Red Lion

SD Half of my real estate investments by value and all of my debt are in Maui which obviously has some of the same characteristics as your London investment re: a play on 1%. Also very high replacement cost especially with demand surge from the fires. As far as millennials, I think they all want to buy and mostly can’t qualify. It seems like they were buying a relatively outsized percent of the overall volume over the last couple years and now that rates are higher they’re buying a far lower percentage of the overall volume. My deduction is that millennials want to buy but can’t qualify for anything at these rates. The ones who can are relocating to the same cheaper states where new construction is barely more expensive than existing housing stock. For example I think Huntsville Alabama is interesting. They have a great median household income. Super low property taxes. Fantastic employment/tech scene. Investor friendly laws. But you can also build a brand new house for basically the same cost as the existing stock. It’s definitely more affordable, tons of demand drivers, but also all the supply in the world.

I think you’re right about replacement cost not protecting downside at least in the short term, but it keeps supply limited and I think still makes the setup favorable once interest rates normalize, or gdp/rent normalize to the upside. I think value add is 100% the way to go. I also see that there’s a ton of apartments being constructed, but I wonder how much demand there will be for apartment living versus sfh. The new construction apartments in my area rent for similar amounts to sfh which doesn’t seem sustainable, but maybe other people are way more into that than I am. In the early 80s I know housing wasn’t very affordable, but it’s been a home run since, just due to falling interest rates. I’m just a lowly amateur, but it doesn’t seem like interest rates can possibly get as high as before due to the much higher levels of government/business/household debt. And if they did, wouldn’t the interest on government debt create its own inflation since it’s just going to result in further deficit spending? I’m protecting my downside by taking low leverage, value add, supply constrained markets wirh demand drivers and real estate at a healthy discount to replacement cost. I think short term bonds or longer duration tips could be a good alternative right now, but I feel like equities have just as much or more risk than residential real estate and have acted accordingly in my portfolio allocation. I’ve been thinking I’d trying to get into the credit side on some private real estate deals. Hard money lending or something. But it’s very tax inefficient, and I feel like you really would want to setup a c corp in a tax friendly state to get started. I’ve been seriously considering it.

I’ve been thinking about this a lot, and I’ve bought over $2 million of real estate this year which is a significant chunk of my net worth. Most of these deals are value add, so obviously even if real estate crashes I’m happy to hold these. But I disagree that real estate is a bad play just because we have unsustainable 8% mortgages. There’s a huge difference between today and the 1970s and 1980s, and that’s that the cost of replacement is far more. For example it costs the median household income of about 10 years to build a meh new construction house in my California city, and it’s not even one of the crazy expensive cities. I just saw a statistic that in 2022 40% of homes bought by millennials. In 2023 the number was below 10%. This is where your interest rate unaffordability is going. It’s delaying demand from millennials and gen z buyers. I also read that for every 1% drop in mortgage rates there will be 3 million more eligible buyers to qualify. Either we continue to have higher inflation and rates, which will continue to increase replacement cost and exacerbate the shortage, or else we have recession, lower rates, and likely higher housing prices as a result. I’m not saying housing is a slam dunk, and obviously it’s not possible to do 75% ltv on a 4 cap rate at 8% mortgage, but it’s totally possibly at 30% ltv. I’m actually only at about 15-20% ltv and still looking for more properties. I think you’re almost certainly a smarter and better analyst than I am, so this gives me pause to take the opposite stance here, but I really do think 8% mortgages only last for a bit, and if not it’s because of a lot of inflationary pressures that have historically been good for housing.

Didn’t buffet also do comparative valuation? I remember him talking about workouts buying the best company in an industry at lower valuations and then shorting competitors. But then there was a comment about how just buying the lower priced industry leader at a lower valuation was all it took to be successful with no shorts or workouts needed. Maybe I’m crazy, I can’t remember for the life of me where or when I read this. Probably 15 years ago when I was doing my Buffett deep dive. Or maybe I’m mistaken and this wasn’t Buffett at all.

That’s pretty much what I’m thinking overall. Focusing on higher end real estate that’s still covering the piti so that dictates a lower ltv than higher cap rate properties.

