Bad Times to Buy Bank of America Stock and Charlotte Real Estate?
“(Warren) Buffett famously bought $5 billion worth of BofA’s (Bank of America’s) preferred stock and warrants in 2011 in the aftermath of the financial crisis, shoring up confidence in the embattled lender struggling with losses tied to subprime mortgages.”
7/30/24 CNBC.com article by Yun Li
“The Charlotte Regional Business Alliance reported about 113 people moved to the Charlotte metro every day between mid-2021 and mid-2022. That’s more than 41,000 people moving to the region every year.”
CLT Today 3/11/24
I remember hearing many years ago that the longer you live, the more economic cycles you’ll see. The “Dot.com Bubble” (2011) and COVID (2020) are ones I remember readily. But from a severity perspective, ‘The Great Recession” (2008-2010) was the most memorable and crushing.
Living in Charlotte, Bank of America casts a big shadow as it houses our largest corporate headquarters. And it got hammered during the Great Recession. Warren Buffett, arguably the greatest stock investor in history, invested $5B in 2011 when it was trading in the $5/share range. The lowest it had dipped to was $3.14 in 2009 and it was teetering along for years as it hemorrhaged losses from its Countrywide Financial acquisition.
At the time of his investment, Buffet said,
“Bank of America is a strong, well-led company, and I called Brian (Moynihan) to tell him I wanted to invest in it,” Mr. Buffett said in a statement. “I am impressed with the profit-generating abilities of this franchise, and that they are acting aggressively to put their challenges behind them. Bank of America is focused on their customers and on serving them well. That’s what customers want, and that’s the company’s strategy.”
Today, Bank of America’s stock price is around $40/share and Buffett has been in the news lately for selling some of his shares for billions in profit.
That’s what all investors want- buy low and sell high! But Buffett’s big payday took a long time to come to fruition as the stock languished for years. It was unknown when Bank of America, and the economy in general, would come back. But Buffett believed in Bank of America’s fundamentals.
We’re starting to see a real estate slowdown in the Charlotte market. There was a time, no too long ago, when a house on the market for sale would get multiple offers. Now, things have slowed, houses are sitting a bit longer, and price increases have waned.
Are home prices too costly? Interest rates too high? Economy too risky? A combination of these and other factors? Are these buyers right? Is it a good time to sit on the sidelines?
Or… is this price stabilization a great opportunity for real estate investors?
It’s tough to know for sure.
There are facts, though, that are undeniable. People continue to move to Charlotte every day in droves and have been for years. Everyone moving here needs a place to live. Housing is a needed commodity.
As Buffet said about his investment in Bank of America during an uncertain time, he wanted to get involved based on the company and its direction. Charlotte has an average of 113 people moving here everyday in need of housing.
Is this a bad time to buy Charlotte real estate? Or is it a great time?
Happy Landlording!
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Crushed by Cumulativeness: Rent Increases and Why the NFL Player Didn’t Sign Your Kid’s Football
“What a jerk! All he has to do is just sign his stupid name to ONE football and it would mean the world to Little Johnny. But instead he needs to hurry to the locker room to recount his millions of dollars!”
(Reaction of many parents after their child’s autograph request is snubbed)
I was talking to a local college football player (a kicker, if you must know) about what he was doing after he graduated in May. He said he was starting to figure that out being that he finally had some time to think about it.
Some time? He’s in college! I was thinking of how wasting time was sort of what my friends and I did during our undergraduate tenures…
“You don’t have any time? How did you get so scheduled out?”
He pulled out his team-issued iPad. “Do you see this? I had to look at this every day for the last five years; it told me where I was supposed to be and what I was supposed to be doing every hour of every day… Now, honestly, I’m adjusting to doing life without it.”
Wow! That sounds pretty demanding for a college kicker at a small-time football school. If I were him, I think I would have opted for intramural soccer.
Now let’s think about NFL players. There are even more football activities than college. They are travelling for training camp and games. If they don’t do well, they can be cut at any time. If they want to get better, they need to take the time to practice, lift weights, and study the playbook and game tape on their own. Then they have family, faith, friends, financial, and other real-life commitments- and everyone likes them and wants to be near them because they are wealthy and famous. They are super busy!
