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In this episode, we look at current market trends and discuss how they apply to our portfolios. We discuss whether it's a good time to buy, sell or HODL, is it a good time to refi or put money into a property to brig rents up, or whether or not doing nothing at all can be the best form of (in)action.

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Transcript

Before we jump into the episode, here's a quick disclaimer about our content. The remote real estate investor podcast is for informational purposes only, and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals.

Tom:

Greetings, and welcome to the remote real estate investor. So we're a little bit over halfway through the year when this episode is going out. And what we're going to do for this episode is we're going to take a look at some stats, we are looking at the Stessa newsletter, we recommend everybody subscribed to that newsletter, where they have a lot of great sources of data. And what we're gonna do on this episode is go through the data talked about how it applies to our portfolio, our decisions on buying, selling and everything. Alright, let's get into it.

I'd love to hear before we get into it. What's going on? portfolio? All that good stuff. Emil, why don't you start us off?

Emil:

Yeah, so I was chatting with Michael The other day I gave him the rundown. But the triplex or St. Louis triplex, we had the tenant leave who I mentioned to you guys, and it's been a month, and we still don't have a bid in hand for renovations for this unit. And so just know, I was a little frustrated, you know, I had to call my property manager on Monday and just be like, Man, it's been a month, like, What is going on? Like, you know, most of you go through turn, it takes like a week or two to get a bid and then you start work. It's been a month and we we don't even have the bid yet, let alone starting.

And so I chatted with him, he's let me know that he's contacted like five or six general contractors they work with, and everyone is either on vacation or, or busy. I know right now is just you know, a lot of people are flipping from what I hear from people who do a lot of renovation, it's just really hard to get people in the trades working right now. So just rough man, just rough. Want this unit turn quickly. It's been a month sitting vacant. So that's one month now rent. So I mean, best case scenario, I don't know at least another three, four weeks till this thing's even ready to be leased out. So I feel a little frustrated. Try to be patient. But it's kind of the update right now.

Tom:

Is there anything you think you could have done different? Like, I don't know, going back like, a couple months from now? Or do you think it's just just kind of what it is? I'd love your post mortem.

Emil:

I think there's always something to learn, I probably should have like, I don't know, lit a fire under my property managers, but a little faster. And just like, you know, the thing, the thing that was tough about this one was the tenant just left so we weren't prepared. It wasn't like they knew when the tenant was leaving. So they'd be able to just go in, do their inspections, look at things send me video, blah, blah, blah. But yeah, I don't think it should have taken this long. I should have probably, you know, the buck stops with you, you know, your property manager, as good or bad as they may be. It's always up to you to kind of like drive things. So it's probably my fault for not getting on them faster and really driving them to to make this happen. So yeah, I just got to be quicker,

Michael:

Quicker on the draw quicke

Tom:

Quicker on the draw.

Michael, how about yourself.

Michael:

So the big development project is starting to click into place with a bunch of big hurdles. Now having been completed, we had to bring in new power. So the city got had to be coordinated with and cutting into the sidewalk. And that all got taken care of which is great to know, all the other trades can rock and roll. And then I'm working on wrapping up, I think one or two other units on an 11 unit that's getting rehabbed. So hopefully gonna get those leased out. Got some lease renewals coming up, we're able to push rents, which is exciting. And then I've got to get a parking lot, I think probably repaved or patched and then resealed at that same 11 unit. So that's a bummer. But again, kind of cost of doing business or getting quotes for that as we speak. And one was just like, outrageous. I was like, $15,000 through the parking lot. I was like, Yeah, no, not this year. So yeah, things are relatively humming along.

Tom:

After you know, going through a couple of renovation it's interesting how some trades could have such high beta on the type of bids that they get, like painting is one of them like I just did a big remodel at my house and like one of the bids was no joke like $12,000 and the other was like $3,000 it's like how Is there such a gap between the two? I think some of the stuff is like more consistent like cabinets and granite you know can be but some of them there's just just wild you know, range and what they come at.

