COVID-19 INVESTMENT - REMOTE CONTROL RETIREMENT RICHES - ICG Real Estate ...
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REMOTE CONTROL
RETIREMENT RICHES JANUARY/FEBRUARY 2021
WHAT DO I DO IF THE
MARKET TEAM SAYS THEY HAVE
NO HOMES AVAILABLE?
INVESTMENT
PROPERTIES DURING
COVID-19
AUSTIN: WRONG INVESTMENT FOR 2021?
RECAP OF ICG EXPO
Saturday, December 5th, 2020
Our December 5th 2020 Expo was on what property managers look for There were many questions asked by
well attended, by a few hundred when they serve the owners. the viewers. I answered dozens myself,
participants. Adjusting to the Zoom Lucian Ioja, a financial planner who and the guests fielded many as well.
format, we have shortened the Expo had been a part of my Public Televi- The questions brought depth and new
to four hours. That still allowed the sion program “Life 201”, was again learning for everyone.
market teams to present, but in a original and interesting with his over- By virtue of being on Zoom, the
shortened format. We also brought all take of financial planning. event has been recorded and is avail-
several experts to present. able to watch on our website: www.ic-
Gary Sipos was fascinating to many
Tom Weclew, the owner of The Re- of us who have kids, who plan to go gre.com, under RESOURCES->WE-
alty Medics Property Management in to college. Gary opened a door for BINARS.
Central Florida, gave an illuminating us to get financial help, talked about Our next event is on March 6, 2021.
presentation about property man- filling the paperwork correctly, and
agement, the issues involved in good overall presented very useful material
management, and shed some light for the parents among us.
AUSTIN
I get many calls from people interested
in buying in various cities and want my
opinion.
Wrong Place to
Invest in 2021?
you want to be a buyer in a market that
is “already bonkers” and now is being
pushed up even more? They have a name
Salt Lake City, Boise, and others. I even
get some investor talking about Seattle
and Portland, which make no sense at all.
for such a market in the real estate world: Some misguided reporters (who in many
One of the popular markets right now is
“A strong Seller’s’ Market”. cases have no actual experience in real
the Austin metro area (people get excited
estate investing themselves), confuse high
about the overall thriving of the local Do you want to be the BUYER in that
prices and growth with an attractive place
high-tech scene, Elon Musk publicly strong sellers’ market? You will be the
to invest in. The two are not necessarily
decamping to Austin, and others moving one paying “bonkers” price to the savvy
linked.
there from California). It is tempting to sellers, fending off multiple offers higher
think of Austin as a good destination to than list price. An example of another very popular
buy in 2021. However, in my opinion, it destination for Silicon Valley people
It is very tempting for a California
is not! Austin, in fact, is a good city to be leaving to other states, is Miami. Miami is
resident to say, “What? I can buy a new
a SELLER in 2021. Austin prices have popular, large (much larger than Aus-
home in Austin for “only” $320,000?
climbed rapidly in the past six years, tin, for example), has an international
That is so cheap! Yes, it is. “Cheap”
while rents went up much more slowly. As airport, good weather, beautiful beaches,
relative to San Francisco prices. However,
a result, the rents are too low to cover all and proximity to great vacation spots.
it is not cheap to buy as a sound rental
expenses. Miami also has a thriving tech sector.
home, and has bad cash flow.
Sounds perfect, right? We should invest
One expense in Austin (and in the state
Austin is a place where many of our in Miami, right? No! Miami prices are
of Texas overall) is the very high property
savvy investors are now SELLING, as the way too high to make sense at this time.
taxes. The property taxes in the Austin
selling market is strong. It is not uncom- While the property tax is “only” about
metro can get to almost 3% of the home
mon to see an investor selling one Austin 160% of that in Oklahoma or California,
value per year (depending on county and
home and buying 3 brand new homes in the price/rent ratio makes it an unat-
town). That is over 2.5 TIMES the prop-
a 1031 tax-deferred exchange in Okla- tractive place to invest. Miami has been
erty tax rate in Oklahoma (or California).
homa City, or Tulsa, or Baton Rouge, or a magnet for the wealthier set of tech
Together, the high prices, relatively low
Central Florida. This move creates much and finance people as of late. The prices
rents (relative to the prices, that is), and
more quality real estate owned, more 30- reflect it.
