In my neighborhood in Denver we have the most properties on the market that I've seen in the last decade. Frankly, we still have original homeowners from the build in the 90's who are dying off. So they are properties ripe for redevelopment. The question is what price will the family members take in the sale?
When I bought the property back in 2008, it was right before the great recession. So property values dropped 10%. But then appreciation kicked in and the value has doubled since. So a 5% dip isn't the end of the world, which is what is happening right now.
Love your take. I was in the construction business until 2006 when it became so frothy here in Georgia I jumped ship in to my real love of bird dogs. I personally believe we need another great land recession to get prices down. I know it will be painful for many people but over priced homes and land are a serious problem here in Georgia. A starter home for $400k is stupid bad for young people. In our county (Monroe) they sent out property tax notices for due December 2025 and they were up 30%. So much backlash came from the residents within a week they pushed it out for review until 2026. The COVID side effects never seem to quit giving!
The other issue for owners is the local appraisal districts using their own out of reason appraisals for comps to justify raising your appraisal. It’s a self serving circular logic when you go before tree review board. The board refuses to accept your comps for adjacent properties that are lower than their comps, it is organized crime!
That looks like a hard way to make not very much money with a lot of capital tied up. Real return on equity also should take into account how much time you will spend managing a pool of rental properties or how much it would cost you to pay a management company to do a horrible job (which they all do). Suddenly, you own multiple properties, have multiple tenants (and demanding ones in high end properties, with costs to match). Have you spoken to any landlords that aren't institutions?
I’d push back a little- I think the development arb pencils to 20%. The pre development cap rate would be 7.5-8% and I’m using it in place of my existing treasury exposure which has been 90% of my liquid for the last 2 years. I still believe go forward equity returns look like 4-7% with a 20-30% correction coming for sometime … so even risked 50% … I think I make 10% unlevered. I think the downside is still a 3-5% gain? I won’t pay a management company although for long term rentals the fee is about 8% of rent plus 1/2 month placement. Could be worse as a hedge of timing to get to when it is sold? Push back where you see fit.
My push back would be, do you want to run a property rental business - with all that it entails. The return might look better on paper, but it's a lot more work than parking your cash in Tbills. Again, if you haven't already, I would talk with someone who does it (not even who has done it, because the past was not the same) and see whether your have covered everything. It's a people business.
In my neighborhood in Denver we have the most properties on the market that I've seen in the last decade. Frankly, we still have original homeowners from the build in the 90's who are dying off. So they are properties ripe for redevelopment. The question is what price will the family members take in the sale?
When I bought the property back in 2008, it was right before the great recession. So property values dropped 10%. But then appreciation kicked in and the value has doubled since. So a 5% dip isn't the end of the world, which is what is happening right now.
Its an interesting time.
Love your take. I was in the construction business until 2006 when it became so frothy here in Georgia I jumped ship in to my real love of bird dogs. I personally believe we need another great land recession to get prices down. I know it will be painful for many people but over priced homes and land are a serious problem here in Georgia. A starter home for $400k is stupid bad for young people. In our county (Monroe) they sent out property tax notices for due December 2025 and they were up 30%. So much backlash came from the residents within a week they pushed it out for review until 2026. The COVID side effects never seem to quit giving!
The other issue for owners is the local appraisal districts using their own out of reason appraisals for comps to justify raising your appraisal. It’s a self serving circular logic when you go before tree review board. The board refuses to accept your comps for adjacent properties that are lower than their comps, it is organized crime!
That looks like a hard way to make not very much money with a lot of capital tied up. Real return on equity also should take into account how much time you will spend managing a pool of rental properties or how much it would cost you to pay a management company to do a horrible job (which they all do). Suddenly, you own multiple properties, have multiple tenants (and demanding ones in high end properties, with costs to match). Have you spoken to any landlords that aren't institutions?
I’d push back a little- I think the development arb pencils to 20%. The pre development cap rate would be 7.5-8% and I’m using it in place of my existing treasury exposure which has been 90% of my liquid for the last 2 years. I still believe go forward equity returns look like 4-7% with a 20-30% correction coming for sometime … so even risked 50% … I think I make 10% unlevered. I think the downside is still a 3-5% gain? I won’t pay a management company although for long term rentals the fee is about 8% of rent plus 1/2 month placement. Could be worse as a hedge of timing to get to when it is sold? Push back where you see fit.
My push back would be, do you want to run a property rental business - with all that it entails. The return might look better on paper, but it's a lot more work than parking your cash in Tbills. Again, if you haven't already, I would talk with someone who does it (not even who has done it, because the past was not the same) and see whether your have covered everything. It's a people business.