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anon_0k9zlfz6lz9oy
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anon_0k9zlfz6lz9oy
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anon_0k9zlfz6lz9oy
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The reason strictly cap rates being the decision is silly is because theres a difference in every asset. Turn key? Value add? Development in lease up? It’s a loaded question, theres not one key metric. Overall we look to hit 7% cashflow yield and an 15-16% IRR on a 5 year hold with the assumption reversion cap rates will be 50-100bps higher on every exit. If cap rates go lower that would be great but we dont bake that into our underwriting to stay conservative
If I’m reading it correctly, you are buying it based on 7% stabilized cap with an in-place 4.3%. That’s an aggressive increase (60%) in cash flow unless you are making significant capital improvements. The 15% IRR in 5 yr period is also aggressive give you borrowering cost. 1-month SOFR will hit 3% which means your borrowing cost to mid 6 coupon. But I applaud you for taking the risk. Can’t get hits unless you get up to bat.
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anon_0k9zlfz6lz9oy
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1) we buy rate caps, in this case a 2% rate cap thus making our rate effectively 5.10%.
2) we go in heavily capitalized about $6 mill on this deal for instance
3) this will be a relatively easy value add play as our neighboring property built by same builder at same time and identical floor plans has a $225 rent premium due to their upgrades which we are just going to copy
On 1, I’m guessing your lender is requiring the rate cap to show a decent stabilized DSCR. Buying an in the money cap just means you are prepaying the PV value of the interest in advance. Best of luck on the investment. Hope you knock it out of the park.
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anon_0k9zlfz6lz9oy
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Yes lender does require but they set the number at which it cant exceed and then we can arrange how we want it whether it be fixed over X years or changed depending upon the year. You seem to speak the language, which many here dont. Do you invest in RE
I’m on the lending side. Do try to find smaller things for the personal account. Given my job is in real estate, I try to invest in other sectors to diversify.
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anon_0k9zlfz6lz9oy
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Youll appreciate the pensford study on why to float and by the cap vs fix then. We also opt to float on bridge to avoid an astronomical prepay
Walmart guidance came out - retail sector getting hammered. Recession signals flashing everywhere - will it or won't it translate to housing?
Anybody's guess!!
Anybody's guess!!
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anon_0k9zlfz6lz9oy
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It's great to see you remain bullish when everything around you is flashing signs of intense downward pressure.
Of course be prepared to own it if bullish turns into foolish.
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anon_0k9zlfz6lz9oy
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Interesting that you define bullish as me calling for 0-3% YOY price growth measured by case shiller. People calling for a crash/bubble popping do make me laugh though. A crash/bubble popping would mean retracing to 2012 price levels. Data cant even foresee retracing to 2020 price levels lol
There's just that damn thing called an economy that relies on people staying employed to drive demand for housing.
The reason I classify you as bullish is because you are dismissive of all the negative data. That level of confidence/arrogance makes it a different call. As I've said before you might be right - I acknowledge there's puts and calls on the big picture but I'm firmly in the opposing camp on where I think this goes. Either way I'm looking forward to Rutgers getting money out of this.
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anon_0k9zlfz6lz9oy
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How was that thing called the economy is every recession other than 2008? Because every single one of them didnt see real estate prices drop in any meaningful way. Early 90’s recession saw home prices drop by 1% and then make that up within months. You have to remember, real estate isnt the stock market. People need shelter
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anon_0k9zlfz6lz9oy
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Why? All i did in the video in the OP was mainly go over objective 3rd party data. The data is telling the story. Some people prefer to be bears or bulls regardless of the data. I just let the data tell the story
The picking 2012 numbers as a point where you have to get to show a bubble is just plain silly. There were rational reasons for price increases over the past 10 years. Bubbles by definition are irrational price increases above the rational that the market eventually corrects. You, either through ignorance or malice are setting a very low goalpost to try and say you were right if prices don’t drop to a ten year low. This at the very least ignores simple yearly inflation.
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anon_0k9zlfz6lz9oy
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Oh, you must not have followed the thread. I said to be fair and give the bubble boys more of a chance ill refer to a crash as simply retracing to 2020 prices. But the actual definition of a bubble (not my definition) would be prices falling back to where they began their run up which would be 2012. Neither will happen
That is not the definition of a bubble. Again, the fall would be back to a “rational” level. By the definition you are falsely using, inflation does not exist. This is freshmen economics. A bubble is the amount over a “rational” increase. Prices tend to go up most years. That is called “inflation “ and is considered a “rational” rise. If a market within that economy has a “bubble” it has shown an “irrational” rise above that expected inflationary increase. Therefor to measure any “bubble” you first look at any values above the expected rational increase. You would not expect a bubble coming to an end to drop below that rational expected increase, but rather drop down to it. So therefor any burst bubble would not drop down to a previous year’s pricing, but drop down to a level where the price is previous years plus rational inflation numbers added in.
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anon_0k9zlfz6lz9oy
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1) that number would be?
2) whats your call?
i just want everyones position in writing
I'm just a realist, neither bull nor bear. Household debt, excluding mtg payments, is over 25% and we've never NOT had a major recession when that has happened. Add inflation, employment, bad gov't and money supply to that mix and it's a recipe for pain. There are a lot of things give me pause
As for the rational figure, take the inflation rate between whatever two dates you would like to use. Inflation from a date in 2012, 2020 (you referenced both), or whenever to whatever end date you would like to use. You choose. The math is simple.
To throw a number out there without giving a weekend of work to it, I'll call for a 20% drop.
Now are you going to be keeping this thread going for the next year as prices drop, while all the while explaining why it is not a bubble bursting? Just curious.
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anon_0k9zlfz6lz9oy
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Oh, trust me. Enough people have put things in writing that ill keep this thread ripping. I’ll offer you +500 that market doesnt drop 20%. Metric to be used is case shiller index. How much you willing to wager?
what will be interesting is the funded lag effect on employment. We're still seeing people heading back to work after the gov't assisted hiatus and disruption. Once we reach a level of employment productivity, I feel we'll see a cliff. Not oddly, swap rates are predicting mucho future pain.
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anon_0k9zlfz6lz9oy
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Freddie Mac put out a large report this past week where they expect home price growth year over year to slow to 4%. A tad higher than my 0-3% projection. https://freddiemac.gcs-web.com/news...-slowdown-will-continue-high-rates-and-prices
refi applications are down over 80% from a yr ago and we all know that the refi waves (we've had 2 already) and loss of refi activity lead to home depreciation and recessions. Mtg stuff is as accurate at actuary tables. Having spent a considerable amount of time in my former career dealing with the agencies, I can say with a straight face, if they told me the sky was blue I'd still verify lol
4% growth lol did they adjust for inflation because if not, then they're saying -6%
US home prices to plunge ‘substantially’ on ‘cratering’ demand: economist
Decades-high inflation and surging mortgage rates have crushed the buying power of would-be homeowners.
nypost.com
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anon_0k9zlfz6lz9oy
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Wut? Lol. You get less refis when rates go higher and everyone has rates that are lower LOL
slowdown sport, I happen to know quite a bit about the mtg/mbs mkt and it's drivers.
that said, you need to read that again
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anon_0k9zlfz6lz9oy
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We had the biggest refi wave of all time the past couple years. You do know 90% of mortgages outstanding in the US have rates that begin with a 2, 3 or 4, right? 40% of homes dont even have a mortgage at all.
Saying refi’s drying up causes recession is kinda funny. Correlation is not causation. If you wanna make the case that rates going up slow price growth, sure.
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