the high property taxes, as well as high
year fixed loans at todays’ super low rates,
insurance costs, create an untenable cash There is an interesting article in Business
and brand-new properties with brand
flow. Insider written by a tech person who had
new roofs, ACs and all other parts of the
moved from San Diego to Austin and
Here is a partial headline of a Business homes.
regrets it. It’s titled: “I moved my family
Insider article “Elon Musk and other
Similar logic applies to the Dallas Ft from California to Austin, Texas, and
tech powerhouses are flocking to Texas,
Worth metro area (DFW), Houston,
pushing an already bonkers real-estate
Phoenix, Las Vegas, Nashville, Denver,
market to new heights”. Just logically, do Continued on page 6
Investment Properties
During COVID-19
Things I’ve Learned
1. The single family
product became very attractive.
With so many people spending
increased amounts of time at
JOSH FARMER home, the demand for more
Caber Property Management square footage, private laundry,
in Oklahoma City
outdoor entertaining areas and
in our world, that I really didn’t backyards increased. The fear
In Spring 2020, as we began to
know how bad this would get. of sharing space with so many
see how serious Covid-19 was
others was also real. Most of
and we all became familiar with In terms of impact, the OKC our local moves were tenants
the term pandemic, I was very metro area was extremely of urban style and large multi
concerned. I was worried not fortunate in that single family family properties to single
only for my clients, but also for homes, duplexes and quadplex- family style neighborhoods in
myself as a fellow investor. The es didn’t see the projected drop, suburban towns.
questions of will tenants be able it was larger multi-family con-
to pay rent, will we still be able dos and apartments that were 2. Will tenants pay
to lease properties? Would our more negatively impacted. rent? From the beginning of
investors’ properties still be able the pandemic to present, we
to cash flow and appreciate? Why is this? I think there were have had zero evictions, we
There was so much uncertainty several reasons. were fortunate enough to not
even have to file on any With so many people spending increased
tenants. While we normally
amounts of time at home, the demand for
have low rates of eviction
due to our thorough vetting more square footage, private laundry, outdoor
process, we had even lower entertaining areas and backyards increased.
numbers during Covid vs
pre-pandemic. This isn’t
to say that we didn’t have that are completely outside have seen an increase in the
tenants that couldn’t pay of their control. number of tenants that are
rent. One of the hallmarks moving from out of state.
3. Tenant Reten-
of my company and the way With so many businesses
tion. We have seen a dramat-
we do business is that we find and people operating and
ic increase in tenant renew-
the best solution for every- working from home the
als and at higher rates. This
one. For example, if a tenant need to be close to an office
coupled with low inventory,
truly can’t pay rent, the best was no longer a huge factor.
our ability to be even more
thing is to help the tenant to This has been a tremendous
selective in the tenant place-
end their lease and vacate boost for our market to have
ment process and greater
the property. This allows us so many new prospective
demand for these types of
to get a new paying tenant in tenants and homebuyers.
homes will create scarcity. If
quickly, sometimes so quickly this continues, we should see While I don’t have a crys-
that the former tenants were investor returns skyrocket as tal ball, there is so much
able to get some of their de- rents and home values con- to be grateful for and to be
posit back. A win-win in my tinue to climb even higher. encouraged by for the future
book. The owner was made Which is exactly what you of the rental market in the
whole on most occasions and want to see in your single OKC metro area. I would be
the former tenant didn’t have family home investments. happy to discuss in greater
an eviction on their record, detail why this market should
4. Influx of people
because let’s be honest, these be on the top of your list
moving to smaller cities and
times have been extremely for investment opportunities
less restrictive states. We
tough on so many by factors should you be interested.
