Kerry Lutz's--Financial Survival Network

Summary:
Is flipping houses the way to go, or is commercial real estate a more opportunistic pursuit? Listen to today’s episode to listen to myself and Mike Sowers discuss some of the benefits in flipping commercial real estate—and get insider tips on how to do this effectively. Sowers emphasizes the value in focusing on deals that add significant value to a property; one must consider what it is going to be worth to someone who will occupy it, as well as what comparable properties sell for. Sowers breaks down some of the strategies for mitigating risk within this industry, and provides an economical justification for investing in properties such as office spaces.

Highlights:
-It is possible to get higher returns investing in commercial real estate?
-Is flipping houses all it’s cracked up to be? It is a great first step for many investors. However, you don’t have to go into flipping houses to start—you can go directly into flipping commercial and skip decades of steps.
-There are a lot of sectors of commercial real estate, which can be broken into four categories
-Within the categories, there are different niches
-Sowers’ business is interested in deals that will add significant value to the property
-Only buying properties where you can create value that worth more than it costed to create the value
-There are two ways to sell/value real estate: what is it going to be worth to someone who is going to buy/occupy it? What do comparable properties sell for?
-A financial buyer/tenant values properties differently
-It can be beneficial to buy multi-tenant properties that have problems (i.e. property/people problems, partnership disputes, etc.)
-Focus on properties where you can increase the income stream
-Good strategies and system mitigate risk
-Sowers is particularly interested in the suburban office sector, because it has a much higher perceived risk than real risk
-From a demand standpoint, apartments feel less risky to invest in, but from an economic standpoint they pose a much higher risk
-How does this play into the work-from-home setting? Some of these shifts are taking place, but they’re not as extreme as people think they are. This transition actually makes it a good time to buy office spaces at lower costs, and still rent them out for a higher cost.
-There are different incentives you can offer to get people to decide to lease (i.e. free rent for a small period of time)
-Sowers targets small business owners
-Being able to accurately predict the future value of a property and estimating the costs to do so are both required to be able to successfully flip commercial real estate
-The active and passive partners have different roles in the process and maintain a symbiotic relationship

Useful Links:
Financial Survival Network
Mike's Book
Get in touch with Mike

Summary:
All of the madness is coming to a head in the housing market, so today, Wolf Richter and I get on the podcast to discuss what exactly is happening with buying and selling homes as a result of the current economy. San Francisco in particular is experiencing an interesting circumstance: seasonality is returning, which has been absent for most of the pandemic. We are seeing a rising market as well as individuals eagerly spending more money, which is stimulus driven. Tune in to hear about the interesting dichotomy between the economy and housing market, and what is to come in this industry.

Highlights:
-All of the madness is coming to a head in the housing market
-People are reducing their asking prices—how can this be?
-Every local market is different. In San Francisco, it is dominated by condos and has not gone anywhere in three years in terms of price. House prices have sky rocketed with a medium price at $2 million, dropping by 8% in July
-Seasonality is returning, which we have not seen throughout the pandemic
-Medium price dipped for single family houses, and for condos it jumped
-The volume fell quite a bit; prices dipped a bit from the peak
-There are very elevated prices at the moment, and this poses an issue as incomes do not match
-Drops in prices bring buyers out
-A lot of supply is coming on the market — this is the most new houses we’ve seen on the market since 2008
-Mortgage rates are still extremely low by historical standards. If mortgage rates go up, what will happen to the market?
-The Fed is already talking about tapering its asset purchases, which will likely happen this fall. This affects mortgage rates and long term interest rates
-The trend now is buying rental homes close together, which is more efficient than having single family homes scattered
-In a rising market, foreclosures are extremely rare
-We don’t have the situation of short sales
-Does the shadow inventory still exist?, or have banks flushed this out This is pretty much gone, according to Wolf.
-The carrying costs of vacant homes are very high, so this will probably bring more properties to the market
-What does the housing market tell us about the broader economy? Every time there is a shortage within the economy, we see prices rise.
-People are still eagerly spending money, which is stimulus driven
-States are sitting on a lot of money they haven’t spent yet, which will be put to use soon
-We are in an overstimulated economy - red-hot demand with supply constraints

Useful Links:
Financial Survival Network
Wolf Street