When Will Appreciation Stop | HTH023 | 573

When Will Appreciation Stop | HTH023 | 573

Today we are telling you how to take advantage of appreciation by making it a part of your business strategy instead of betting on it and losing everything, just like many did during the last financial crisis. Stay tuned and learn why appreciation should not be your strategy, how supply and demand influence it, and when it is going to stop.

What You Will Learn About When Will Appreciation Stop | HTH023:

  • Why appreciation should not be your strategy
  • How the financial crisis affected the real estate business in Florida
  • How supply influences appreciation
  • Why demand for housing is only going to grow
  • How the metropolitan areas’ policies make real estate more valuable
  • When appreciation is going to stop

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Speaker 1: This is Theriault Media.

Don’t wait for appreciation to buy real estate. Buy for cash flow and wait. In other words: Hold That House!

Your host Matt Andrews and Matt Theriault.

Matt Theriault: [inaudible 00:00:19] flipping houses can make you rich. Holding them will make your wealthy. This is the ‘Hold That House Show’. I am Matt Theriault, and over there is Matt Andrews.

Matt Andrews: Wendy, I can fly.

Matt Theriault: And before we begin we’ve got a free gift for you. Go to holdthathouse.com and download The 4-Hour Work Month, none of that 4-Hour Work Week stuff. No, 4-Hour Work Month.

Matt Andrews: Way too much.

Matt Theriault: Right? The 10 Commandments to Managing Property Managers, the key ingredient to financial independence through real estate, that they’re not telling you about. And you can get that for free at holdthathouse.com.

All right, another episode recording live from Tampa Bay, muggy Florida.

Matt Andrews: Live on location. It looks pretty from here though right? You don’t know how hot it is outside from the window.

Matt Theriault: It’s dripping from the car to the …

Matt Andrews: 95 degrees with 95% humidity out there.

Matt Theriault: Exactly. I love it.

Matt Andrews: [inaudible 00:01:11] at the beach. Let’s do the next one from the beach.

Matt Theriault: We’ll do the next one from the beach.

Matt Andrews: All right, cool.

Matt Theriault: Perfect, all right so today we’re going to talk about something that we don’t talk about very often, because I think with Matt Andrews strategy and my strategy, we’re both very much income investors. We’re both very much cash flow investors, but properties do appreciate. And we see that as more icing on the cake. At least I do. I mean I’m not a speculator. I don’t look for markets that are going to appreciate, and bank on that. I really want to make sure I have the income, and then if appreciation comes, cool. All the better. But if appreciation doesn’t come, I’m still fine.

Matt Theriault: And even if the market drops, I’m still fine. That’s my perspective on appreciation.

Matt Andrews: Well, and you know that people are always going to need a place to live. Renters are always going to rent. Those prices might fluctuate a little bit, but not like values are going to fluctuate up and down.

So, if we’re depending on stability, and long-term, yeah, we’re going to get some appreciation. You and I hold a lot of properties. We’re going to hold them for a lot longer. We’re going to get some appreciation, but we don’t go into them with that being the strategy.

Like you said, “It’s gravy baby. It’s gravy.”

Matt Theriault: But you see we’re not naïve, we know appreciation will happen. It always happens. Is it going to happen forever? As long as I’m alive I know it is. With the resounding yes, I know it’s going to happen.

Matt Andrews: And where people get caught a lot too, and we saw this a lot in 2007/2008 when everybody got caught in Florida. I mean, you look right out here … you can see from that window that you’re looking out right now Matt … you can see condos that were built and overbuilt in Tampa. A lot of those condos … I knew people that had 10/20 of those at a time, because we were in this crazy appreciation market through 04/05/06 and the problem there was, they thought that kind of appreciation was going to last forever; and so they were buying stuff for a 100,000, waiting six months and selling her for 15,000. Because it was crazy. And they were able to do that … now we know what happened, right? We know the story.

Matt Theriault: Those right there? Those that we can see right there?

Matt Andrews: Yeah, the ones out here. These over here. Yeah, absolutely. And those and millions more just like it, literally. All through Florida, because we just turned every apartment into condos. We sold them all. Everyone bought four, to stick in their back pocket and no one knew what they were doing and it was appreciating so much a year I forget what the rates were at the time. It was obscene how quickly it was rising. The loans were flowing. There was no dock, everything. And so people were buying like crazy, and I literally had some friends that were holding 10 of those.

