1) Massive overbidding has returned. After a quiet 2018, real estate overbidding has returned in San Francisco. Check out this 1,450 sqft, 2 bedroom, 1.25 bath, fixer in a middle-class neighborhood that was listed for $995,000.
It went for a whopping $540,000 or 54% over asking! The final sale price was even 15% higher than Redfin's reasonable estimate. As a result, the entire neighborhood sees a massive jump in home values.
There is an arbitrage opportunity to buy coastal city real estate at the moment since the S&P 500 is back to near all-time highs. Real estate tends to lag the stock market by 4-8 months. But that opportunity is closing quickly.
2) Financial blind spot with tech IPO mania. I'm estimating there's only about a 30% chance tech IPOs will cause a slumbering supply bear to wake up and flood the market. I just want to warn home buyers not to lose their minds when leveraging up to buy a risk asset.
But one thing I didn't really account for is how much new capital these tech IPOs are raising. For example, even though Pinterest lost $63 million in 2018 on $756 million in revenue, it raised around $1.4 billion from its IPO. In other words, even if Pinterest made no financial progress, the company could last for another 22 years before it will likely have to shut down.
Therefore, not only does an IPO make liquid thousands of employees looking to buy real estate and other assets, it also serves to extend the existence of these companies for years to come. New outside capital will lead to more capex and more hiring. Party on.
3) Can't find my Ferrari. Readers keep telling me I grew up rich because I had two working parents who had jobs at the U.S. State Department. Go USA! They pointed out that because I got to ride a bike to school versus walk and went to William & Mary, I was quite privileged.
Given the feedback, I asked my dad whether he was hiding a Ferrari somewhere I wasn't aware of all these years. He said, "nope." Then I asked him if he set up a trust fund I could tap when I hit 45. It sure would come in handy with all these kid expenses nowadays. He said, "nope" again.
So then I got to thinking, maybe my parents are really grandmaster stealth wealth practitioners. Even after more than four decades, they are still able to keep their true wealth hidden from me.
One thought led to another and I came up with a stealth wealth solution for real estate investors with kids. Your primary residence is your biggest giveaway to your kids whether you're rich or not. And none of us want to raise spoiled deadbeats.
4) No bet, no win. Did you hear about the 39-year-old fella who won $1.25 million on Tiger to win the Masters? Sounds like a great win right? The thing is, he had to risk $85,000! Betting $85,000 is nuts on 14-1 odds. Maybe if I was drunk in Vegas, I'd plop down $1,000. But to bet $85,000, I would have to be worth at least $100 million.
Regardless of what you think of James' win, he reminds us that if we never take any risks, we'll never be rewarded with outsized gains. If you're dissatisfied with your life, you're probably not doing anything beyond the ordinary to change. There's no use railing about someone else's good fortune