the indigo

That's the key point most people in this thread ignore. Deposit, Cashdown, Initial Investment... that's the only reference that should be used. Leverage is done by the bank.

I don't see the real estate market going anywhere but UP... except in USA and some high class place in Canada. Would I buy a condo in Florida? Hell NO!

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warlock5

Gee, real estate is a great investment when the Fed drops interest rates to 1% and mortgage lenders hand out money without confirming the borrower's credentials.

Snake Doctor

You're not going to get 8% appreciation over the long term. As a rule housing prices can't rise faster than wages.
If the average wage earner can't afford the average home in the area, then there's a bubble and it will eventually pop.

Wages aren't rising at 8% a year, and that will never happen because if it did we'd have massive inflation and your appreciation would be worthless anyways.

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Biggy

#1 place where fortune 500 ceos park their cash (you know, the cash they get from all their option exercises): real estate.

IllTestYourGirls

where i live houses are going for 250 to 350$ a square, the bubble is about to burst.

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the indigo

Interesting article on the Global Propert Housing Boom:
http://www.globalpropertyguide.com/a...cle_id=68&cid=

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kane

In the end, for most people real estate is almost a kind of "forced" savings account. they buy a house, live it for a long time and then sell it. They sell it for more than they paid for it and have some money in their pockets. When everything is factored in, they didn't make a much of a profit, but they do have cash that they wouldn't have had otherwise.

Here are two examples:
example 1
If you are going to rent a house for $1200 month and live there for 15 years even if your rent never goes up at the end of that 15 years you move out and you get nothing from the landlord except maybe a cleaning deposit. If you buy a house and pay $1200 a month after 15 years the house will have gone up in value and you've paid down the mortgage, you sell it and when you move out you get a nice chunk of change in your pocket. So in the end at least some of the money you have been paying in house payments you get back.

example #2

You buy a house for 150K and live in it until you are ready to retire. When you retire the house is paid off and is now worth 250K. you can sell it and put that money in your pocket or you can live there and your only housing cost is insurance and taxes. If you have rented all this time, you still pay rent and you have nothing of value.

The only way to make a lot of money in real estate is to either buy it and sell it relatively quickly or to buy it and rent it out.

cybermike

interesting discussion, anyone buy real estate in nyc area with some tips

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GigoloMason

Apparently, you missed the disclaimer that I was trying to simplify the example. Apparently you also missed the part where I said the only ADVANTAGE of buying vs renting is taking advantage of leverage. The assumption that you sheep keep making is that real estate always appreciates (more specifically appreciates at a rate greater than your interest rate). Apparently that's to much to wrap your head around.

Sure if we're all just going to make up numbers we can come up with examples that show one is better than the other both ways. I never said real estate is ALWAYS a bad choice relative to renting, I said the idea that it's ALWAYS better than renting is fucking retarded as it tends to go either depending on the region you live in.

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GigoloMason

I don't think you understand what leverage is. When you buy a home with a loan it's a leveraged investment. That doesn't mean the bank 'does' leverage.

If you're just going to make up imaginary scenarios we might as well discuss the local dragon population's effect on practical real estate.

Freezing prices and wages (inflation) is chosing to disgregard one of the fundamental blocks of the rent vs own debate.

You admitted yourself that it ultimatly breaks down to a region by region analysis and there is no universal 'right' answer which is all I said in the first place. What exactly are you arguing now?

The irony of course being that I was just pointing out your analysis was over simplistic and your response was to simplify it even more to defend a point you'd already conceded lol

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Snake Doctor

No you said that the ONLY advantage to buying vs renting is "leverage and all the benefits that come with it"
I disagreed with that and said that when a homeowner retires they have no housing expenses (other than insurance and taxes) while the renter still has to pay rent.
That's a HUUUUGGE advantage.

I simplified it more with the frozen price and wage scenario so there would be less factors to consider. Having prices and wages frozen doesn't make either option more or less favorable, it just simplifies the example.

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GigoloMason

The problem with your made up scenario is that market prices would change to reflect a change this drastic in the market as you're eliminating one of real estates strong points.

Considering the estimated inflation rate at the time would be built into the intrest rate of any loan you had out I'd say it pretty hard to separate from the issue.