Emil:

I had the same thing happened when we changed out the air conditioning in our house. We had three h back guys come out to were like 6000 to 6500 and then the third guy was like 1314 grand. I was just like, You got to be kidding me, dude. Yeah, like so far off from the other two.

Tom:

That's a good way to think about the time value of money, like, you know, the extra effort in whatever hour two or three of like getting that extra bid like, you know, you're paying yourself basically, you know, in that example, like 500 bucks an hour or whatnot to, to get that extra bid to get the difference.

My quick update, so I just closed a bunch of refinances. And as things go with remote investing and investing in general, you know, just little little things happen. So like my auto pay to my old lender clicked off when it shouldn't have when I'd already transferred, my auto pay to my insurance went off and paid them. So I've been collecting rain while contacting go through the phone tree of getting reimbursement checks from the funds that they you know, took from me when they shouldn't have.

But successful though, it's just kind of an annoying thing to go through. But that's why you have reserves in place to end in patience to claw back that money that they auto draw drew from your old vendors.

Alright, let's get into it. So not a super long episode. But we're going to go through as I mentioned, the the Stessa newsletter, you guys really great newsletter. So on this article that we're going to look through just some stats and talk about how it applies to our portfolios, buying, selling all that good stuff. So this is dated June 19 2021. And some key findings from the week, median listing price has increased 12.2% over the last year. So between 2020 and of June, and now 2021 of June, median price increased 12.2%. new listings is growing has risen 4% over the previous year. And the last few stats that I'm going to whip out is the total active inventory continues to shrinking, but it slid just 42% from this time this year. So total active inventory continues to shrink. And the last one is the time on market was 33 days faster. On average, that seemed like a massive, decrease 33 days faster.

Michael:

That's insane.

Tom:

Anyways, I'm going to go hot seat here on some kind of like takeaways from here. So Michael, you'll I want to be last. Michael, what are some kind of initial thoughts in looking through these stats,

Michael:

I just think that the appreciation that we've seen year over year has been outrageous. And that just takes the average is that 12% or 12.1%. So that's not even accounting for some of the really, really hot markets. Well, actually, that's what an average is, it's exactly accounting for it. But if you're in a very hot market, you could be seeing well above 12%, which is which is crazy. It's it's pretty amazing.

So we were talking a little bit before the episode about maybe some of the reasons to consider selling, or maybe some of the reasons to consider refinancing. And seeing numbers like that I think are both absolutely indicators of Hey, maybe it's time to think about selling and maybe it's time to think about refinancing, because the values have skyrocketed. And so when you have values going up and days on market going down and inventory going down, it's just a recipe for massive appreciation, which those numbers are showing.

So I know that I exited two properties. This year one was a condo in Southern California, that was a six unit that I've talked about, because of that fact that values had just gone up so much. And I said, You know what, let's take the money, I can deploy it better elsewhere, get it outside of California to work harder for me. And I'm glad I did at this stage in the game. If the values continue to skyrocket for another two years, I'll be one of those people that said, No, I should have held out longer. But you can't you know, hindsight is always 2020. And if it goes the other way, then I'll be even happier that I did it.

So it's just it's something to think about. And we were talking a little bit before the episode about thinking about how the dollars that are tied up in property is actually working for you. And so there's a measure a metric called the return on equity, which is something that you also want to be thinking about and calculating when you have a lot of equity in a property and determining is that still a great investment. Maybe it was when you bought it. But if things have changed, which they likely do year to year real estate, it's important to take stock of how is it performing currently, and determine for yourself as an investor is there additional opportunity that could be funded from that particular property, in the form of a cash out refi or the form of a sale. So I think it's important to again, keep stock and keep tabs on what's going on in the market.

So that was a really long winded way of saying I think for those folks that have a lot of equity in their property. It could be an interesting time to consider a sale. And the opposite side of that coin is okay, well if you sell out of a property now you likely gonna go buy something else, if you're gonna do a 1031 exchange and so if you're selling it to a hot market, but you're probably going to be buying into a hot market as well. So have a plan for both the exit, and then the subsequent purchase.