And then there are constant, on-going demands for their time. Want to be on a weekly talk show (aka NY Jets quarterback, Aaron Rodgers)? Make sure you cut an hour or two of every week for that. Endorsements? Autograph shows? Dinner with your wife? Your kid’s basketball games? Team functions? Mailing back football cards kids send them to sign? Your college wanting you to come back to accept an award on an off-week during the season?
If it was signing one football, that would be one thing. But it is signing one football in addition to an overpacked schedule.
So how does football player busyness fit into rent increases in today’s world?
A landlord may be heard muttering, “If a tenant can’t come up with an extra 5-10% for rent every year, maybe they shouldn’t be in the property in the first place!”
If it was just $100.00/month extra for rent every year, that would be one thing. But rental increases are not happening in a vacuum. Tenants have been absorbing increased rents in addition to increased costs for almost everything else they consume. Food, gas, car prices, car insurance, plane fares, restaurants, NFL tickets (another 4% increase in ticket prices was just announced by the worst team in the league, Carolina Panthers), etc.. Netflix just went up by another $2.00/month, for goodness sakes! Like small papercuts that keep happening, the bloodletting becomes very real eventually.
Cumulativeness can be crushing!
Property managers and smart landlords need to balance potential rental increases with killing the golden goose. Good tenants are an asset that maintain the property and pay down the underlying debt. Dumping another increased expense on them can be detrimental to both parties, especially if the tenant moves and the property needs to be repaired and put on the market again.
Good news! The college and NFL players don’t hate your kid. If they had an iPad with lots of empty time slots and/or few other commitments, I’m sure they would happily sign footballs most every time! And if rental increases are measured, good tenants will be able to absorb them and continue to be a reliable monthly partner.
Happy Landlording!
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What Vacant Rental Home Fix-Ups Should a Landlord Do (or Not Do)?
My wife and I were looking at renovating our primary bathroom so we had someone come in and give us a quote. We weren’t looking for anything overly-extravagant; I’d say it was much more on the practical side of replacing some older bathroom pieces. I thought the proposed work was relatively basic and was more concerned about the inconvenience than the cost. Then the quote came in around $50K.
To me, the quote was a lot; $50K for a practical bathroom renovation is significant. For that, I’m thinking heated tiles, a sweet hot tub, and a roomy, rainwater shower equipped with a state-of-the-art entertainment center.
If we take this out of the “splurge on myself” category (where things like this are sometimes justified on a personal residence- note: not in this case…) and put it into the “rental home investment” category where the numbers need to make actual sense, we could do a quick calculation of making this potential investment:
With a renovated primary bathroom, we’ll say the rent can go up an additional $500.00/month; that seems high to me, but we’ll go with it. At $6K extra rent coming in annually ($500 for 12 months), we’re looking at the payoff time for a $50K bathroom investment to be roughly 8 years (8 years multiplied by $6K = $48K). That’s a long payoff period, especially if a destructive tenant moves in and degrades it quickly.
This type of repair figure, post-COVID, is not crazy though. The question then is how much home fix-up is a justifiable expense for a landlord? That’s a tough question as it is really an answer that has to be made on a case-by-case basis.
But philosophically, my answer would be to spend as little as possible with several caveats if the rental home is a long-term hold:
- Don’t skimp on preventative maintenance
- All home systems need to be functioning per the lease agreement
- The home needs to be desirable to rent near the market rental rate (no major red flags aesthetically)
- The home needs to be very clean and pest-free
This is much more of an art than a science. The issue is that when new things are installed in an older house, it makes the older things look even older. For example, if one room gets fresh paint, the rest of the unpainted rooms scratches look even worse. Replacing one appliance can make the other ones look 10 years older. What not to renovate can be more important than what to renovate.
And different aesthetic issues are going to make the home unrentable to certain people; it helps to be a bit thick-skinned if some potential tenants are critical of certain aspects of the home. New construction and/or complete renovations appeal to everyone! But most owners and tenants are either not willing or able to pay for that.
I want to be clear- a home is always easier to rent and will rent at a higher rate if everything is renovated. If the financials can be made to work, this is the best option by far. It is really nice to offer rental homes that have the best of everything! It makes a property manager’s job much easier!
