patrick.net

HeadSet says

How likely do you think that 7% will actually arrive?

Well, the typical 30 year with 20% down is over 4% now with just a quarter increase in the highly stimulating funds rate of only 0.5%. Highly stimulating was anything under 2%, and 3% was considered stimulating. I checked both California (Walnut) and Florida (Orlando).


fredgraph.png?source="patrick.net target="_blank" rel="noopener">

target="_blank" rel="noopener" >https://fred.stlouisfed.org/graph/fredgraph" >


There's been a strange normalization (Entitlement?) to the lowest Mortgage rates since WW2. 5% is low historically.



About 7.5% is the average mortgage rate since 1971 when the Fed began collecting data:
https://www.valuepenguin.com/mortgages/historical-mortgage-rates#hist

The rates in the 90s averaged higher than 7% and averaged around 6% in the 2000s.

Pkennedy retired with his young Brazilian wife in Brazil. After a decade of not doing much, he recently bought 3 acres and is developing 120 units. If this project is successful, he’s set for life.

He met @Patrick, @mell, iwog, justme and a few other Patnet members years ago. He told me mell is tall and slender. That’s all I could recall.

Pkennedy never owned a house here in California by the way. He hasn’t bought a house in Brazil all these years, but I believe he would soon. At some point, it makes sense. Hope your time will come soon @porkchopexpress.

We're due for the real crisis, everything is overvalued AF. Real Estate, Stocks, etc.

The PE Ratio of the S&P500 is still over 25. I'd figure a ~30% correction is still necessary.

Eman says

At some point, it makes sense. Hope your time will come soon @porkchopexpress.

Thanks brotha. Me too.

AmericanKulak says

We're due for the real crisis, everything is overvalued AF. Real Estate, Stocks, etc.

Nominal prices can stay the same or even slightly rise. The game afoot is to reset real value. It's similar to Lucy and the football. The sheeples only grok nominal.

guys keep in mind last time rates went up, prices didn’t go down. and inflation is just adding to construction costs.

im not saying buy now or be out forever. its always up and down. but nothing is getting cheaper.

Fortwaynemobile says

guys keep in mind last time rates went up, prices didn’t go down.

I do remember someone talking about the late 70's/early 80's when they had to buy a home for their newly formed blended family (remarriage where both the husband and wife already had children). They bought the most they could at the time, which meant a very modest home, while work colleagues lived in the nicer part of town with larger homes. Sure, they could refinance in the late eighties, but were stuck living in that asset, where as their new mortgage would have afforded them a nicer place. Buy now and be priced IN forever...

If anyone has to buy now, I recommend getting a 10/1 ARM, IO (interest only), or not. Your mortgage will be fixed for the next 10 years. If history is any indication, you should have a chance to refinance and lock in a 30-year mortgage in the 2%ish within the 10-year time frame.

Good luck

Eman says

MAGA says

Scumbag Realtor!

Just read the article. You may disagree with her, but I wouldn’t call her a scumbag. She’s more than likely smarter than you, has seen more than you, and probably has more experience than you when it comes to real estate.

I disagree with her encouragement on buying real estate at this point. I could totally be right and she would be proven wrong, but I still wouldn’t call her a scumbag.

I had read that she was focusing on investing in Pittsburgh as it was not in an apparent bubble

MMR says

I had read that she was focusing on investing in Pittsburgh as it was not in an apparent bubble

IIRC correctly, Pittsburgh is relatively unique in that it has a land value tax (LVT) which is taxed at a higher rate than the structures erected upon the land. I.E., the tax is geared to recapture the unearned increased value of property due to community improvements (roads, schools, etc.). Land value taxes are about 5X that on the assessed value of structures.

This tax structure goes a long way towards containing bubble pricing.

More info:

https://www.strongtowns.org/journal/2019/3/6/non-glamorous-gains-the-pennsylvania-land-tax-experiment?source=patrick.net

MMR says

I had read that she was focusing on investing in Pittsburgh as it was not in an apparent bubble

Just like anything in life, know your business, or your trade well, and you should do well. She apparently knew her market and her niche. That was probably how she made it. More power to her.

