Today's Milestones to Millionaire podcast

[White.Beard.Doc]

So let's say hypothetically, there is a significant rise in interest rates and a melt down in real estate prices. Market prices drop 30% and Elaine's net worth goes from 7.5MM 1 year out of residency, to a negative 2MM. What would that look like?

In my view, she would not be wiped out. Perhaps her annual positive free cash flow on her RE portfolio drops from 500k to 250k. The loans on real estate, unlike loans with stock investments as collateral, do not get called. She keeps paying her mortgage loan payments, and she hunkers down and lives on 20k per month of non-taxable income (due to RE write offs) and the market recovers over the ensuing years. I think that is likely her worst case scenario and I don't think she would go bankrupt, given that all of the RE she owns is high quality and would likely still have decent performance even in a very down market.

[krusebear]

Part of the game is managing downside risk. I don’t think the downside risk scenario is acceptable in this situation.

[Zaphod]

So let's say hypothetically, there is a significant rise in interest rates and a melt down in real estate prices. Market prices drop 30% and Elaine's net worth goes from 7.5MM 1 year out of residency, to a negative 2MM. What would that look like?

In my view, she would not be wiped out. Perhaps her annual positive free cash flow on her RE portfolio drops from 500k to 250k. The loans on real estate, unlike loans with stock investments as collateral, do not get called. She keeps paying her mortgage loan payments, and she hunkers down and lives on 20k per month of non-taxable income (due to RE write offs) and the market recovers over the ensuing years. I think that is likely her worst case scenario and I don't think she would go bankrupt, given that all of the RE she owns is high quality and would likely still have decent performance even in a very down market.

People get this part of real estate very confused for some reason, and somehow apply it to their personal residence as if its a normal or likely thing to happen. If you make payments, it just doesnt, its not a comparable form of leverage and shouldnt be treated as such.

[Shant]

People still need places to live in a downturn. They may not be able to pay you for those places to live though and evictions may not be permitted. I also doubt my own ability to locate and purchase high quality places.

[TXDoc21]

I plan to enter the real estate rental market for diversification reasons. I just invest in reits for now. That is impressive what she has done.

[The White Coat Investor]

Is there a transcript or a cliff notes version of this podcast?

No, we only do them for the regular (Thursday) podcast, not the Milestones (Monday) podcast. Sorry! It's actually a fair amount of work to make great podcast notes. Three staff members work on them.

The cliffnotes version is a doc got into real estate investing and went all in with heavy leverage and has done very well.