If you were starting from scratch in Real Estate, knowing what you know now, how would you begin?
Well, when I started, it was a lot like it is now… but interest rates were a lot higher. They were in the 9’s for a 30-year mortgage, and I don’t think we’ll ever get there.
In fact, I think we’ll see a reversal in these interest rates sometime next year, maybe sooner, but we’ll have to wait and see. I think the Fed is going to fold, slow way down and maybe stop with the tightening and move back to quantitative easing.
This year, I think we’re going to see a reversal in the Fed’s stance, and we go back to money printing due to the recent bank failures and especially if we go into recession. And the top minds, who all met in December, basically all agreed that there’s a 100% chance we’re going into recession.
Well, we don’t know, but if they keep raising rates, it’s going deeeeep. And when people are fearful of recession, they tighten their wallets and supply goes up, demand goes down, and we get inflation under control.
So, I think this whole thing is backfiring on the Fed in a bad way, and they’re going to reverse their stance pretty quickly. What they seem to have ignored is the effect raising rates like a rocket would have on the banks.
Money printing is already happening (or expansion of the Fed’s balance sheet which is the same thing) due to backstopping the failed banks. The number I read was that another 2 trillion was added to the balance sheet. This money WILL find its way into the economy and will have an inflationary impact but I think on investments and hard goods vs. consumer goods. These would include the stock market, Real Estate, Crypto and other hard assets and collectibles. The stuff the lower income folks mostly don’t participate in, thus widening the gap between the haves and the have nots. Not good.
Now, what does that have to do with how, if we’re starting from scratch in Real Estate?
Well, I was just making a point that when I started, I only knew two ways to do the Real Estate business: rehabbing and buy-&-hold to rent. I didn’t have any money… I had good credit, but I had just quit my job.
At that point no one would lend me money because if you’re self-employed, they want to see a two-year history. So I had no choice but to work with private lenders. That’s where I have always gone for my money and still do today knowing what I know now.
And, I would use wholesaling as my primary activity selling them to other investors or my plan B would be to buy-&-hold them with private lenders.
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Why buy and hold?
Because rents are very high and I don’t see them coming down, much, anytime soon if ever.
But, if Airbnb sellers really start to unload properties, and I think they will, a lot of those properties will end up as long-term rentals and that would put significant supply in the market thus dampening the trajectory of rents temporarily at most.
So, as long as you’re buying at a price where you can make a positive cash flow, I’d be buying all the rental properties I could using private money. Think ARRRR.
So, wholesaling as my primary activity for cash, and then plan B on houses that I’m unable to find a buyer for but would make a great rental. I would use private lenders for those and start building a portfolio of rental properties and building positive cash flow through that.
That is spendable money.
But again, I would definitely employ wholesaling, which I knew nothing of when I started years ago.
Now that I know wholesaling, that’s what I would do very differently, if we’re starting from scratch in Real Estate today..
And, if I felt strongly enough about a property, I’d jump into rehabbing it myself as well… knowing what I know now I wouldn’t hesitate to rehab the right property. Certainly, rehab for rental. Rehab for retail? Probably not.
The nice thing about rehabbing for rental is the rehab costs are much less — it could be half as much as a rehab for retail. Rehab for rental, you could be easily at 70%, 60%, 50% of the cost to rehab for retail.
Wholesaling for the win, with a plan B for rentals as a backup, and lean into private lenders.
Hope this helps!