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Time to plan for the next RE phase

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SteveO

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I've been talking about retirement and moving in that direction. But my plan all along has been to wait for the market cycles to change. I want to jump in for one more cycle.

After watching certain cities go through a very irrational jump up in prices, they will become my target as they go into correction. There is no chance that most apartment buyers in these areas are making cashflow. The hot potato will be in some people's hands when the buzzer sounds.

My plan is to assemble 2-10 million in commitments that will be ready to jump in. We will target non-performing bank notes and properties.

My estimate is that this will start in 2 years.

One last hurrah...
 

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MJ DeMarco

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I want to jump in for one more cycle.
Seems like we've been waiting for the next cycle for an eternity...

And while we're waiting, RE keeps getting pricier. I'm losing patience.
 

Get Right

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Seems like we've been waiting for the next cycle for an eternity...
Yep, the fundamentals are different this time. At least in my market we still haven't built enough houses. But...we are seeing affordability issues becoming the problem to watch.
 

JordanK

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Prices have begun falling in London (-9% Jan-May) and now in Ireland where we had 10%+ growth last year its at under 2% after six months of this year. We had 15%+ growth in Dublin the capital city which is only 0.6%+ so far after 6 months this year. I’m already pooling resources to take advantage of it when the cycle does change but it looks like we’ve hit peak here in Europe.
 

MetalGear

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I am also feeling FOMO, but I know now is not the time to jump in

I'm keeping myself occupied by doing research and looking at another project to do in the next 2 years
 
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SteveO

SteveO

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In a nine year span, apartment prices per unit for class c product went from about 22K/unit to 150K/unit. Income did not increase at any kind of a proportional level.

If you look at the peak back in 2008 until now. About 55K to 150K. That is huge.
 

Sauce

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@SteveO I always appreciate your posts. I don't see how a lot of these folks are making money in the apartment space. I get pitched a syndication monthly or more. Most of them are planning on a consistent or lower cap rate with an increased NOI. "Value Add" is the name of their game. They want to exit in 3-5 years. Proformas are projecting a consistent or better cap rate (not sure how much lower you can go than a 6.5 cap).

Another concerning factor is that they have pushed far past the cost to rebuild. A typical apartment is about 750 sq feet, should cost about $75K to build. And that is a new asset, not a 40 or 50 year old functionally obsolescent one.

I keep thinking that interest rates can't go any lower, but they have come back down yet again.
 
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SteveO

SteveO

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Another concerning factor is that they have pushed far past the cost to rebuild. A typical apartment is about 750 sq feet, should cost about $75K to build. And that is a new asset, not a 40 or 50 year old functionally obsolescent one.
No kidding… It is always time to sell when the value approaches the replacement cost. Especially in an area that has few barriers to construction.
 

Merging Left

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This could be a good time to look into refinancing your assets as well, in order to build up some cash reserves. Interest rates are low and property values are high. Just don't over-leverage yourself and become one of SteveO's new properties!
 

Connor

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I've definitely become pretty cynical as to the pricing I'm seeing out there, but I also wonder if we're going to see increased differentiation between markets (i.e. how Texas didn't really dip in the last recession). I see many macro issues with the market, but here in the Carolinas, people just keep coming and more and more companies are hiring here. NC has more white collar jobs coming in than SC, so I think it's probably more recession-resistant.

There just are so many Class A apartments built/in the pipeline, and I just wonder how you can have so many young people afford $1800-2000 a month for rent.
 

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iced_steez

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I've been talking about retirement and moving in that direction. But my plan all along has been to wait for the market cycles to change. I want to jump in for one more cycle.

After watching certain cities go through a very irrational jump up in prices, they will become my target as they go into correction. There is no chance that most apartment buyers in these areas are making cashflow. The hot potato will be in some people's hands when the buzzer sounds.

My plan is to assemble 2-10 million in commitments that will be ready to jump in. We will target non-performing bank notes and properties.

My estimate is that this will start in 2 years.

One last hurrah...
New to the RE space.... young investor with one duplex and about to acquire another rental property. Would you mind explaining what this means? What indicators do you look at or how do you perform your analysis? In my city, I have certainly seen a majority of properties selling for way more than what they should be. There are still some good deals out there that I am keeping my eye open for.

Do you invest in other cities? If so, what is your approach as far as maintenance, renovations, management, etc.?

Appreciate your insight.
 

MichaelCash

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What if it starts in 10 years but not in 2?
I have seen a chart that shows changes in real estate prices in response to a financial crisis. What surprised me is that except for 2008, the prices for the real estate didn't go down much. So maybe it make sense to think about other assets
 
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SteveO

SteveO

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What if it starts in 10 years but not in 2?
I have seen a chart that shows changes in real estate prices in response to a financial crisis. What surprised me is that except for 2008, the prices for the real estate didn't go down much. So maybe it make sense to think about other assets
Just a quick response. Will respond with more detail later.