AUSTIN, Continued from page 3
regretted it. Here are 10 key points every
person should consider before relocat-
ing.” The author mentions the harsh Tex-
as heat, coupled with humidity, which,
in the summer keeps you indoors and
runs your AC 24/7, while also bringing
scorpions and the like, and being hard
on the houses. Of course, he mentions
the super-high property taxes and high
insurance costs. He talks about the very
high cost of power and water, much high-
er than he had in California. Overall, he
was surprised by the cost of living being
much higher than he had anticipated. He
mentions the travel difficulty, as Austin
doesn’t have a large airport, requiring an
extra “hop”. He laments the relative lack
of public parks and spaces, to which he
was used in California. While this is only
will appreciate a lot!” Really? You mean loans, leaving several free and clear homes,
the account of one high tech family who
you know the future? No one else does. enabling them to retire.
moved to Austin, and may not reflect
Just because a market behaves a certain
everyone’s experience, some of the points People also see how this can send kids to
way, and even booms, it is not necessarily
are absolute. college (even costly colleges), and achieve
a guarantee of everlasting constant ap-
many other long-term financial life goals.
We have investors who actually LIVE in preciation. We have seen it in many areas
Austin. They are absolutely not interested of the country. The reason I hark back to this point in
in investing in Austin. They live there, and this article, is to remind you that the
One other factor that is important to
know how little sense it makes to buy in most important point is to buy a good
discuss is, again, the heart and soul
Austin in 2021. They seek investments in new single family rental home, put a
of single-family home investing in the
saner markets where the prices, rents, and down payment, and then get the constant
United States. The reason single family
property taxes, are in much better balance. power of inflation and the payments by
rental homes change futures so effectively
We also have investors who live in Mi- the tenant, to pay off and erode the loan
and powerfully: The 30-year fixed-rate
ami, Phoenix, AND Las Vegas, as well as balance, building equity for your future
loan. I talk a lot about the wonder of this
Portland and Seattle, among many other wealth. With today’s astoundingly low
loan. A very quick recap for new readers:
places. All these investors wouldn’t dream rates, strong results may be seen even
The monthly PI payment never changes,
of buying rental homes in the market they sooner, perhaps 10, 11 years.
while everything else in the US economy
live in, at this time. They know the insane The single-family home is the VEHICLE
constantly changes with the cost of living.
sellers’ market that exists there, and the to let inflation work its magic on the
The same is true for the mortgage bal-
way-too-high prices. 30-year fixed-rate loan. The location of
ance, which goes down due to amortiza-
This phenomenon is not new. Investors tion, but also never keeps up with the cost where you buy the home (as long as it’s
declare they want to “Buy Low, Sell of living. This creates incredible financial large metro areas in the Sun Belt states,
High”. However, in reality, many inves- futures for people, as inflation constantly where the numbers make sense), is of
tors end up “Buying High and Selling erodes the real value of the loan balance secondary importance. It would behoove
Low”. Right now, Austin is the darling and the monthly PI payment. There is no the smart investor to buy in a market
market touted for its growth and Elon need to wait for 30 years. where the prices are not “bonkers” and
Musk. The people who are buying su- where the rents measure up to the price
Typically, after 12, 14, 16 years, the loan
per-high in a “bonkers” market, pumped well, preferably in an environment where
balances are very small relative to the home
by the media hype, will be the first ones property tax and insurance costs are low.
price. The monthly payment is very small
to sell frantically when a recession hits, This enables the owner to enjoy cash flow
relative to the rent. It is not uncommon
or even lose those homes to foreclosure. (especially with today’s low rates), which
for a person to find, after 14 years, that the
We have seen these scenarios throughout building their wealth for the future with
loan balance (even though the loan still has
history, time and time again. You see the the help of inflation.
16 years to go), is merely 20%-25% or so
same phenomena in the stock market. I will discuss this in further detail during
of the home price. Many sell a couple of
People secretly love to “Buy High”. our upcoming Expo on Saturday March
homes at this point, and use the after-tax
The reason is usually “But this market proceeds to pay off several other small 6, 2021.
WHAT DO I DO IF THE
MARKET TEAM SAYS THEY HAVE
NO HOMES AVAILABLE?
At this time, demand exceeds supply in The Fed has already said
most good markets in the US. We have
discussed, in this very newsletter, that
they have no plans to raise interest rates until
it makes no investment sense to buy in at least 2023, so that is not an emergency.
a strong sellers’ market like Austin or
Miami.