However, for others, $50K of renovations may not be a viable investment strategy; the numbers are usually tough to justify on a standard rental home. Smart landlords learn to be judicious in what they choose to fix-up (or do not).
Happy Landlording!
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Be a “Shark Tank” Landlord: Invest in Spotless Tenants!
“Cleanliness is next to godliness.”
(attributed to several authors)
“We feed the eagles and starve the turkeys.”
(Heard in several sales job interviews circa 2000)
I have to admit that I’m a fan of the television show, Shark Tank. For the uninitiated, it’s a show where entrepreneurs pitch their companies to several accomplished business people (the “Sharks”) in order to entice them to invest in their fledgling enterprises. After the entrepreneur’s presentation pitch, the Sharks begin to pepper the business owner with questions.
One of the main lines of questioning that comes up in the “Shark Tank” revolves around how the owners calculated the sales prices for their companies. Questions like: How are you computing a $5M valuation with only $150K in sales this year? Why are you forecasting such aggressive sales growth? What are you doing to lower your unit cost? How is this going to produce enough free cashflow so I can get my initial cash investment back in a reasonable amount of time? Why is this a business I should have a multi-year involvement with? What is the industry growth forecasted to be?
Even after all these questions, it is tough for anyone (even experienced Sharks!) to know how well the companies will do in the future and whether the money they choose to invest will produce dividends. However, the entrepreneurs are sure. They come in loaded with enthusiasm and sell their companies as the next big thing- they will be successful! But as much as they sell themselves and their companies, the proof will be in the pudding at a much later date- do they deliver as promised or not?
It’s risky investing in start-up businesses. They are largely unproven and are really just selling future promise. Statistically, most will fail. But the allure is, that if successful, the returns can be more lucrative than investing in established businesses. The fun part for these investors is when a start-up does well, matures, and becomes an established, valuable company. This allows them to ride its profits for its lifespan.
This reminds me of rental tenant selection in a way. Property managers look at prospective rental applications, process the information, and ask follow-up questions in order to pick a winner. The applicants are all very optimistic and claim they will be great tenants. Property manager “Sharks” will decide who they want to “invest in” (aka approve the application and sign a lease), but the ultimate success in the tenant selection will be discovered down the road.
Successful tenants pay their rent on time, get along with their neighbors (no drama), and maintain the property. But what tenant characteristic should landlord Sharks look for that might generate the best future returns? After many years of residential property management, I’m convinced it is finding and keeping the meticulous ones who keep their rental homes spotless.
A certain tenant of our comes to mind. When we perform our bi-annual home inspections, the house is immaculate. You could make the argument that it barely looks like it has been lived in, and this is after several years of occupancy. The HVAC air filter is always fresh and the appliances look to be meticulously maintained. To re-rent this house, I imagine our fixup would be minimal to none. What is the dollar value of that?
For example, if we calculate the life of carpet at 7 years, what is the value if a tenant cares for the home so well it stretches it to 10+ years? Or if we don’t need to paint it on the next vacancy turn? Or if the HVAC unit lasts an additional 5 years due to its care? It’s estimated the average house needs to spend 3-5% of its value in maintenance costs each year. What is the value if that figure is reduced to 1% due to meticulous care? I don’t know, but it’s a lot. It’s substantial enough for us to really want these people to stay!
Like the Sharks, real estate investors want to maximize the return on their rental homes as well. When meticulous tenants who love to keep their homes spotless come on board, smart landlords will look to lock them up and ride the profits (realized and unrealized) for many merry leases to come.
Have a Merry Christmas & Happy Landlording!
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Real Estate Investing: Preparing for Recession
“Where there is no vision, the people perish…”
Proverbs 29:18
Well, we started with a Bible verse, so it’s a good time to go into the story of Joseph in the Bible (located in Genesis 41).
To paraphrase, Pharoah, the leader of Egypt, had two dreams that no one could interpret. His chief cupbearer (and a former jailbird) remembered that he knew a guy in the joint who had (successfully) interpreted dreams for him and his buddy a few years back. He told Pharoah about this Joseph guy and Pharoah had him sent for.