I’m a small time real estate investor who got lucky. I started out real small in 2009. My goal was to get $2.5M in equity in 10 years and $10k/mo of cash flow. While immersing myself in the business, I learned much more and was able to scale up and made more than I thought was possible within this time frame. 🙏

People are so good at name calling and criticizing others. I suggest they look at themselves in the mirror first before criticizing others.

stereotomy says

IIRC correctly, Pittsburgh is relatively unique in that it has a land value tax (LVT) which is taxed at a higher rate than the structures erected upon the land. I.E., the tax is geared to recapture the unearned increased value of property due to community improvements (roads, schools, etc.). Land value taxes are about 5X that on the assessed value of structures.

This tax structure goes a long way towards containing bubble pricing.

More info:

Wow! Apparently Pittsburgh was stable in the last crash also. This might be a significant reason why.

Thank you! Fascinating!

Eman says

’m a small time real estate investor who got lucky. I started out real small in 2009. My goal was to get $2.5M in equity in 10 years and $10k/mo of cash flow. While immersing myself in the business, I learned much more and was able to scale up and made more than I thought was possible within this time frame. 🙏

Congratulations! I do recall you over the last 10-12 years.

That is something I hope to do in part because of the tax benefits and a FIRE mindset along with my wife

Nice!

MMR says

Congratulations! I do recall you over the last 10-12 years.

That is something I hope to do in part because of the tax benefits and a FIRE mindset along with my wife

Thanks. I stopped posting on this site for awhile. I did a ton on posting on BiggerPockets. I got real popular there. Then the pandemic hit, I decided to close out my BP account and focus on my business.

The annual distribution has been decent. On a slow year, I would get $250-$300k. On a good year, $500-$600k. Tax liability most of the time on this is $0 due to off-setting the distribution with depreciation and capital expenditures. Also, we have a fantastic CPA.

We always have to pay taxes as flip profits are short-term gains so they’re being taxed as ordinary income. On average, wife and I pay $40-$50k/year in taxes. Not great, but not too bad.

stereotomy says

IIRC correctly, Pittsburgh is relatively unique in that it has a land value tax (LVT) which is taxed at a higher rate than the structures erected upon the land. I.E., the tax is geared to recapture the unearned increased value of property due to community improvements (roads, schools, etc.)

Pretty good definition of Georgism there.

https://infogalactic.com/info/Georgism?source=patrick.net

Eman says

MMR says

Congratulations! I do recall you over the last 10-12 years.

That is something I hope to do in part because of the tax benefits and a FIRE mindset along with my wife

Thanks. I stopped posting on this site for awhile. I did a ton on posting on BiggerPockets. I got real popular there. Then the pandemic hit, I decided to close out my BP account and focus on my business.

The annual distribution has been decent. On a slow year, I would get $250-$300k. On a good year, $500-$600k. Tax liability most of the time on this is $0 due to off-setting the distribution with depreciation and capital expenditures. Also, we have a fantastic CPA.

We always have to pay taxes as flip profits are short-term gains so they’re being taxed as ordinary income. On average, wife and I pay $40-$50k/year in taxes. Not great, but not too bad.

@eman
Looks like you have very smart ideas. Do You also do commercial property?
It is not easy to get loans.
W2 income is great, But paying quarter million+ every year in taxes for bay area typical dual high earners eat into take home pay.

Eman says

Just like anything in life, know your business, or your trade well, and you should do well. She apparently knew her market and her niche. That was probably how she made it. More power to her.

I’m a small time real estate investor who got lucky. I started out real small in 2009. My goal was to get $2.5M in equity in 10 years and $10k/mo of cash flow. While immersing myself in the business, I learned much more and was able to scale up and made more than I thought was possible within this time frame. 🙏

People are so good at name calling and criticizing others. I suggest they look at themselves in the mirror first before criticizing others.

I think hate towards realtors is not right. Only a handful make money , rest are just putting food on table.
Real culprits are bankers who generate money out of thin air and much of it disappear it into their cronies.

Eman says

If anyone has to buy now, I recommend getting a 10/1 ARM, IO (interest only), or not. Your mortgage will be fixed for the next 10 years. If history is any indication, you should have a chance to refinance and lock in a 30-year mortgage in the 2%ish within the 10-year time frame.

Good luck

Any suggestion on best HELOC rates?

FarmersWon says

Any suggestion on best HELOC rates?

