49 Comments
Jul 5, 2022Liked by BowTied Bull

Not only that. They WERE SHORTING assets using users’ deposits as collateral. Double fuckery. Anyone can check their wallets and see for themselves.

Hint: it wasn’t BTC they were shorting, but a much more valuable asset. And try and pinpoint the start of their demise (quickly trying to cover their shorts) with a certain staking announcement. You will be surprised.

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author

Insane.

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If anyone wants to dig deeper into this, I suggest you check out this thread:

https://twitter.com/coryklippsten/status/1545190394207817728

The insane gall on these scammers.

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What's more valuable than Bitcoin?

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Once job layoffs begin to become more common, it's going to be over for a lot of people in regards to their housing. So many people are 100% leveraged. I just don't understand it. People that had no business spending in the last couple of years acquired vehicles at hugely inflated prices, new homes, etc. Economy is cyclical, how do individuals get caught in a mess when they already know what happens?

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author

You'd be surprised at how irresponsible people are. This side of the internet is very niche. Even more niche than FIRE since it takes effort and long-term planning to succeed

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HELOCS being pushed hard on the retail banking side. Banks desperate to get 1st or 2nd lien on homes. Also encouraging those who already have HELOCS to increase the credit line or offering a 1% apr if they start using the one they have

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Is 1% a standard teaser rate on HELOCs? That's incredible - I'd consider borrowing $10k and putting it into an iBond if I can get that.

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typically a teaser for 6-12 months

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Ah, makes sense. Thanks.

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founding

The math on the reduction on home prices makes sense.

I'm guessing some subset of those who bought homes at elevated prices will not be able to afford their mortgage (laid off, fired, etc).

So next logical step for them is to either sell the house at a loss--and lose any equity they gained--or do some form of strategic foreclosure.

What's the timeline for this de-leveraging where the lenders it seems will be bailed out while the borrowers hold the bags?

2008 crash suggested de-leveraging finished around 2012-2013. So 4-5 years. With all the money printing, does that increase the de-leveraging time?

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People seem to think they can just hold their home forever because they locked in 30y rates.

Lots of homeowners' equity is underwater, just because you aren't personally marking to market doesn't mean it isnt so. Like holding a low yield bond to maturity.

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author

Yeah this is why we're RE light and recommend only primary. Pretty hard to lose money over 20 years if you're only paying tax/insurance on your primary residence

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For buying primary residence in the near future, do you think better just wait until rate goes higher, and thus house price should be cheaper, assuming the same monthly payment? Or it just doesn't matter regarding timing?

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author

Same old what is your time horizon.

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Haven’t settled and found a home yet for the next 10 years so renting now.

Looking to buy my first home in the next 2-3Y ideally.

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Marry the property, date the rate. As inflationary pressures build, owning now will offset rates at a later date and you can refi to lower rates, while the home is an asset. Timing markets is never advised. Rental rates will not be coming down anytime soon.

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founding
Jul 5, 2022·edited Jul 5, 2022

I purchased my home 14 years ago, right before the last recession. Saw a 20% haircut over the next three years. In hindsight, the best thing that happened to me. My mortgage on my modest 4br starter home is 1/2 of the going rental rate for a 1br apartment.

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That's impressive! Did you put down a huge down payment? Or the cap rate was really high in your area?

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founding

I’d played by the old rules and put down 20%. Rents are now through the roof.

The blessing is that I exited the “moving up trap”. I learned I had more than enough space, lived in a nice enough area, and didn’t want to keep up with the Jones. I’ve put the money I could have spent on more housing to use in more productive aspects. I am by no means wealthy, but I won’t be struggling in my later years either.

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dont bother timing the market. like bull has been saying--if your current location timeline is 10+ years go ahead and buy

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SO GOOD. Thank you.

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Why would Celsius trust 3AC to give them a 12% return?

What could 3AC do that Celsius couldn't do themselves?

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No idea why anyone would trust another to run their DeFi when blue chips are offering 100% (Synthetix) APY and over that for v3 pool creators on Uniswap.

Don't want to do DeFi? 50/50 BTC/ETH.

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lol'ed at the tweet screenshot - literally got 3/3 a year ago

I am sure banks have measured risk correctly

Buy now pay later loans are marked AAA, while 54% of the consumers are confident they can pay the full amount at the end of the month

This will go well

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Which exchange do you use to buy btc every Friday BTB? I’d like to use that exchange myself if you’re willing to share

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founding

Good explanation and appreciate the example.

My takeaway is that those exchanges are glorified pyramid schemes funded by debt capital.

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Hey guys - curious for your take on my real estate plan given BTB’s bearish sentiment toward investment real estate.

Situation: recently sold a business, financially independent, primary residence paid off, cash stored in money market for the most part)...holding some crypto as well that I bought over a year ago that’s been cut in half or more. Employer will pay me post 1/1/23 for ongoing consultation.

Plan is to start some wi fi biz, publish, try and average 4-5% per year over the next 30 years on paper portfolio (trad stocks/index funds/etc), and to invest about $2M in short term vacation rentals near the Smoky Mountains. The national park is free - their visitors don’t seem to dip much during recessions, and while cabin rentals have lots of competition, if you do it well you should get lots of repeat vacationers. Plan on conservative down payment of 30-35% on rentals, so $2M should control $6-$7M. Hope to generate $600k once fully invested and maybe clear a six figs as passive real estate income.

How does this square with your thinking about the market at the moment?

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author

We don't recommend rentals and prefer WiFi money for anything and everything. If you're an expert on RE then sure we don't know much about that area.

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Thanks BTB. Appreciate the work.

