If you can avoid remote landlording, avoid it

A lot of people complain that they can’t find good deal in local market, they need to go to cheap markets to find deals. I say these people may not have been diligent enough. In any market, there are deals. But you have to spend time to find them. When market is bad like today, it should not be very hard to find relative deals.

There are no real value created from housing

when it comes to investment, the size of the house, the luxury level and whether or not your family would live in them in the future will become less important. The most important factors become 1) cash flow 2) holding risks 3) rentability. You want to find the property that can give you cash flow easier, lower price can reduce your holding risks because lower priced homes tend to drop less. Also, lower priced home is easier to be rented out and maintenance cost is also less. Don’t confuse self-live-in house to investment house, different concept, different strategy.

If you have been buying properties which maintains good cash flow, why do you want to deleverage? Like me, I own properties in the slightly below median price range, easy to rent out and maintain cash flow.

Unless you bought expensive houses that can’t allow you to make cash flow even, then, you may be in trouble. If everybody followed my guide line, buy median to lower priced property in easy to rent locations, then, you only need to increase leverage to repeat the success formula. Why deleverage? People deleverage because they made investment mistakes, not necessarily because the market is bad. Even if RE investment is a great long term investment concept, when someone is not experienced, they either bought too expensive, fails to calculate the cash flow, then a good concept can end up costing the inexperienced investor big trouble.

In most economically healthy location such as Northern CA, NYC, DC metro, LA, prices will drop, but it will not drop to the level 5 years ago. Some of the price gain during the past 5 years are permanent. Yes, if economy gets worse, people’s income may temporarily get less, reducing their buying and leveraging power. It has been a repeat historical phenominon that when price sunk to the lowest level, people did not buy en masse. They were either too pessimistic or too financially constrained to buy. Both psychologically and physically, they were deprived of their best chance to buy. That’s why people often buy rising market, but they don’t buy falling or stagnating market. History has shown that time and time again.

From this document, I don’t get any sense that the future of Texas situation will change significantly. The pro-growth government policy will remain, which is friendly to builders by issuing enough building permits to satisfy builders. However, this will suppress the price increase because price can only increase when supply is limited, not the case in Texas.

Texas is a great state for home building business because it won’t take 10 years to get final permits from county’s planning board like in many other states. Despite the lower price in Texas, builders can still extract huge profit because they can build as many as they want and all that profits add up.