Joseph said God had revealed both of Pharoah’s dreams to him and they had the same message; Egypt and the surrounding lands would have seven years of incredible plenty followed by seven years of devastating famine. He advised, “Let the Pharoah look for a discerning and wise man and put him in charge of the land of Egypt. Let Pharoah appoint commissioners over the land to take a fifth (20%) of the harvest of Egypt during the seven years of abundance… This food should be held in reserve for the country, to be used during the seven years of famine that will come upon Egypt…”
He concurs and appoints Joseph to head this newly created post and things go as predicted. Egypt is the only place that has food when the years of famine come, and Joseph is administering it on Pharoah’s behalf. The Egyptians and the people of surrounding lands are forced to sell Pharoah all their possessions and land just to get food.
To bring this back into the realm of real estate investing, landlords are clearly in the time of plenty as property values and rental prices have been on a growth curve for the last ten years. To boot, interest rates have been historically low (and really still are) which allow for low borrowing costs and has made for a robust sales market. Many landlords have used this as a time to sell some of their “dog” properties, make improvements and raise the rents on their existing properties, buy some new ones, and refinance/eliminate debt.
Recently, interest rates have more than doubled and many economists (none with divine inspiration like Joseph to my knowledge…) claim a recession is around the corner. If that’s true, the housing market could take a sharp correction which could be a great opportunity for prepared investors.
I have vague recollections from the last housing correction from 2008-2012. I did not buy any investment properties then; I was too concentrated on keeping my existing rental homes afloat as rents were low during that time period. I remember that selling homes was really hard; buyers were scarce! Many sellers were just giving their houses back to the bank or using “short sales” as the banks would take a loss on part of the loan during the sale. I remember thinking, “What’s wrong with me? As a wanna-be real estate investor, how am I not buying homes now? These houses are going for a steal and they seem to be all over the place!”
The thing that was wrong was that I could not get a decent loan and did not have much cash on hand. So, I needed to sit on the sidelines like most other people until the economic waves grew more favorable. But the buyers who were prepared got some great deals!
The investment challenge now is to be more like Joseph and be prepared for any possible famine while things are favorable. If the right investment comes along during any upcoming recessionary period, I’d like to be able to snap it up (while simultaneously staying solvent during any prolonged economic slump). Preparation now can pay huge dividends later.
Happy Investing & Landlording!
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Rental Roomies & Higher-End Homes a Win-Win?
“Many hands make light work.”
(Old English Proverb)
I remember back to my college days in sunny Arizona when I had to figure out where I was going to live my sophomore year. Most of my friends were thinking of staying in the student housing in the dormitories for Year 2. I had virtually no experience with rental properties and wasn’t sure what to do.
I talked to my Dad about it (I learned early it was always smart to run my plans by my financial backer first). He didn’t really have any input on where I lived; I was the third child and he was much more pragmatic. “I’m paying XX dollars for your housing- just let me know in what bank account it should go. So, in that brief exchange, I had my financial backing and freedom to choose where to live.
Some of my friends got similar commitments from their parents and we were house hunting! Of course we were all-in on finding a house with a pool (common in hot Phoenix) and hot tub (more rare, but not insurmountable). We found a 4 bedroom house with both, plus lemon and lime trees in the backyard to boot. It came to $1,200.00/month (which was high back then for Phoenix and definitely over market rate).
But… split between 4 guys it was $300.00/month which was a third of my Dad-provided housing budget. I now had extra funds to play with. We, as a group, were overpaying, but I was psyched! I was paying much less than if I was living on my own or with one other roommate.
I’m seeing a similar play in the rental market as prices continue to rise. Some of our higher-end rentals are (smartly) getting taken by groups of young professionals.
First, as a point of reference (according to Rent.com), the average one-bedroom apartment in Charlotte in April 2022 costs $1,513.00/month and the average two-bedroom is $1,730.00/month.
If we chop that into per person, we can calculate roughly $850 – $1,500 per person. When that is multiplied into a 4 or 5 bedroom home or townhome, you can equate that to a $3,400.00 (low end) to a $7,500.00 (upper end) rent spend- and that’s going off of averages. Obviously, some people spend more than that on their housing.
As good of a strategy it is for tenants to decrease their rental costs, it is also a good one for landlords. Purchasing lower-priced housing in Charlotte has been very competitive for years, but most investors typically avoid higher-end housing. However, by buying higher-end housing and marketing to roommate situations, it could allow for good cash flow. Relatively-speaking, there is just not that much higher-end housing available for rent in the Charlotte market. Really nice, feature-rich houses could go fast and for top dollar.