Tom:

I like it. I mean, I was having a similar conversation on the Roofstock Academy, the private Slack channel where someone was saying they were getting these crazy high offers from I think it might have been Zillow or some eye buyer. And by the way, I think that's a big reason as a, as been a big input on the pushing prices up has is all this institutional money, investors going in and buying prices? I think that's, you know, not only providing a floor, but also just raising up because I think that institutional and when I say institutional, I mean, like, you know, pension funds and other funds out buying rental properties is pushing prices up?

Where was I going? I know where I was going. So on the Slack channel, someone was saying, like, Hey, I'm getting this crazy high offer, like, above the appraisal, like, should I? Am I missing something? And you know, should I sell what not? And I think the the appreciate appreciation is is real because that institution, and to that question Michael was talking about, you know, should I consider selling, I think you should have a plan in place, especially when you're selling and you're not, you're planning to use a 1031. Know that you're going to do something with that capital instead of just kind of taking it out and putting it on the sidelines.

So, for me, you know, having a lot of really good appreciation and a lot of the markets that I'm in I'm going to do some not sell the asset, but do some refinancing, like I said before, but still, you know, take place and being bullish, have continued appreciation to be seen a meal, want to jump in. So some of the stats, all this thinking about buying selling all that good stuff.

Emil:

Yeah, I think Michael put it perfectly I don't have too much to add, I would just say that timing markets is insanely difficult. Like, you may feel like, Oh, this has to be a top, I felt that way two years ago and look where it is now. So timing markets is really tough. I think it's just like you said, it's a good time to take stock, maybe I'll use an example I had. So in 2020, I had, I was in four different markets. And I was like, You know what, this is too many spread too thin across too many dealing with too many property managers, I want to be in less markets, which property am I most willing to part with.

And so I decided to sell a property I had in Memphis to just be in less market. So this, I think this is just a good time, especially with a lot of money flowing around to just like take stock and just see which ones you want to hold on to, like you mentioned, which ones you want to refi and which ones are just like, you know what, not all properties are made to be held forever. Like, let me just sell this well, while things are good. So not too much to add there. Overall.

Tom:

Yeah, this is a home run, if you're like near the end of your kind of investing career and just like cashing out to either like live on it or whatnot. You know, for us, like I'd say we're still relatively early and want to stack more chips before we're getting out. It's, it's great. You know, it's such a two sided coin, because, you know, I want to go do more acquisitions, and I'm in having just finished the refinancing, like I'm flush to go do some more acquisitions, more acquisitions, but it's, you know, it's just a much tighter market. But just to Michael pointed out, there are some, it could be a good time to look into some, you know, other markets where that are not, as, you know, wildly hot, and there's some good cash flow, kind of depending on what your strategy is.

Michael:

You know, I'm gonna Veer, maybe, bear, bear with me. I think also in kind of looking at the market conditions. So many of us have picked a lane and investing lane and have really stuck there. Because it's been easy, or it's worked for a long time, and things have changed. And so now, I also think it's important to be considering alternative investment styles or alternative investment classes. And so if you've bought turnkey single family homes, that's been your lane, and that's worked really well for you, well, maybe now you're priced out of that particular asset class.

So maybe it's time to consider a rehab or a slight rehab or a cosmetic rehab. Because those properties maybe are less appealing to owner occupants. And so those aren't being bid up like crazy. And so that gives you a slight advantage or a slight competitive edge, or you take on a much bigger rehab or you go to a small multifamily or commercial multifamily, because the owner occupants aren't going to buy those to live in. So while it's important to figure out what works and what has worked for you in the past, it's also important to stay flexible, and be able to pivot because we do find ourselves in pretty much uncharted territory. So I think it's important to be flexible with yourself and even if you said, This is what I'm going to do, this is where I found my niche. It's important to not stop learning, but again, to be able to be flexible and pivot into something else.

