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Originally Posted by Francis_MH
Spex- Real estate investing is mostly local as you've reiterated here. However, do you have any opinions on the real estate market in a macro sense? You mentioned that you sold most of your portfolio. Did that have anything to do with where we are at in the business cycle?
I sold much if it between 2012-2015. I'm now starting to buy again and rebuild my portfolio. I bought 17 properties in 2019 so far, and I'm planning to buy 20 more. However, in those intervening years I spent a lot of time continuing to study and grow my thinking around REI, and I think I'm actually a much better investor for it. As to the business cycle and macro trends, I don't pay much attention to that sort of thing outside of general interest. I don't believe it's possible to time individual markets, much less macro-level trends. So the answer is no, that's not a consideration for me.
Having said that, I'll also say that I believe that the popularity of the 30 year mortgage is the major driver of real estate appreciation over the last 50 years or so. 30 year mortgages carry about 2x the risk that 20 year mortgages do, and about 2.5x the risk of a 15 year mortgage. The rise of 30 year mortgages is the result of bad government policy, as the FHA holds about 85% of home mortgages in the USA. I think that at some point a day of reckoning will come. Whether that is in 5 years or 50 is anyone's guess.
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Originally Posted by Francis_MH
You also said that you've looked into disabled housing. What about senior care? Is converting a large, expensive home to senior housing a viable way to get expensive homes to cash flow (given you get zoned legally as such)?
Yes, disabled housing and senior care go hand-in-hand. I've looked into both. I think their both excellent opportunities, although I haven't actually invested in anything in that space yet. Call it an intense area of focus for me. One thing that intimidates me is the idea that these businesses are much more hands on than the sort of thing I've historically done in real estate. Makes me a bit gun-shy just because I don't necessarily want to be the CEO of an operating company like that. I've done that in the past, and it's not for me.
Edit: On thing about the zoning for disabled housing is that the cities are required by federal law to allow disabled housing. They can't zone you out. They might try, but end of the day, they can't enforce zoning ordinances that would make disabled housing untenable. That's an important point. Senior living for non-disabled is a different story.
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Originally Posted by Francis_MH
Do you have any thoughts about the future of real estate? For example (I believe it has been discussed ITT but), what do you think will happen with all these shopping malls going out of business?
That's an interesting question. Actually I randomly met a guy in the airport who is a consultant that helps convert shopping malls into other uses. I went into psycho interrogation mode on this poor dude for about 45 minutes. My takeaway is that if you have the skillset, these properties are a big opportunity as turn-around project. sometimes he helps convert them to other uses (senior housing, etc. and other times the malls need to be extensively renovated to reduce operating expenses. But that's also a big money game, requires specialized knowledge, and they're highly complex projects. Frankly, it's above my pay grade.
As a rule though, I like to look for properties where a lot of value can be added quickly. I don't have the bankroll nor the risk tolerance to do $10M mall renovation deals, and I don't have the inclination to go raise investor capital to do them. I could do a $1M warehouse project or a $2M apartment complex though. The principle is the same. Figure out how to add value and flip the property.
As to the future of real estate, I have no great insight. I look at individual properties in individual markets and asses them based on known criteria.
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Originally Posted by Francis_MH
In many markets, commercial development seems to be mostly class A apartment buildings. Does this concern you in any way? How is it going to affect the rental market as a whole? Early in this thread you mentioned that developers are dumb and just keep building and building and whenever I see a crane downtown constructing yet another building full of overpriced apartments for all these millennials who are NEVER going to buy a house I can't help but think of you.
For me, no it isn't concerning because I'm buying low income housing, primarily with subsidized tenants, which is more resilient to local market fluctuations in rental rates. In other words, I'm not really in competition with those builders because they don't want my tenants and my tenants aren't looking for high rise lofts. I'd say that over the years I've become more respectful about developers. I now think they're smart. I also think they're in an extremely high risk business. And they know that and accept is part of the life they chose. Fair enough. I personally wouldn't buy those types of high price, low yield buildings. People buy that **** because 1) they want to show off to their friends how pretty of a building they own, 2) aren't investing their own money, or 3) both. Man, I can't show off my properties. They ugly and they're in marginal areas that are very working class. I generally feel uncomfortable in those areas unless I'm carrying a gun even though I've never had a problem. I also get 30% COCR yields. To each his own.
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Originally Posted by Francis_MH
My apologies for bombarding you here but seeing you bump the thread was an awesome Easter surprise as you've been tremendously influential.
Happy easter my friend.