Matt Andrews: One individual, just a friend of mine, had 10 of those when overnight in 2008, they went from a value of 300,000 down to 175. Almost in a period of a week or two. So appreciation, long-term and true wealth building: Yeah, we’re going to get appreciation. But going into a strategy like that, like-

Matt Theriault: That’s what we’re going to talk about.

Matt Andrews: … my friend did then, and some kind of weird aberration of a crazy market. That’s not why you go into that stuff.

Now, I guarantee you, had his numbers been right on the rental side; had he been going into it as a rental investment and they provided 10%: When that market tanked, whatever things were renting for a $1,000 a month, they were only renting now for maybe like $900 a month. That’s still cash flow. You know? He didn’t have that into his strategy at all.

So, at that same time, not because I was a genius but I was buying cash flow single-family homes. And then when the market tanked, those home all took a hit. They were worth way less than they were just a few months before that, but my rents barely changed. Because in that time, rentals became even more valuable, because people needed places to live as they were getting kicked out of their homes and stuff like that.

Matt Andrews: So, again, betting on cashflow: You can’t lose.

Speaker 1: Please standby. We’ve got overhead to pay. We’ll be right back.

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Matt Theriault: You’re a little bit of a genius Matt.

Matt Andrews: No, no.

Matt Theriault: Don’t sell yourself so short.

Matt Andrews: My wife is a genius. I’ll take credit for that.

Matt Theriault: I have one of those too.

Matt Andrews: I married well. We’ll put it that way. Yeah, you do. You do have one of those. Absolutely.

Matt Theriault: We definitely worked that one right. I love it.

Matt Andrews: Yeah, this is a great topic.

Matt Theriault: She continues to appreciate.

Matt Andrews: That’s for sure.

Matt Theriault: For sure.

Matt Andrews: That’s one appreciation you can count on right there.

Matt Theriault: So, when we talk about appreciation, we’re not really speaking of the peaks and valleys. The peaks and valleys are going to happen. It’s going to be a bumpy road. But over time, absolutely real estate will continue to appreciate, and there’s a couple of reasons why. Well actually one main reason why, and that’s just the concept of supply and demand.

So, let’s talk about the supply. The famous Will Rogers quote: “Buy real estate, they’re not making any more damn the stuff.”

Something like that.

Matt Andrews: Exactly. Yeah.

Matt Theriault: I think it’s a little more crass than that, but you get the picture.

Matt Andrews: Will Rogers was awesome. They’re not making any … Yeah, something like that. Yeah.

Matt Theriault: Exactly. Except that one foot, each year in Hawaii, from the lava flow.

Matt Andrews: What?

Matt Theriault: Yeah. That’s how they make more land out there in Hawaii.

Matt Andrews: Oh, that’s how they make it out there. I got you.

Matt Theriault: That’s how they make more land.

Matt Andrews: Yeah, absolutely.

Matt Theriault: That was a joke.

Matt Andrews: I walked on some … but I tried to build a house out there, it didn’t work. It slid into the ocean. So …

No, I got it. Now, I got it. I’m slow.

Matt Theriault: Are you with me now?

Matt Andrews: I’m slow today. But I got you, yeah.

Matt Theriault: Okay. God, that was a good one wasted.

Matt Andrews: So, we’ve established that they’re not making any more real estate.

Matt Theriault: Not yet.

Matt Andrews: Except for Hawaii.

Matt Theriault: Right. And then we’ll talk about the … if you take out all of the undeveloped lands that are owned by the state and the federal government, and you focus just on privately owned land, it’s very minimal actually. There’s not a lot of it.

Matt Andrews: Sure.

Matt Theriault: When you consider … when we talk about the next part of that equation, is the demand. So, we’ll talk about this, we kid about it recently a lot. You know, until a roof goes out of trend, looks like we’re pretty safe.

And so that trend is not going anywhere. It’s not a trend. It’s one of the basic human need, and that’s something that we can invest on.

Matt Andrews: Sure. So the land is not increasing, but the need is the same or greater.

Matt Theriault: It’s constant. Right?

Matt Andrews: Yeah.

Matt Theriault: And it’s greater and it’s growing because the population is growing. And there’s a couple of different ways that you can look at that. Each generation is bigger than the previous. Does that make sense? Yeah.

So, each subsequent generation is getting bigger and bigger and bigger. I mean in 2007 there were more babies born in that year than any other year in history.