Meriwest Credit Union offers 2.99% for the first 18 months. After that, it will be prime rate, or 3.5%. Please note that HELOC rate is adjustable for the term of the loan.

Shop around. There were times where Bank of America or Chase offered 1.99%.

FarmersWon says

Do You also do commercial property?
It is not easy to get loans.

This is a fallacy. People, who are clueless, keep repeating what they don’t know. Once you’ve dealt with commercial loans, you don’t want to go back to residential loans. Too much hassle. Don’t listen to people who say it takes 45-60 days to close commercial loans. I’ve closed a bunch of them in less than 30 days. In fact, I’ve closed a commercial loan in 18 days.

I only have small apartments, 5-12 units, and a handful SFHs and condos. 5-12 units are considered commercial properties. I don’t have any retail and office buildings kind of commercial property.

FarmersWon says

I think hate towards realtors is not right. Only a handful make money , rest are just putting food on table.

99% wrong on most levels. There are some good Realtors out there, but it's a 1% thing. Almost all of them will do anything to get a check and it's generally not in your best interest. 15 years managing a real estate office and watching the antics and many times illegal activities. And yes, I watched it and didn't do anything, but I personally never participated in shady shit. It's why I left once my wife's career boomed. Wasn't worth the risk to me or my family what I witnessed.

The average person will only do one transaction maybe two with the same agent. And you don't know what goes down. The biggest issue is lying about negotiation. Most of the time it's on the phone and you're not there. It's not like TV shows where you're sitting there with your agent on speaker phone hearing the negotiations. ALL of them will lie to you about communication with other agents, lawyers, lenders and inspectors. This is not a joke. 100% on this. And those people will lie back to you as well to keep a deal or make one.

Thing is this happenes in EVERY industry in some way shape or form. Realtors just get picked on more because it's a huge purchase. The disdain in valid, but not equally applied across all service industries where there is as much or more lying and cheating.

Eman says

I only have small apartments, 5-12 units, and a handful SFHs and condos. 5-12 units are considered commercial properties. I don’t have any retail and office buildings kind of commercial property.

Learning curve and huge potential for long term vacancies, but look into small industrial and warehouse type commercial property. Your tenants are companies and you can ask for basically anything when vetting them. Leases are long. With everyone working from home and e-commerce businesses needing space to store stuff, store fronts are a dying bread of property so I'd stay away from that.

Or just stick to what you know. I'm a believer in specializing and focusing on one niche. Yours seems to be residential. I did it and hated it. My uncle made a lot of money as a general contractor. But he needed space to store his equipment. He built a small industrial park. Maybe 100k SF between all the buildings and units. He nets $100k per month after tax now that it's paid off. He then bought a few other industrial/warehouse type properties. One is a bus lot and building for a school district. Another $20k/mo there. NEVER has to deal with tenant issues outside of them moving, which of course is a big risk if you have to float taxes and expenses for 1-2 years potentially.

It's nice when it's a business transaction and not a personal one like having a roof over your head with residential. Less emotion and stress in my opinion. Just my 2¢ on other avenues for wealth growth. I'd probably go out of CA though unless you really have an understanding for a local market. You obviously know what you're doing with residential, but just throwing out the idea.

WookieMan says

but look into small industrial and warehouse type commercial property. Your tenants are companies and you can ask for basically anything when vetting them. Leases are long. With everyone working from home and e-commerce businesses needing space to store stuff, store fronts are a dying bread of property so I'd stay away from that.

I was helping someone and the banks refuse to loan to someone who is new to game in spite of 40% down.
The only easy way to get was commercial loan for something already rented to NNN type corporate.. Those properties had inflated prices.

WookieMan says

99% wrong on most levels. There are some good Realtors out there, but it's a 1% thing. Almost all of them will do anything to get a check and it's generally not in your best interest. 15 years managing a real estate office and watching the antics and many times illegal activities. And yes, I watched it and didn't do anything, but I personally never participated in shady shit. It's why I left once my wife's career boomed. Wasn't worth the risk to me or my family what I witnessed.

It is not uncommon for any kind of sales people.
I guess exaggerating is part of jobs, You have seen nothing unless you have dealth with or worked with technology sales.. The marketing is few years ahead of actual product always.