There is no rush. These are long-term standards, looking for brand-new homes
However even in markets which are not
investments. Waiting a few weeks means in appropriate cities and in good areas.
strong sellers’ market, there is a short-
nothing. The Fed has already said they Homes which come under warranty, and
age. The pandemic contributed to it.
have no plans to raise interest rates until with all the benefits I discuss in my article
People seek to purchase or rent single
at least 2023, so that is not an emergency. “Why We Should Buy New Homes”,
family homes with a yard and room for a
which I will be happy to send you if you
home office, in the suburbs. The Fed has It is important not to somehow behave
email me for it.
lowered interest rates to an absurd level, in self-detrimental ways due to these
prompting a larger number of people to temporary shortages. I see investors It is infinitely better to buy quality new
seek purchasing homes. forgetting that buying brand-new homes homes in the right metro areas in good
is a good idea, and seek older and older areas within the metro area, then start
Thus, it is normal, at this time, to expe-
properties. I see investors seeking existing to lower our standards just for the sake
rience shortages. It is not uncommon
homes in lesser cities, lesser areas, and of of an imagined “urgency”. There is no
that the broker in the market will tell you
lesser quality. Why? Only to satisfy some urgency.
things like “We’ll have homes available
“urgent urge?” Nothing here is urgent.
in a few weeks” or “We’ll put you on a I will discuss in much further details at
waiting list”. I recommend NOT dropping our our Online Expo on March 6th, 2021.
Retirement Riches Testimonials
“Hi Adiel, I am an engineer, working in “Thank you so much. We really enjoyed I have followed you for over 15 years.
the semiconductor industry. the webinar. There was so much great Bought 2 homes 15 years ago, brand new
I was invited by my good friend to attend information! You are a GEM! We are in a good area for $120K each with 20%
your webinar and I won’t be able to tell considering 2 properties. Your teams and down.
you enough on how much value I found are hoping to pre order soon!” Today each is worth over $200K and the
in the 4 hours I spent with you and your — Mitchell L. loan balance is under $50K. Wish I’d
presenters. Thank you. bought 10 of those! These two homes
I find what you do noble work and I’d will send my kids to college. Bought 2
“The two initial houses are working very
like to work with you and stand on your more brand new homes. Now want to
well. We have a nice positive cash flow
shoulders to rebuild my assets as well.” buy several homes in Oklahoma.
from the beginning. Thank you!”
— Joseph Y. — Adam B
— Dr. Isaac E.
Q: I bought 2 homes in one metropoli- your debt. It is not uncommon to see that
tan area. I must buy my next homes in after 14 years or so, your loan balance is a
ADIEL’S corner
other states for diversification, right? mere 20-25% of the home value. That is a
life-changing moment, as some people sell a
A: Not right. The word “HOME” is
couple of homes, pay capital gains, and use
misleading. If you live in a place where a
the proceeds to pay off the remaining small
typical home costs $2M, your brain tends
loans. Once there are several free and clear
to tell itself “WOW, I have two HOMES –
homes, financial lives are changed. With
that feels like $4M. Now I must buy some-
today’s super low rates, these life changes
where else”. However, in reality, these two
might occur faster, perhaps in 11 years or
homes may have been bought for $200K
so, depending on future events.
each, for a total of $400K. That is not very
much real estate, and is about 20% of the Since we consider the 30-year fixed rate
value of one home where you live. You loan to be a sort of a gift, why would we
would need to buy 10 homes in that out-of- want to make the gift smaller? I would say
state market, to match one home where you that no more than 20% down payment
live. There is no issue buying your first 5-10 should be used. Some people may consid-
homes in one market. I will discuss more at er putting only 15% down (the minimum
our next event. allowed), with PMI (Private Mortgage
Insurance.
Q: Should I put a higher down payment
so I get a slightly better interest rate? It never fails that, when I talk to people
a dozen years down the road, they say “I
A: As we have discussed, the 30-year fixed
should have bought more homes”. Using
rate loan is very special. By never chang-
less for a down payment frees up your cash
ing with the cost of living (neither the
to actually buy more. This, in my opinion,
PI payment nor the loan balance, which
far exceeds the slight benefit of a somewhat
also goes down with amortization), the
lower interest rate, especially when rates are
loan becomes a “gift” over the long term.
so low to begin with.
Inflation constantly erodes the true value of
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