Why even bother when you can get duration with investment grade corporates at 6% or going out to BB even higher - at B you can get 8-9%albeit with more volatility. Just clip coupons if you’re looking for cashflow investments in this environment. MK probably has some words of wisdom given he’s the only pro here.
It's all about diversification and risk tolerance OCtoSV. Stocks, bonds, precious metals, CD's, Real Estate, etc. It's not safe to be in a single type of financial product ... it's important to diversify.
Who said anything about a single type of product? One buys investment RE for cashflow, and with rates high and prices still elevated that works out to garbage cap rates. I’m also assuming the poster has a sizable equity portfolio else he’s missing out on one of the best years ever. Plus we’re in a golden moment for fixed income. You might want to diversify your knowledge base about investing.
Chasing appreciation that was partially a function of declining interest rates during a 40 yr bond bull market is speculation of the highest order. RE should be bought for cashflow if seeking diversification. Fixed income yields are so juicy right now ignoring them to chase an investment theme impeded by a high rate environment is plain ignorant. And when rates do start to come down as recession sets in the price gains on those bonds will be huge.
Absorb negative cashflow while waiting for appreciation driven by lack of buildable land? Maybe in the Bay Area but OC has tons of land and current inventory conspired to the Bay Area. They just built Rancho Mission Viejo down there. There is no shortage of buildable land in OC, and you’ll never see a 4% mortgage rate again as it would be inflationary as you point out unless driven by a massive recession in which case you’ll see inventory balloon. Your thesis is totally backwards looking and shows no evidence of you having studied economics.
Why would there necessarily be negative cash flow?
If you follow the thread USC asserts
I get it - you’re a speculator/short term trader instead of an investor when it comes to equity markets. And speculating on appreciation in Irvine RE has been a winning bet. Up here too as my house doubled since we bought it 6 yrs ago. Most RE investors look for positive cash flow from day 1. Banking on future appreciation making up for negative preset value cash flow Is perhaps least risky in Irvine but still risky and the risk reward compared to what is available with investment grade or even slightly below investment grade corporate bonds - some people just gravitate to RE because it’s worked in the past and they think those market dynamics are somehow permanent. But we’re in a new rate cycle and 6-7% mortgage rates are the new normal. Maybe there’s enough cash and desperate financed buyers to keep pushing prices up a few percentage points a year but the return will be much better on that bond especially if rates come down which will be only due to recession signals. An inflationary real estate market will be met with rising rates - the Fed has made that pretty clear. Up here rates have finally driven the San Francisco and San Mateo County medians lower (-3.6 and -1.7% respectively) while Santa Clara Co median is up 2.1%) and the more affordable Contra Cost Co is up 4.7%. Irvine is for sure the least risky OC market but no longer a safe investment due to rates and better yields available in fixed income.
My bad, I thought the discussion was comparing cash flowing properties, but it's on different investments.
Who would buy a 30 yr bond at that rate? Even short term Treasuries at 5% are no good as those will mature into a recessionary environment with the Fed being forced to cut rates, then the yield environment will look different. An intermediate duration B-rated corp bond yield is >8% right now. The oppty to lock those type of yeilds in for 5-6 years are a moment in time opportunity for smart and well informed investors, and those bonds will yield a handsome capital gain once the Fed cutting cycle starts, likely well above the RE appreciation people think that rate cutting will catalyze as the recession with rising unemployment will increase inventory. Again, if the Fed cuts it will be due to recessionary signals, not any desire to bring rates down to help people buy homes. That is not part of the Fed's mandate.
Sometimes true, sometimes not. 2018-2020 was a uniquely bad time for Irvine when most of the rest of OC was seeing double digit gains.
What then after 5-6 years after you locked in 8%? We don't know what the environment would be.
Leverage is a huge plus - my cash on cash return if I sold my house today would be almost 10x - but it goes both ways. We all know you make your money (or lose) when you buy. I bought my current pad in early 2017 after getting outbid on multiple properties throuhg a sizzling 2016 market. But JPow raised rates and the market cooled dramatically. My appraisal even came in $10K under my contract price - that's how chilly the market was at that moment in time. I bought at a 4.375% / 30 rate and refid down 3 times over the next 3 years to 1.99/15. Unless we're facing Great Recession 2.0 current buyers won't be refinancing anytime within the next few years, so an RE investment today requires a very long time horizon.
We bought 13 years ago. Bubble bust, worst buyers market ever.I'll say this for the nth time... buy when you can.