For now, it’s a good deal for all, much like my college housing. Tenants get better housing at a lower price and investors get less buying competition and the ability to charge higher rents. It could be a rare win-win in the current investment housing market.
Happy Landlording!
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Finding Value & Buying Rental Homes on Your Credit Card
Fresh out of college, I was living in New York City and was slinging cell phones by day (they were relatively new back then) and dreaming big dreams at night. How could I become financially successful like many of the people I was passing on Wall Street everyday? I wasn’t overly into finance, but started reading a lot of material from the real estate gurus. Be a millionaire with no money down! Live off of passive income to live the life you’ve always imagined! It’s so easy anyone can do it!
That sounded right up my alley- easy and something even I could do. If that mother of 6 in El Paso could be netting $25K month in passive rental income, surely I could do half of that? I was all-in. Unfortunately, New York City real estate was prohibitively expensive for me to buy (got $1M to plunk down?), so I wasn’t sure how I would get started.
So I moved to Charlotte and became a full-time Charlotte real estate investor. The $1M homes were replaced with much more affordable options. I posted classified ads (“We Buy Homes!”) and tried to follow the guidelines from the infomercials. I joined an investment club and started getting calls and e-mails for discounted homes to buy.
Many of the homes were really cheap, some to the tune of $50K. The problem was to what to do with them after purchase. Most people didn’t want to live in them as they were in “war zones”. I’ve never been a gun guy, but visiting some of these homes made me think hard about my self-protection stance. I didn’t feel overly safe at many of them and replacing broken windows constantly didn’t seem economically savvy. So I, and others, passed on buying many of these homes (laughable now, right?) and they languished on the market for months and years.
One day, I visited one of these types of homes and was not really interested. The seller said she was negotiable on price, but I liked being alive and really didn’t want to be involved. Plus, she said she needed to close really quickly and needed cash, and I didn’t have a ton of cash on hand. I figured I’d ask what she was looking for before declining.
$8K.
Well $8K was in my wheelhouse. I wrote up the contract and asked the closing attorney if he would take one of my Visa checks that came in the mail earlier that week from my credit card company. No problem!
Did I want this house? Not really. It came with issues. I had to sink another $20K into it just to make it habitable for a rental. And the area wasn’t great. But $8K? Come on! I had to do it.
I learned that every asset had a price.
I got a call recently from a prospective client who asked me if her home had a realistic chance of renting. It was in a desirable area and she lived there currently, but the kitchen wasn’t redone and it had an older layout. Did she need to sink $50K-$100K into it before it could go to market?
The answer, without even looking at it, was “yes” and “no”. The real question was how much she wanted to rent it out for. Would it rent for as much as the remodeled home down the street if it wasn’t renovated? Probably not. But depending on the rental price, someone would gladly take it. There are 66 people on average moving to Charlotte every day who need a place to live!
Real estate, like anything, is a value proposition that has a suitable price. A rental house priced at $3K/month may sit, but at $2K it may fly off the market. Value is what matters. Top conditioned homes will rent out the highest, while homes in poorer condition will rent out for less. The market is relatively efficient.
Happy Landlording!
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Who CARES About Getting a Good Tenant?
“…what we do in life… echoes in eternity.”
(Maximus (Russell Crowe) in Gladiator)
It’s been an unsettling time to be in the rental home game for the past year and a half.
Many people (including tenants) lost their jobs or had their incomes affected negatively. This made many tenants late on rent and on the verge of eviction. To stop this, politicians signed the CARES Act (which included an eviction moratorium) which has made it hard (and in some cases, illegal) to evict non-paying tenants. Without rent, landlords are forced to make payments themselves which has put them in a cash-crunch. It’s been a tough season for all involved.
No one likes evictions. Tenants, landlords, politicians, property managers- it’s failure on some level. But in the world we live in, someone has to pay and be paid for services to continue; we don’t live in utopia. So as eviction court cases pile up at the court house (evictions can be filed, just not judged and acted upon) and rent balances swell, what can be done at this point?
