Don't Buy Housing Bubble Propaganda

Not all Interest Only loans are created equal. Many people view these vehicles with sceptism but to sophisticated investors they are valuable.

Here is an example of what I am working on as we speak (involving an interest only loan on an investment property)

Condo next to a State University asking $55,000. Rents for 650 - 750.

100% Interest Only at 6.5% fixed (Amortized over 30 years principle payments not required for 10 years)

Gross rents $8,400

IO Mortgage payments $3,575

Net rents (NOI) are less but there is alot of wiggle room.

The benefit: You are not taking large losses when the unit is not rented out and if you need to replace something you simply pay interest only that month. Otherwise you pay interest and principle.

A portfolio of these properties makes for a great retirement plan...... It sure beats social security.
 
Buying over 200 condo's in Houston 25 years ago for an average cost of $7500 each....plus a couple of shopping centers and even a Marina....average selling price of condo's (after a decade or so) was around $65,000 (some much higher).

A "great deal" was had on those condo's, by the people who bought them at "fire sale" prices....and the "great deal" via interest rate bets and blind faith, by those who were forced to sell at that same $7,500.

I hope that a small bit of caution is recognized by all.

Better than Social Security, sure, but then again "what isn't?" I have to vote with those of you who see the "greater fool theory" transpiring in real estate these days. I will say with all humility, however, that I figured that the CA market had peaked 3 years ago (it was sure high, but still went a bit further).

All the best,

Don
 
Don,

With all due respect there is alot less risk in buying rental property in middle american college towns that debt service and cash flow than in my favorite profession and your darling day trading.
 
Quote from Midas:

Not all Interest Only loans are created equal. Many people view these vehicles with sceptics but to sophisticated investors they are valuable.

Here is an example of what I am working on as we speak (involving an interest only loan on an investment property)

Condo next to a State University asking $55,000. Rents for 650 - 750.

100% Interest Only at 6.5% fixed (Amortized over 30 years principle payments not required for 10 years)

Gross rents $8,400

IO Mortgage payments $3,575
More...
You forgot taxes, heating, and maintenance costs. Oh, and you are assuming occupancy 12 months per year, year in and year out, something any landlord will tell you is impossible.

And then don't forget about delinquent tenants who pop up now and then and stiff the landlord and manage to stay an eviction proceeding for months, and perhaps years.

Renting for profit makes sense if you have enough units to absorb negative contingencies. But buying 1-2 condos with the intention of arbing the difference between carrying costs and rental receipts is madness.
 
Quote from Midas:

Don,

With all due respect there is alot less risk in buying rental property in middle american college towns that debt service and cash flow than in my favorite profession and your darling day trading.
More...

I absolutely agree with you...risk/reward is something that has to be approached with understanding and a defined goal. And, I also agree that middle american college towns are not experiencing $1,000 per square foot pricing (ala CA and NY, etc.). Once again, risk/reward.

All the best, and good luck in either or both ventures.

Don
 
Quote from jem:

Strange article. I think he neglected to say how much 13 years of rent would have cost him.
More...

This guy should definitely keep his job as a journalist with the WSJ, because as a real estate investor he is a moron.

He buys a house that he describes as "fairly rundown", and then spends $130K doing considerable work to it. He says he paid $165K originally for this dump. But the question is, if it needed $130K in work, what was the property worth at the time, fixed up? This figure he leaves out.

Had I made this same purchase, and it needed $130K in fix-up, I might have expected that it had a market value AT THE TIME of $400K+ after the fix-up. Otherwise, I would not have bought the property. A property in excellent condition (which it would have been after the fix-up) in 1992 worth $400K+ would certainly be worth considerably more than $500K today after the bull market in real estate.

I think it is safe to say that this guy either overpaid for the property originally, or overpaid for the fix-up, or both. And then uses his own failings as a rationale for why real estate is a poor investment.

Anyone buying a dump that needs this level of work should have been able to negotiate an outstanding deal that reflected the significant work needed. In the absence of an oustanding deal, he should have passed and simply bought a house that needed no fix up.

OldTrader
 
a lot of good posts.

midas, I didn't say it wasn't a good game to play....so is daytrading.... :D

but the thing about daytrading is making sure your system provides for an out before the end of the day.

that is something that most...ahem... 'investors', in RE not only don't have, but don't even have a -plan- for.

my only point is that it WILL come to a halt; and the consequences, not just to RE, but to the entire economy, are going to be far more severe than what most expect.

further, price is set at the margin; not in the bulk of the market. Remove just a few percent of the buyers, and you will see price move very significantly.

i have played the RE game for 20+ years; but i buy at the bottom, not the top.... :p

i'm right now in the process of selling my very last piece of property, 160ac of land, for 4 times what i paid for it 3 years ago.

(the market has only moved half that much, but i bought it very right...the man had a note coming due, and no time to run the regular gaunlet. cash talks... :p )


there is NO way I would buy anything right now. the POR is just too close....

good luck to all diving into the game near this blow-off top. sincerely wish you well.
 
Degabriel,

RE:You forgot taxes, heating, and maintenance costs. Oh, and you are assuming occupancy 12 months per year, year in and year out, something any landlord will tell you is impossible.



After you subtract that from the gross you have the NOI (net operating income). That is how you analyze each potential property not from the gross. My example debt services either way.
Simple market research will give you the vacancy factor in any given area. You are right many places have high vacancy rates (stay away from those places) but many have very little vacancy. Aslo when you buy an investment property you ask for the past 3 year rent roll that documents how well it rents out.

You are wrong in thinking that you can not do it with 1 or 2 properties (that is how most people get started). Once you have over 10 it becomes alot easier........

Accumulating real estate this way is nothing new landlords have been doing this for years. And many have nice 100 plus rental portfolios because they started with 1 or 2.

The trick these days is going where prices have not over inflated like the midwest or south.... Because there is little chance for investors to debt service in red hot over inflated real estate markets.

Like any other venture in life there are pitfalls and risks, but this truly is one of the best ways to slowly accumulate wealth over the long term.
 
You must log in or register to reply here.
Back
Top