When you say real estate it sounds like you are lumping everything together. That is not the case. Different classes and locations react very differently. Apartments will not track with houses and are much more predictable.
 

MichaelCash

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Just a quick response. Will respond with more detail later.

When you say real estate it sounds like you are lumping everything together. That is not the case. Different classes and locations react very differently. Apartments will not track with houses and are much more predictable.
I was talking about residential real estate. Look at this chart, see attached. It doesn't look like too volatile. Though the recent trend doesn't look good to me :(
 

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Champion

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Idk about the US and im no RE expert, but im currently in the same situation in Germany. I feel like the prices in main cities (Berlin, Hamburg, Munich) have sky rocketed in the recent years and are due for a correction.

When a correction comes, I might be open to buying. However, I am currently more focused on building my online ecommerce business.
 

Kak

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@SteveO I'm thrilled to hear more. I have been considering buying a bunch of homes myself. I am planning on cash buys, renovations and cash out refi.

If you want to get a jump on your plans, Houston is a total dog of a market the last 10 years we have seen garbage for growth. I think we had the head start on the rest of the country.

I see a buyer’s market here.

Interesting about development cost being less than some of these multi-family properties. I have always thought a development would be a pretty solid numbers game.
 
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SteveO

SteveO

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I was talking about residential real estate. Look at this chart, see attached. It doesn't look like too volatile. Though the recent trend doesn't look good to me :(
I'm not really into single family homes. Everything I talk about would be small commercial or apartment buildings. The trend is significantly different if you read what I stated earlier in this thread.
 
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SteveO

SteveO

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What if it starts in 10 years but not in 2?
I have seen a chart that shows changes in real estate prices in response to a financial crisis. What surprised me is that except for 2008, the prices for the real estate didn't go down much. So maybe it make sense to think about other assets
The thing is that many apartments are going through sales currently where the income does not support the price. If the rental market backs off at all, many properties will be operating with a negative cash flow. If enough get into this situation, then values will change. This change can be dramatic in a short time depending on the dynamics.

I gave some real examples earlier. Those changes were due to gross income reductions and increases in expenses. NOI is what actually drives values. Interest rates have an affect as well but NOI is the key.

Being able to predict and manipulate the NOI is where you can get value pops. That is where I like to focus.

As far as the timing goes, I feel that it will be closer to 2. But of course I don't have a crystal ball. It is very clear that there is a lot of overpaying going on. That is not sustainable.
 
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SteveO

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@SteveO I'm thrilled to hear more. I have been considering buying a bunch of homes myself. I am planning on cash buys, renovations and cash out refi.

If you want to get a jump on your plans, Houston is a total dog of a market the last 10 years we have seen garbage for growth. I think we had the head start on the rest of the country.

I see a buyer’s market here.

Interesting about development cost being less than some of these multi-family properties. I have always thought a development would be a pretty solid numbers game.
I owned quite a few properties in Houston over the years. The apartment market is still overpriced there. Not familiar with single family homes though.

Property taxes and insurance are a buzz-kill in Texas.

Development is a tough game. It should be started in the middle of a down market when banks will not lend. You have to be developed and get out while in an up cycle.

The cycle for development is usually going in spurts. It is one of the items that I follow to look for the direction that a market will be headed. A rental market may be enjoying job growth and strong absorption. A lot of development can rapidly change that dynamic. Developers develop. Usually based on money availability. It is easy to overbuild and end up with a glut of product on the market.
 

Kak

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I owned quite a few properties in Houston over the years. The apartment market is still overpriced there. Not familiar with single family homes though.

Property taxes and insurance are a buzz-kill in Texas.

Development is a tough game. It should be started in the middle of a down market when banks will not lend. You have to be developed and get out while in an up cycle.

The cycle for development is usually going in spurts. It is one of the items that I follow to look for the direction that a market will be headed. A rental market may be enjoying job growth and strong absorption. A lot of development can rapidly change that dynamic. Developers develop. Usually based on money availability. It is easy to overbuild and end up with a glut of product on the market.
I do think a large part of suppressed home values here is the property taxes.

What one might pay per month for a 200k home here that same person could potentially pay closer to 300k in a different tax environment. The overall affordability per house per month doesn't change much, but the government comes in and takes "their" cut. A definite bummer, but I live here and I know more about it so I'll find a way and have my start here.

One of my close friends is a big real estate guy in south Houston. Probably owns 500 doors in the Houston area and a bunch of stuff in Seattle. I have had the privilege of getting to ride along while he is in his 1031 exchanges and he has mentored me a bit. Definitely a fun time. I ultimately want apartments like you guys.
 

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