The CARES Act also has provided states with billions of dollars in rental assistance. This means that tenants can apply and get free rent and utility money. We’ve had tenants get up to 6 months in funds that was sent to us directly to cover past due and future rents. All the tenants needed to do was to call 211 in the Charlotte-area to be directed to the best resource based on their situation. It seems relatively simple, though with most massive programs, there were hiccups. But we’ve seen it work.
However, we also have tenants who choose not to avail themselves of these programs for whatever reason. They might not trust the government, are confused by the information asked for, or just don’t want to do the legwork needed to secure the assistance. The situation can seem hopeless and they may feel they might as well ride the process out as the media and politicians give messages that evictions will be blocked indefinitely. They might as well save (or spend) their money now and worry about their housing situation later when they are forced to.
Landlords do not want to be in a position hoping that third parties will “do the right thing” someday, while they are left holding things together on the back end.
Going forward, that has placed a greater premium on tenant screening. The bar keeps moving as we’ve never experienced a pandemic before which had whole industries in the economy largely shut down. This has affected credit scores, bad debt, and recorded evictions from normally reliable people. So what we see on paper (through credit, criminal, income, and landlord screenings) might not be indicative of future performance.
The important thing to remember is that whoever is placed into a rental house now is with you for the foreseeable future. When the eviction moratorium is lifted, there is going to be a huge backlog of cases. Getting an eviction tried and acted upon may take a really long time. Securing the right tenants takes on an added degree of importance because they will be with you for a while.
I’d proceed with placing new tenants very methodically. It might not be a good time to cut corners (“Half the security deposit? Sure, we’ll take that.”) or roll the dice on ambiguous applications for a quick tenant placement. A bad decision can last a long time and be very costly in this environment.
It is imperative to really CARE about getting a good tenant presently. Get all the information, take your time, and make an educated determination. It’s more important now than ever- tenant decisions made today can reverberate for a long time.
Happy Landlording!
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Competition is for Sissies: Buy Straw Hats in Uptown Charlotte
“Buy straw hats in the winter because summer will surely come.”
Bernard Baruch
The competition for Charlotte-area homes is relentless from the buy-side. One local statistic really drives home the point: there is currently an 18-day supply of homes for sale (and 120-days worth is considered a healthy market)! That’s badly seller-skewed.
And I saw a Linked-In post last week from a member of our local Realtor Association, Jonathan Osman:
There are now more than 13,788 Realtor members in our local association of Realtors… and only 1,633 homes for sale in a 7-county region surrounding Charlotte. Happy Monday everybody!
That’s a lot of agents and buyers fighting over a few pieces of cheese. And that doesn’t even factor in the i-buyers like Zillow, OpenDoor, and real estate investment hedge funds that have non-licensed agents scouring the market for unlisted homes to buy. If they are not consistently buying a large quantity of homes, they are not doing their jobs. Supply versus demand is in full effect- Prices continue to climb! 20-30 offers per listing coming in fighting for attention! Competition is fierce!
But there seems to be a bastion of discounted properties located right in the heart of Charlotte in the 28202 zip code that sit undisturbed- Uptown condos! They’re nicely adorned living spaces located in beautiful, tall buildings in what was considered prime real estate. And no one seems to have any interest in them as prices drop. OpenDoor has no current interest and Zillow’s instant offer is at a steep discount to market price.
So why is this packet of Charlotte real estate getting the cold shoulder? I can foster a few guesses:
- “It’s the pandemic, stupid! Everyone is “Zooming” from home and Uptown (and downtown areas in cities everywhere) are obsolete now. Who wants to live in the City when you can be in your PJ’s in the ’burbs?”
Rebuttal:
- The suburbs (and home) can enjoy their time in the sun. Cities are still cool and have lots to do. Companies still value in-person collaboration.
- Huge organizations (Bank of America, Wells Fargo, Duke Energy, Carolina Panthers, etc.) don’t have billions of dollars in leases and real estate office holdings that are going to sit empty one more minute than they have to. When things are thought to be feasibly safe, doors are opening.