I'm not a statistician but I wonder if average/median are the issues here? I hate to be a massive dick, but median only counts the 50th percentile, and let's face it, the top 10-20% count for the vast majority of the economy/spending/real estate/investments/etc. I don't think this is because we have a broken system, it's human nature. So I think that "median" worker has been getting worse off in America for decades. This is probably a function of the fact that well over half the population are kind of losers when it comes to finances. I suspect well over 90% of @thepupil's anecdotal connections fall in the top 10%, so I'm not really shocked.

Amen

I don’t understand all the macro ind and outs, but this is kind of what I meant. I don’t think anyone’s paying down the debt, but I think the goal is to grow gdp faster than the debt and deleverage that way (like we did after wwii).

I don’t think anyone plans on fiscal discipline. I think the plan is to shock the economy into a little recession and then use more qe to slowly inflate our way out of the debt. How else are we actually going to pay back the debt? Currently all the high wage earners in America are taxed excessively, you obviously aren’t going to raise tax dollars from the bottom 90% without widespread revolt. I guess there are billionaire estate tax loopholes or maybe some other tax opportunities, but nothing close to what we owe. At 100% of gdp it seems like rates have to go down at some point or else we inflate the gdp.

Right this makes sense. I’m not doubting you, I’ve actually been buying real estate lately and even took an 8% loan to buy one at 75% ltv. But I’m concerned about this very scenario. My investment properties purchased this year are only at about 21% ltv based purchase price and less based on current after repairs fair market value. My goal is to keep below 60 ltv so I’m able to refinance if rates and prices fall together.

Anecdotal, but I’ve heard from a friend who is an md at a local hospital that “all the doctors” are on mounjaro (personally) for weight loss. Clearly they don’t think they’re going to be dying of mounjaro overdoses. I also think it’s interesting because I never heard these sorts of things for the first gen glp drugs like victoza, Byeta, trulicity, etc.

It’s really tough to qualify right now though, agreed it won’t be fun, but presumably if you’re taking a mortgage right now I’m assuming you’re putting at least 20% down.

Fair enough. But I do think there are a lot of off label uses that are promising as well. Personally, as a type 2 diabetic that's not overweight but needs this to stay off insulin, I'd love it if the healthcare system would gatekeep a little bit better so I could regularly get my supply. I do think that they need to massively ramp up the supply of these meds though because there are clearly tons of people that need them that can't get them, and arguably a lot of people that could at least benefit from taking them that also can't get them.

How poetic, and untrue. bodies piling up because of people losing weight on Ozempic? Even though their blood pressure, lipid, and other health markets are rapidly improving? Come on this is absurd. Ozempic and mounjaro are absolute breakthrough treatments for type 2 diabetes, but also show huge promise in many other areas as well. Also, as someone who’s on mj, not taking it for weight loss, I’m literally not eating any less than normal, maybe because I’m not actually at an overweight weight I don’t know? Point is you clearly don’t know either do you?

Doubled my notional exposure to JOE with the august 24 $50 calls.

Another modest condo in Maui to be rented.

Honestly I just only see it at specialty stores with a big markup. My shopping options are limited. Costco is my lifeline.

@thepupil @fareastwarriors Thank you very much! I like to think of it as a TIPS with benefits.

Just closed on a Maui condo today. I have one more real estate deal in the works and just closed my last one late July, so I’m sorry to all those with real estate, it’s probably the top as I’m piling in.

How many of these such billionaires even exist? The Waltons, some middle eastern royalty, etc. It seems like a lot of the billionaires I can think of are self made anyway. Seems like it hardly makes sense passing a whole law that's wildly confiscatory in nature (99% inheritance tax) if it's only going to affect a few hundred people. And then of course, I wonder if those people will just renounce citizenship and move.

I wrote a bunch of puts on this name around this price around this time last year. I really like the assets here, and think it’s attractive around $120.

Costco has a 14 year Oban for about $65. It’s excellent, I need to buy more before it disappears.

I cashed all of mine out last month raising capital for real estate deals.

Fair enough that makes sense. I agree the multiple is quite high.

Can you help me understand this? It seems that if equity earnings grow 10% per annum and there's no multiple contraction, then you'd earn 10% + the dividend yield = 11.5% per annum return, how could a 5-7 year core bond fund with YTM in the 6s outperform that? I can certainly see bonds outperforming, but that would involve a multiple contraction or significantly lower earnings growth than 10% per year, both likely outcomes in my opinion.