Editor’s Note: Dennis Fassett is a former corporate finance executive turned real estate investing “Cash Flow Mercenary.” Dennis specializes in single-family and multi-family cash flow properties and thoroughly enjoys assisting his fellow investors with their own strategies, including how to buy your first apartment building.
As an ongoing contributor to Mogul’s “Market News Updates,” Mr. Fassett provides us with his own unique, lively, and thought-provoking commentary on the timely industry news and events of today that are impacting our industry. And be sure to check out his other super-helpful Market News Updates. For now, enjoy...
From Dennis Fassett, Cash Flow Mercenary...
Too freaking easy. Like shooting fish in a barrel.
That’s the first thing that popped into my head when I read a piece about the new book on the market by the CEO of our good friend Zillow.
But because I have a bad case of ADHD, the second thought I had was, when the heck did people ever shoot fish in a barrel?
So of course I got completely off track and I looked it up!
It seems that prior to the modern days of refrigeration, fish were packed and stored in large barrels. And the barrels were packed to the rim full of fish. As such, any shot that entered the barrel would be guaranteed to hit at least one of the fish.
So… it turns out that nobody ever really shot fish in a barrel. It just became a way to describe something cake-walk easy. And you can safely use the phrase regularly now because the Mythbuster guys actually tested – and confirmed – that it was indeed cake-walk easy to shoot fish in a barrel.
Seems to me that it would be a whole lot simpler to just say that it was cake-walk easy. But that’s me. Oh and the Ivy League chatterheads call that phrase an idiom. I went to public school so I have no clue what that is, nor do I care to google it.
But I digress back to REI: ‘New Rules or Bad Analysis
So, about that book by the Dark Lord of the Sith who runs Zillow.
It’s laughingly called Zillow Talk: The New Rules of Real Estate. And according to Darth Insidious the CEO, it "shares observations and insights gleaned from analyzing Zillow’s extensive residential real estate data collected over the years."
And if that wasn’t bad enough, a chucklehead “business” writer on the left coast wrote a piece on it called "7 Real Estate Myths Busted by 'Zillow Talk.’”
I swear that’s the title. I knew a nanosecond after reading it that taking down most or all of the "Myths Busted" by those clowns would be easier than shooting a fish in a barrel.
(See how I brought that around full circle?!)
Let’s take a look, shall we …..
Myth #1: "The most important rule in real estate is location, location, location."
Zillow says – Not True!
They say that the most important rule is future location, future location, future location. Like 10-20 years into the future.
I don’t know about you, but I and every one of my real estate colleagues do just fine in our rental, flip, and wholesaling businesses by focusing on CURRENT location, location, location.
Myth #2: "Buy the worst house in the best neighborhood."
Zillow says – Wrong! Because the worst house will always be the worst house in the neighborhood.
Once again, I know plenty of people who feed their families and put a whole lot of money in their pockets by targeting the worst houses in neighborhoods and making them beautiful.
Myth #3: "Foreclosure discounts offer compelling investment opportunities."
Zillow says – NOPE!
The authors say calculations of dramatic discounts offered in buying foreclosures often overstate the case.
This one is really a head scratcher. Some do for sure. But this is yet another case of Zillow using “big data” and applying it to micro markets like neighborhoods.
Those of us in the REI game will always chase foreclosures – because that’s generally where the biggest discounts and biggest profit opportunities are.
Zillow Zaniness Continues
Myth #4: "Remodeling the kitchen, with a lot of fancy upgrades, is one of the smartest moves you can make to boost your home's value."
Zillow says – NADA.
They say that, "Kitchen renovations, at any level, offer among the lowest return on investment of the home improvements we studied.”
Here’s big data gone wrong, again. Maybe that’s true for owner occupants, but for rehabbers and landlords, well-done kitchens bring big bucks and are often the cherry on top that closes the sale.
Myth #5: "List early in the year to catch the spring home-buying rush."
Zillow says – Wrong again. And that "you shouldn't list your house for sale before March Madness or after the Masters."
I’m wondering over what time period they “studied.” The market has been uber-cyclical over the past, what, almost 10 years? How in the world can they come up with any sort of meaningful “analysis” or trend over that period? It sounds like all the folks at Zillow were French Lit. majors in college and skipped the Stats classes.
Myth #6: "Home ownership is the foundation of the American Dream."
Guess what? Zillow disagrees.
The authors argue that an analysis of Zillow's data indicates public policy designed to boost homeownership among low-income buyers has the opposite effect of lifting people out of poverty.
That's in large part because less affluent neighborhoods, where many of these new homeowners can afford to buy, experience lower appreciation and higher price volatility than more affluent neighborhoods.
So, um, just how does lower appreciation and higher price volatility have anything to do with housing being the American Dream? If you can piece that one tougher I’d sure like to hear about it.
And finally, Myth #7: "The mortgage interest deduction is essential to the health of the nation's real estate market."
Zillow says – that’s crazy talk!
The authors state that the federal government is essentially spending $100 billion in the form of lost tax revenue annually to help Americans living in homes that cost about $865,000.
This is even less understandable than #6! The mortgage interest deduction is key to many, many first time homebuyers being able to afford to own a home. It was for my family and many other people I know. And I don’t live in an $865k house. Yet. ;)
Zillow May Be Busted
And there you have it. It’s like they’re doubling down on being wrong. I mean, are these really even the seven biggest myths in real estate? They can’t even get that right.
But at least they’re solidifying their track record of being 100% wrong. Pretty soon all we’ll need to do to make a pile of cash is read Zillow – and do the opposi…..HEY LOOK – A SQUIRREL!
Got Any Myths to Bust?
Lemme hear from you below.