- Here’s the path to never getting promoted at work: when the Uptown office opens up and the option comes to work from home or go in, take the home option and continue to work by video. All top leadership will be required to be in the office, so your co-workers will enjoy lunching and working closely with the decision-makers in-person. I wonder who gets promoted… The person who they laugh with at the water cooler or the person they have to sit through yet another Zoom call with to see and never seems to be around? Hmmm…
- It’s tougher to cash flow condos with high monthly HOA fees and, to boot, rents seem to be lower.
Rebuttal:
- True that on the HOA fees to a point. Just keep in mind a few expenses that HOA fees save owners from paying: buying a new roof, monthly insurance, exterior house maintenance, pest issues, water/sewer bills (when vacant), and the threat of vandalism. The actual hit is lighter than it seems.
- Rents are lower because the demand is not there right now to live in Uptown Charlotte with offices largely closed. But that’s why investors buy those straw hats in the winter!
- There are a lot of Uptown condos for rent. There have not been any new Uptown condo buildings built in over a decade, but many apartment buildings have been. That’s a lot of rental competition!
Rebuttal:
- But the rental price points on the newer apartments are higher (and need to be due to higher land/construction costs when they were built and investment cash flow required for the financial institutions who own the buildings).
- The newness factor has largely worn off and now the older units for rent are on largely equal footing (most with better locations)
- There are not many Uptown units that can actually be owned. To your point, no condo buildings for private owners have been built for over a decade. At some point as renters come back to Uptown, they will want to be owners and have limited supply to choose from.
Competition is for sissies! Investors may want to buy the unpopular Uptown condos now and then wait to reap the benefits in the summer when straw hats are back in vogue.
Happy Landlording!
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Noah’s Ark & Real Estate Investing: Can You Persevere?
Noah’s ark is a crazy story. God tells Noah, some ordinary guy, that He is heartbroken with how sinful mankind has become and is going to flood the Earth and start again. He tells Noah that he is going to spare him, his family, and all the animals if he builds an ark. Noah takes God at His word and builds the ark, gathers the animals and provisions, and loads the ark up.
Everyone knows it rained for 40 days and 40 nights, but Noah and his crew were safe because they were floating on top of this massive amount of water. The lesser talked about part of this story is that they did not walk out of the ark on Day 41 ready to repopulate the Earth; there was way too much standing water (they were floating above mountains, for goodness sake!). They were actually stuck on the ark for over a year before it was sufficiently dry enough to get out on land and walk around.
The children’s Bible I was reading my son surmised that it wasn’t boring because they had so much to do. They had daily routines to feed and care for all the animals, put out fires (so to speak), and take care of themselves and the ark. Wash, rinse, repeat. If anything was neglected, there were problems. Survival for mankind and the animal kingdom was at stake and duties needed to be carried out diligently or there would be dire consequences. The carrot was that if they kept to the plan, they would be free of the confines of the ark at some point and the whole beautiful world would be waiting for them to enjoy.
It reminded me of real estate investing.
Like the ark, rental homes require constant diligence. They need to be fixed up, repaired, and maintained. Tenants need to be acquired, serviced, and replaced. The mortgage, insurance, and taxes need to be paid. The HOA and government entities need to be catered to. These duties need daily attention; if they are neglected, the financial boat can start taking on water and sinking can become a real possibility.
The carrot of real estate investing is owning the property someday. As it rains (roof needs replacing, tenant evictions, tenants not paying because of a pandemic), it seems like that day is far off. Sometimes it seems like it would be better to abandon the ark and swim without it.
But persevering and waiting for the ark door to finally open to dry land has its benefits. Free cash flow, a higher net worth, and assets that can be liquidated for college tuition or passed on to children are great financial prizes.
But tending the smelly animals is a pain day-after-day (ever try to pick up after 1,000’s of animals?). The lightning is scary. The boat rocks a lot and causes sleepless nights and sea sickness. Some boards on the ark look like they are breaking down. Drowning is a real possibility. Why did I get on this thing to begin with? My friends who stayed behind at least seemed merry before the torrential downpour.
However, amidst the doubts and setbacks… there is belief that one day in the future the sun will come out, the water will recede, and the dove will return with a leaf clenched firmly in its beak. The remaining mortgage payments will be made, the appraised home value will be high, and the financial statement will be solid. Landfall will make it all worth it.
Noah persevered and he and his family were rewarded. Hang in there!
Happy Landlording!
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