The market is on fire and inflation is still sub 2%. The fed may not even raise rates again this year. Statistically, we don’t enter recession until 2.75% to 3.25% of interest rate hikes. This party could go for awhile longer.
Can it go on for another couple decades?
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Yellen has turned dove. I think Fed was in a hurry to raise rate to around 1% and stop. They are more eager to shrink the balance sheet, and the US economy is not strong enough to take both rate hike and deleveraging.
I am slowly dialing up my leverage ratio again, having come down quite a bit since February.
The stock market has the feel of climbing walls of worry. Trump admin is in meltdown mode and the market doesn’t care. That’s very bullish.
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How? Margin on stocks? Cant be RE that you can do and undo quickly?
Who is buying RE this year on this forum and where?
Yes, margins on stocks. Not buying any RE this year. Hopefully next year I will be in the market again.
I’m done buying RE this year, I think. I bought one in Walnut Creek and converted it into a rental. I bought another one in Lafayette and I’m flipping it. Once I’m done with flipping this one, I think I’ll use the money to look for another property to flip. But I think that not until much later this year.
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What does the market tell you to be done? Are we going over a cliff? Not a good time to buy and hold?
It’s always a good time to buy and hold. But one needs to be smart about the buy and hold strategy. Buy and hold real estate has to be cash flow positive. And have a margin of at least 20% so that vacancies and unexpected turn of events are not going to affect your bottom line. For example, my had one rental that caught fire last year. Rebuilding takes a full year so that’s one year’s rent money gone!!! However, I have other cashflow positive rentals to soften the blow so my overall profile is still quite rosy.
On the other hand, if it isn’t convenient for you to hold on to a property (meaning if you can’t generate enough cashflow out of it), then it’s best for you to flip it. You never know when the real estate market is going to make a turn for the worse so it’s not advisable to bite off more than you can chew. Definitely don’t try to over-extend your leverage here. I would say you need to maintain a cushion of at least 50% of your liquidity (meaning if you have $1M in cash, then the most you would want to use to flip houses is $500k. Of course you can borrow money with that to flip so you can potentially purchase a $2M home to flip here with $500k).
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I’m looking for properties where I can break even on PITI when rents drop 20%. Is this a good cushion?
looking for in law/additional unit that is rentable, thats the only way to be cash flow +ve in SFH in the bay
Any house can be cash flow positive if you put enough money down. Putting $1.5M down on a $2M home makes it cash flow positive. So it really depends on what you want to do with your money. Of course, if you want to maximize your cash flow, then buying a $2M home is not the best way to go about that. It’s better to buy 10 properties worth $200k each instead (Hint: look for condos in very cheap neighborhoods like Vallejo).
And yes, break even with a 20% rent drop should be a pretty good cushion.
I’m all for leverage. I only put 20% down on SFRs
Really you can do that? I thought for rentals they require at least 25% down. (In my case is 35% because the banks hate me 
)
I have less properties than you 
so US bank was ok with 20% down. I also had acquired the last one with a partner as I maxed my DTI.
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I wanted to do a researched rebuttal to a LinkedIn post I saw on bay area RE bubble. The root of every bubble is easy credit. I’d argue there’s not a bubble. If you plot the long-term appreciation line on the chart, we’re on trend. Subprime as a percent of purchases is WAY lower than 2005-2008. The bay area is creating at least 4 jobs for every 1 housing unit built.
Maybe you could argue easy VC funding to startups is the easy credit fueling the RE bubble. However, most of those employees aren’t liquid. If they are buying RE, then odds are their down payment is from before the unicorn.
People screaming at housing bubble now are the same people who screamed at tech bubble every year since 2001. It’s recency bias and people just extrapolate from their most recent experience. People like to fight the last war.
Mortgage underwriting is still tight by historic standard. Unless we see the comeback of NINJA loans we have nothing to worry.
VC money is overhyped. Just one big cap company like Facebook dwarfs all tech startup valuations combined. Maybe Uber is not worth 60B, but it’s not going to zero either. VC is too small fish to blow a big bubble.
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Not to be outdone by wuqijun, bought 2 rentals in Austin, Nov last year and 1 month ago. Good positive cash flow and nice appreciation thanks to Trump effect.
[quote=“wuqijun, post:8, topic:2731”]
It’s always a good time to buy and hold. But one needs to be smart about the buy and hold strategy. Buy and hold real estate has to be cash flow positive. And have a margin of at least 20% so that vacancies and unexpected turn of events are not going to affect your bottom line.
[/quote]Good rule.
[quote=“wuqijun, post:8, topic:2731”]
Definitely don’t try to over-extend your leverage here. I would say you need to maintain a cushion of at least 50% of your liquidity (meaning if you have $1M in cash, then the most you would want to use to flip houses is $500k. Of course you can borrow money with that to flip so you can potentially purchase a $2M home to flip here with $500k).
[/quote]Do you mean buy $1 mil or less for rental, max buy $2 mil for flipping.
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Met an attorney from Austin while hiking in north rim grand canyon, he was complaining about “you’all” californians buying up properties w/o even seeing’em in his texan slang. I’ve told him that you are one!
No I don’t mean rentals has to be $1M or less. You can have a rental worth millions as long as the cash flow works out to your favor. If you purchased a $5M property using all cash and converted it into a rental, then it is cash flow positive!
Also, there is no limit to the amount of money to flip as well. If you have $10M in cash, then you can afford to flip a $5M house!!!
Tell him that SV folks very good at tech. There is no need to physically visit a place to know what is going on there.
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I read S&P 500 is projected an 8% return this year. That’s the one we use in our indexing policies though our cap is 12.5, which can be true in some months. That’s the good thing about indexing. You get 8% this month, then 12% on the other, you made 10% since returns are paid in a monthly basis.
Sorry, but I wouldn’t be of a traveler’s mood when in retirement watching homes here and there. I want my money now. 