Matt Andrews: Wow!

Matt Theriault: Isn’t that amazing?

Matt Andrews: I didn’t hear that yeah.

Matt Theriault: So like right now … So they’re eight or nine years old. So in 10 years, they’ll be shopping for a house, so that’s something that you can absolutely gamble on. Or invest on.

Matt Andrews: And those are the kind of things that the big home builders, those are the kind of demographics and psychographics that they study, right?

Matt Theriault: And then if you take into consideration the immigration rate, the birth, and the death rate: I believe that we grow by three million a year.

Matt Andrews: Wow!

Matt Theriault: Let me see what that was. I had it right here. The population of the US increases by roughly three million people each year, both through immigration and a positive birth to death rate ratio.

Matt Andrews: Wow! Okay.

Matt Theriault: So, three million a year.

Matt Andrews: So real estate is safe.

Matt Theriault: Real estate is safe. The demand is going anywhere. Absolutely.

What else? Oh, and then the other part that kind of contributes to the supply, is all of the major metropolitan areas, are really trying to keep the expansion of those cities outwards, because it’s very expensive to go out and take your sewer out there and your electrical out there and all the plumbing-

Matt Andrews: Yeah, utilities and everything.

Matt Theriault: … And all the utilities and all that stuff.

So, they’re really focusing on infill, so they’re building up instead of out. Is the primary focus. And so that makes the real estate and the dirt even that much more valuable.

Matt Andrews: Because the more people building up there, the less infrastructure you actually need, which makes the city save millions and millions each year. Yep, that makes sense.

Matt Theriault: Right, but then if you had a 10-story building, you got 10 units sitting on one parcel of land. But if you actually own the real estate, then all of a sudden, if you times your value by 10 because you’ve got 10 people on top of it.

Matt Andrews: Sure.

Matt Theriault: That’s a good way to go.

Matt Andrews: Yeah, absolutely.

Matt Theriault: Matter of fact, I just gave me an idea.

Matt Andrews: Yeah, well it’s like, what I used to do when I first started my business, we would find certain places that we could turn into multi-units sometimes too. And I don’t do that a ton anymore, but early 2000’s in Tampa, there were a lot of homes that were big enough to turn into two or three apartments and you could do that pretty easily if you chose the right kinds of parcels and knew how to work with the city to do that, and you made more out of it than what it was.

Matt Andrews: So, putting one unit or 10 units, you know, it’s the same thing and so it’s in the city’s interest to do that and it makes sense.

Matt Theriault: So, when is appreciation going to stop?

Matt Andrews: Great question. What time is right now? What time is it today?

Matt Theriault: Let’s see, it’s 10 AM.

Matt Andrews: 10 AM?

Matt Theriault: Yeah, yeah.

Matt Andrews: Okay. 10 AM. Well, not today for sure.

Matt Theriault: Not today for sure.

Matt Andrews: Yeah.

Matt Theriault: Not in my lifetime, right?

Matt Andrews: I don’t think so.

Matt Theriault: If you can hear our voice right now, at the time that this is recorded, I would say not in your lifetime either.

Matt Andrews: It hasn’t yet. Since we’ve had records. Right? And even pre-actual property records, we have examples of land increasing, from King Solomon till now, we see that. It’s never changed. I don’t think it’s ever going to change. So, what else can you say that about?

Matt Theriault: Right.

So, buy for cash flow is number one. And expect appreciation. Maybe it’s going to happen in six months. Maybe it’s six years. Maybe it’s 60 years. But who cares? You’re buying for cash flow anyway.

Matt Andrews: Exactly.

Matt Theriault: Right? And that would bring us to our next subject, what we’ll talk about next week: When to sell? When is the right time to sell?

Matt Andrews: Sure.

Matt Theriault: When do you know that … you want to time the bow of the peaks and valleys, or when do you want to upgrade, or when do you want to cash out? When is the right time to sell? We’ll talk about that next week.

Matt Andrews: You know you want to buy. You know you want to hold, but when is that next step, right?

Matt Theriault: Right.

Matt Andrews: Sounds good to me man.

Matt Theriault: Super. Well, that’s it for today. Flipping houses can make you rich. Holding them will make you wealthy. We’ll be back next week until then, remember: Don’t wait to buy real estate. Buy real estate and wait.

Speaker 1: Hold that house!

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