FarmersWon says

I was helping someone and the banks refuse to loan to someone who is new to game in spite of 40% down.
The only easy way to get was commercial loan for something already rented to NNN type corporate.. Those properties had inflated prices.

It’s a catch 22. Banks don’t want to lend to people without experience, but people can’t get experience without diving into it first. All in all, experience is the best teacher. I started small (single units/residential) and scaled up into small apartments. From here, I can do 20-40 unit deals and so on.

Value-add is in underperforming assets. Most NNN assets sell based on the market cap rate so all the meat has been stripped. It’s just a yield, hope-and-pray, play at this point. It’s equivalent to giving someone your money, and they’ll give it back to you at 5% increments over the next 20 years. Screw that 💩!

As you and your client found out first hand, banks only cared more about getting their capital back plus interest. They don’t care about the collateral/asset. For people to say banks like to foreclose and take people’s homes and assets is so clueless.

All in all, reputation goes a long time way in this biz. Protect your reputation at all costs. Then you can go a long way in this, or any, biz.

WookieMan says

Yours seems to be residential. I did it and hated it.

Just like any biz, it’s not for everyone. When I had 18 units, I enjoyed being a landlord as all of my units have been completely rehabbed. Once I scaled up, I turned things over to a very reputable property management company. God bless for their existence. 😂 I learned that being an investor is a great way not to get burned out vs. being a landlord.

I don’t have experience with the industrial space. Everything is money out here when it comes to land, and an industrial building tends to sit on a big chunk of land so I stick with what I know until I have more resources to look at different asset class.

Eman says

WookieMan says

Yours seems to be residential. I did it and hated it.

Just like any biz, it’s not for everyone. When I had 18 units, I enjoyed being a landlord as all of my units have been completely rehabbed. Once I scaled up, I turned things over to a very reputable property management company. God bless for their existence. 😂 I learned that being an investor is a great way not to get burned out vs. being a landlord.

I don’t have experience with the industrial space. Everything is money out here when it comes to land, and an industrial building tends to sit on a big chunk of land so I stick with what I know until I have more resources to look at different asset class.

Eman how did you get to 18 units? flip lots of houses to make cash, then bought multiunit rentals with 20% down and rent positive cashflow?
everyone has an interesting story of how they accomplished what they did.

Fortwaynemobile says

Eman how did you get to 18 units? flip lots of houses to make cash, then bought multiunit rentals with 20% down and rent positive cashflow?

I started out flipping and almost immediately realized too much risk, expenses and taxes to make money this way so I switched to buy-and-hold and play monopoly. Buy assets at 75% LTV, refinance and get my equity out. Rinse and repeat.

Wife and I had 8 properties under our name. We had 4 financed under siblings’ names, and 6 under pkennedy’s name. I was only able to do 1 cash-out refinance with pkennedy before I left for Brazil to retire. He couldn’t take his job any longer.

I ended up “selling and giving” one condo to wife’s brother, and one to my little sister.

His, I bought for $230k. Cashed out $390k (tax-free) when the value was $520k in 2015 (75% LTV). I told him it’s his. Thanks for helping us with the financing. It’s worth over $800k now.

Bought for $137k at the courthouse steps. Little sister helped to cash out $350k (tax-free). Value was $530k in 2018. I told her it’s hers. Thanks for helping. Value is around $630-$650k now.

In late 2012, I was introduced to a very wealthy guy by a real estate acquaintance. Pkennedy met with him and I for lunch a couple times. Pkennedy told me not to partner with him. He’s too smart. He’ll steal everything from me. I have to admit. He’s really smart. My siblings and friends who met him all said the same thing.

In 2013, he asked me to partner with him after Pkennedy departed for Brazil to retire so I said why not. Let’s give it a try. We started our venture and now we co-own 10 small apartment buildings together. Along the way, I sold the smaller assets I co-owned with Pkennedy and a few of my own to help scale up buying these buildings. He loves me like his little brother now. His goal to own 1,000 units by the time he’s 60 while I’m not sure if I want to work that hard.

Eman says

FarmersWon says

Do You also do commercial property?
It is not easy to get loans.

