k/year. $3k/mo can service $600k. We also get $250k/year in principal pay down. This is how we have been able to extract $500-$800k/year in cash out refinance (tax-free) and use the proceeds however we see fit. Then rinse and repeat.
120   NuttBoxer   2022 Mar 20, 12:37pm  

Onvacation says
We're all going to die and all have to pay taxes.


That second part is made up by government. There was not direct tax on income for over half our countries existence.

Onvacation says
Without making any definite predictions I don't think it can last more than a couple more centuries.



You are aware the world used Silver until the late 1800's, and gold until the early 1900's to back it currencies. With some small regulation between banks extending to the 70's. So the current system has existed for less than 100 years. Feel free to look back in history for any 100% unbacked fiat system that's lasted longer.

The arrogance or ignorance in assuming things have always been as they are in our time is the biggest reason people are caught in catastrophe. Not intending to insult anyone, but this is fact, something we must always be on guard against.

« First        Comments 82 - 121 of 121   

Please register to comment:

api   best comments   contact   latest images   memes   one year ago   random   suggestions