And also, I mean, that's not to say like, I was just gonna say, to kind of follow that up and it doesn't mean that you have to totally give up on whatever was working for you previously because Who knows this might be a point in time, and things are going to change yet again. And so you can absolutely keep your your toes in the water your finger on the pulse of whatever it was you were doing previously, it's not like you have to have blinders on and say, Well, I did that this doesn't work anymore. No, I have to go do this. No, you can absolutely just expand the purview and say, Okay, well, this is what I was doing. Now, it's not working as well. So let me go learn how to do this other thing. But also, if that other thing doesn't work in the market conditions change, I can go back to what I was doing originally.

So it's not an all or nothing, it's not so black and white. But I absolutely encourage people to continue learning, continue getting educated, and continue learning about what different strategies are available and what might be a really good fit, given your current experience level, your current financial picture and the current time of the market. So again, soapbox demount, dismount,

Tom:

The last thing I'll add on is, you know, we're talking about considerations on selling and refinancing. That's not to say that you can't do acquisitions right now. But I would say it's just, you know, it might take evaluating a few more properties to find that one that hits your buy box that you want to own. So there's definitely, you know, still opportunities for sure to do acquisitions. But I know, just as things get a little bit tighter, and prices are continuing to go up, perhaps it's underwriting a few more properties than you would normally underwrite. Right? And just continuing to look at some some more volume.

Michael:

Yep. Sometimes you got to get really aggressive with the legwork to be able to get something to squeeze out. And then I mean, I think there's not enough emphasis that gets put on that the third option between tapping and equity or selling is that I was just like, do nothing. And I think we always talk about like doing something What's going on? What updates Do we have, you know, what are other people doing in the market, when in reality, so much of the time is like, literally spent doing nothing? Sitting on properties and Emil, I know, you talked about that in your in your cash out refi, I think it was your indie property, you basically got all your cash back, because you sat on the thing for five years, or four years, whatever it was.

So oftentimes, when the market is doing something exciting, whether massive, high or massive, low, we want to scramble to do something. But in reality, I think so much of real estate investing is is boring, and is watching the grass grow. So don't feel like you have to do something, again, I think we're gonna, we're hitting this point multiple times, but just take stock of where you are, and what it is you're trying to accomplish and see if there is something you can do. And if there's not great and don't feel bad about that.

Emil:

I got a fourth option that goes against what you just said, it is activity. But let's think about, What about reinvesting in what you have, right? Like maybe you haven't updated your property in five years, rents have gone up, right, you can, maybe you put 10 grand in the property, and now you can raise it $200. And you can figure out what's my cash on cash return there versus going and having to buy a new property, maybe you can get a better cash on cash, by putting money in your existing property, updating it and just raising the rent. So that's, that's maybe a fourth option too.

Michael:

It's it's a great point. And that's I've talked about it on prior episodes, that's what I'm looking to do, kind of currently is to do more with less, so to speak, in terms of acquisitions and unit calendar, that kind of thing, to streamline, and make better the stuff that you already have, can likely pay dividends way down the road, as opposed to go on to buy something else. Yeah, I think that's a really, really good point. That's a really good point.

To Emil’s point in thinking about how is that money best deployed, and what kind of cash on cash you can get? For those of you that aren't familiar with how to calculate that or what that looks like? Basically, if you take 20 grand, and you can go put it into a property, you can calculate how much is that going to generate? If you have a loan on the property, if you're buying it all cash or what have you, but take that same 20 grand go put it into a property in terms of updates, something you already own, figure out how much additional revenue you're going to be able to generate, and then just solve for your cash on cash that way.

So again, it's just the math is the same, but it just involves a property upgrade as opposed to a property purchase, you're still putting money into a deal, it just happens to be one that you already own. So then you can figure out what the delta is in cash flow. And that's your cash on cash return. And so you can compare that against buying something versus updating something or upgrading something to determine what's the best and highest use of those dollars. And then of course you can decide, hey, this might not be the highest and best use but I know it's going to be easier I'm going to make probably more valuable or what have you so really important to think about and again, great point Emil.

Tom:

Alright, well that's the episode if you enjoyed the episode, please like subscribe, all of that, we greatly appreciate it. And as always, happy investing.

Michael:

Happy investing.

Emil:

Happy investing.