This is a fallacy. People, who are clueless, keep repeating what they don’t know. Once you’ve dealt with commercial loans, you don’t want to go back to residential loans. Too much hassle. Don’t listen to people who say it takes 45-60 days to close commercial loans. I’ve closed a bunch of them in less than 30 days. In fact, I’ve closed a commercial loan in 18 days.

I only have small apartments, 5-12 units, and a handful SFHs and condos. 5-12 units are considered commercial properties. I don’t have any retail and office buildings kind of commercial property.

Where do you see real estate headed in 22 and 23?

Eman says

Fortwaynemobile says

Eman how did you get to 18 units? flip lots of houses to make cash, then bought multiunit rentals with 20% down and rent positive cashflow?

I started out flipping and almost immediately realized too much risk, expenses and taxes to make money this way so I switched to buy-and-hold and play monopoly. Buy assets at 75% LTV, refinance and get my equity out. Rinse and repeat.

Wife and I had 8 properties under our name. We had 4 financed under siblings’ names, and 6 under pkennedy’s name. I was only able to do 1 cash-out refinance with pkennedy before I left for Brazil to retire. He couldn’t take his job any longer.

I ended up “selling and giving” one condo to wife’s brother, and one to my little sister.

His, I bought for $230k. Cashed out $390k (tax-free) when the value was $520k in 2015 (75% LTV). I told him it’s his. Thanks for helping us with the finan...

thats an awesome story, thanks for sharing. very clever. im in a similar boat, just much further behind. i see CA as a place where rents will always be high, so thinking of using our old property as rental since itll be mostly profit even after expenses. and use that as income to get loans on other properties.

tanked says

amazing how this housing site evolved into even heavier topics

I wonder how many oldtimers are still on the Blog? I remember meeting with Patrick and other locals at a coffee shop in Palo Alto. I no longer work in the Bay Area.

gabbar says

Where do you see real estate headed in 22 and 23?

@gabbar, if history is any indication, 2022 would be like 2005-2006 time frame. The housing market will continue to go up at a decelerating rate especially in the 2nd half of this year due to higher mortgage rates. If the Fed raises rates aggressively this year, the housing market will likely peak next year. If not, it will likely peak in 2024. Valuation is very stretch, and rent/own ratio makes no freaking sense for SFH’s in the Bay Area. Just my 2 cents.

Eman says

The housing market will continue to go up

What kinds of people are the buyers?

B.A.C.A.H. says

Eman says

The housing market will continue to go up

What kinds of people are the buyers?

I don’t know what kinds of people are the buyers, and I don’t really care. I’m looking at history and data for guidance. I don’t spend time worrying about stuff beyond my control.

As Warren Buffett said “The only thing we can control is the purchase price.” I’ll continue to make bets on stuff I can control.

With how sharply mortgage rates are climbing and how freakishly low they have been, I wonder if the peak and decline will happen faster than in 2006-2007

What if the national price of gas becomes north of $6?

porkchopexpress says

With how sharply mortgage rates are climbing and how freakishly low they have been, I wonder if the peak and decline will happen faster than in 2006-2007

Interest rates weren't the issue in 2007, fraudulent loans were at the core. As long as people can service their mortgages interest rates only matter in terms of demand, i.e. how many can afford to buy. Since inventory has been very low this may stall the sharp rise but not cause a crash. You'd have to see layoffs and higher unemployment (not people quitting the workforce intentionally).

Eman says

I’m looking at history and data for guidance

You might want to consider who the buyers are.

Just looking at lines on graphs to make predictions about the future led some folks to ruin in the late 1920's, the late 1990's (dot.com), and the Real Estate Bubble that burst in 2006-2008.

Folks just looked at data on graphs and whatnot and assumed they had a handle on things.

If there will continue to be low inventory = No Crash.

I came from leftist paradise with private loans of 24% interest rares were common back then. The rates in shop vary any time of the day. Buyer has to ask at counter since there were no price tags on any goods. It doesn't meany anything even if you find one. Some customers get discount based on many factors like frequent customer, skin color, hair style, footwear, odor etc. Now things changed a bit with departmental stores after economic reforms where the price stickers can be found at least for some items. No slave complained. I still remember my dad complained that during Indira Khan (a far left commie dictator) the income tax rates were 97.5% during 1970s.

Hoping this inflation may not go out of control to get into hyper inflation to create something similar to the above.