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Jul 6, 2022·edited Jul 6, 2022

I think that counter-party risk is being severely underestimated in RE. We saw in the past few years, when the government literally canceled rent payments and evictions. They keep encroaching on RE with these marxist policies and show no intention of stopping.

I even saw a recent news article where a borough in L.A. literally confiscated the property from the owner to help "reduce rental burden in the community." Just unbelievable what's going on in the U.S. now.

So you really have to ask yourself will "law and order" continue to prevail in the upcoming decades? What happens when people realize that there are simply not enough sheriffs to evict everyone and people just stop paying rent?

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That’s a fair point Cheese. One of the reasons I’m ONLY looking at short term vacation rentals is to mitigate some of the long term rental risk you just cited.

Lot to think about. Best to have some dry powder if you can because there will be game changing opportunities in the next 3-9 months, probably.

And BTB is spot on about focusing on e-Com/Wi-Fi. For me it would be a both/and not an either/or...

Thanks to all for the interaction. Greatly appreciate your thoughts!

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Not BTB, so take everything with the appropriate grains of salt.

I enjoy the Smoky Mountains... lots of memories and good, clean fun. With that said, I think STRs are overdone in many, many geographies right now. I'm not sure about that area, but I'm not keen on current vacation-area valuations and I hate seasonality. In my neck of the woods, STRs always bear unnecessary regulatory risk from the local municipalities that try to squeeze out incremental revenue. Perhaps you can diversify away some geographic/regulatory risk, but once the good-idea fairy sprinkles magic dust on one local agency, it doesn't seem to take too long for other municipalities to execute a similar scheme to reduce your bottom line.

If you're looking to put that much cash to work, it may be worthwhile to try to find a co-sponsor as a GP and find LPs to do some capital raising for multifamily, industrial triple-net leaseback, etc. opportunities. Rents are still lagging home price appreciation, so you can still squeeze some blood from the operating income stone in some areas/classes of property. Triple-net leasebacks are interesting since you're limiting credit risk to the business that is divesting itself of the asset (which, in turn, you're going to lease back to them). Regulatory risk is still a thing depending on how silly the country gets with eviction laws or rent control, but I think you could find a red state to shelter you somewhat from that.

Beyond that, getting semi-active with the investment (i.e., looking to exit in the future while collecting cash flows and management/acquisition fees) may turn out to be more lucrative than the STR path.

I hope this at least gives you some food for thought -- good luck!

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Thanks Reformed! I’ll check into triple net leasebacks...I’m not familiar with them. Might be worth learning a bit about.

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If I bought a house in the past year at top price, my interest rate is 3% or less. If I'm a forced seller (aka have cut back on all discretionary spending, spent my savings, cant find a new job after being fired, etc etc), I will have to sell and buy a house 25% cheaper, which doesn't exist in most of the cities with the bigger jumps in home values in the country. Rents haven't risen as much as home values so there is a possible option to do that for some, but definitely not with no job and in the situation above. So, my question is, what does this person I described do?

If I bought 1 year+ ago, I have a lot of equity AND a cheap interest rate. The sharp increase in interest rates makes anybody with 50% less that much less likely to sell, and anybody who bought a few years ago has a ton of equity, also making they less likely to sell, which means the supply of homes being brought on the market remains very small. Yes, we're seeing some homes come to the market but the baseline for what is normal and needed for a healthy market is still far from being reached.

I think the segment of buyer who is levered to the gills, with bad credit, low reserves, poor job security, is tiny in comparison to '08 and will not be anywhere prevalent enough to cause any severe drop in RE prices.

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author

If you're going to live there for 10+ years it doesn't matter. Just wait it out with the low rate you locked in. The concern as outlined is rentals. Especially rentals with leverage

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Decreasing housing affordability would likely mean rents go up, protecting real estate investors with leverage. Asset prices rose faster than rents and they're just starting to catch up slightly. Still seeing those getting approved for mortgages with ATH FICO scores (not the greatest barometer but still comparing to 08), suggesting they're not so over leveraged. I don't think there are many onesy/twosy real estate investors who got in the game in the past two years who used a lot of leverage, at least not enough to drive a RE crash. The short term rental crowd is a popular subset on twitter but twitter isn't the real world. It's 100x easier to trade options with my paycheck than it is to get an STR and manage it etc. Smaller, more sophisticated crowd.

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Cherry on top is BlockFi CEO blocking you on BirdApp. Based on these blowups, ScamFi (incorporated in USA) is likely a huge target for the SEC to "protect investors".

This only strengthens the use case for DECENTRALIZED lending platforms (collateralized loans, liquidating diliquent borrowers, floating interest rates based on demand, etc.)

Aave has $5.23B TVL but why didn't they need a bailout - kwestchinz 4 play-doh...

Housing Question for Bull:

Got your point on avoiding rentals for long-term tenants now. But what about properties in a popular warm-weather area renting short-term to families on vacation (Abnb, VRBO)?

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author

Still depends on how inflated it is out there. If it's a low rate and you're in a tourist area should be able to keep making payments etc.

Our concern is the same, people with 4 rentals all with say 10-20% down that start to miss mortgage payments because rents don't stay there. Guessing many people went full insane and levered up huge

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You think those folks would've learned from Covid...

Anyway, hope deals coming soon.

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*$10.3B TVL according to Aave website as of today (before a wild NightOwl corrects me).

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"Smart" investors understand what you wrote here. What's the endgame for owners on BlockFi, etc? Why bail them out? What does SBF want with them?

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author

Likely to be on good side of regulation and potential to structure a way to get access to the coins (the only real asset).

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