Real estate bought with debt is a double inflationary hedge, becasue the real estate holds it's value against inflation and the loan is paid off in 'cheaper' money. Since it's considered a hedge against inflation the precieved value of real estate changes relative to inflation rates in the market.

If you don't think this would drastically alter real estate valuations look back at average real estate appreciation rates when we were on the kenshin or true gold standards and had no inflation. Seriously you can't just change the rules of the market that drastically and then pretend that the market wouldn't reflect said changes in its pricing.

.
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In any event EVEN if we look purely at your example; individual rentors get a rentors credit. Owners pay property tax. Owners have to do standard upkeep and maintenence on a home, as well as do major overhauls periodically to offset depreciation. Owners are liable for any damage cause to the property via 'act of god' type incidents normal maintence aside. Now figure in the closing costs on the transaction.

How much money do you think rentors save per year when you start figuring all these factors into the mix. Now lets assume a rentor took the difference and invested it over time in an appreciating asset since in your magical faery-tale the house isn't appreciating.

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will76

You should clarify "buy a house". If you are buying a house for yourself to live in, than no that is not an investment. An investment is when you "invest" money into something that will make you money back, not cost you money.

There are 3 ways to make money off of realestate, renting, building, and fixing up and fliping. Renting is easy enough, you factor in your down payment, all your expenses (included calculating so much a month for a new roof you will need 10 years from now, a new ac you will need 5 years from now, vacancy, etc..) also calculate your interest as a deduction, and base all of this off of what you can rent it for. If you are happy with the return then it is a good investment.
Building is simple enough, cost vs sale price.
Fixing and flipping is basically the same as building. The problem with flipping is too many people base their profit off of the market appreciating, and in most cases they always factor too little when estimating the cost to do repairs, and the value of their time if they are doing some of the repairs themself. I would never buy a house to flip that I could not make money off of if I got stuck with it. Meaning, that if the market tanked and I couldn't sell it for more than what I had invested into it I would make sure the rental I could get from it would more than cover the note and make me at least a decent return. You are crazy if you buy say a 300K home and thinking well I can put 50K into it and in 6 months I should be able to sell it for 400K. 9 months later you have 75K into the house (375K total) the market shifted and your house is now worth max 325K and you either fire sale it and lose 50K or you get stuck trying to rent it for 1200K a month and you still left coming up with $800 a month to cover the note. not wise. IMO fixing and flipping is great for the small crap houses, that you can get dirt cheap, because your risk is less, your profit % is greater and you can always rent them and at least cover your note.

The wild card in everything is appreciation/depreciation.

Back to buying a home for yourself, say you buy your own home, a house for 500K and put down 20%, 100K but you bought real high and the market burst, readjusts and now your property is worth 20% less. You just lost your equaity and you owe exactly what your property is worth.

Some people think, well i paid 500K for my house 10 years ago and now it is worth 550K so it was a 50K investment. Well if you deduct all that intrest you been paying then there is no way you will see a profit. Besided the occasional boom here and there, over time you property is not likely to appreciate more than your interest rate. UNLESS you keep it for a long time, than you can possibly realize a profit from appreciation. It's the way the intrest works on loans that kills you, you pay so much back in intrest up front there is no way appreciation will out pace that unless the market totally booms, which doesn't happen often.

I didn't read any of the 4 pages here so forgive me if I repeated stuff that has already been said.

Buying your own home is in no way an investment, it is just smart thing to do instead of throwing your money away renting. You have to do the math, in some cases renting makes more sense financially then buying but in most cases it is better to buy.

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Boobzooka

I am advocating actual ownership, not renting from the bank. Unless you mean that the government could confiscate my property from me for some unimaginable reason, but such a circumstance is sort of irrelevant to this discussion, isn't it?

I sympathize with the wage-slaves who won't ever own but, for the sake of this thread, if you make enough money to play in the stock market then you make enough money to own your home.

My first house was a cheap little thing I bought 6 years ago for $100K and I was able to pay that off very quickly simply by not wasting money. All it took was a few years of saving everywhere possible. Don't buy new cars, don't buy silly gadgets, or xbox, playstation, games, CDs, DVDs, memorabilia, etc. Limit going out to the movies, concerts, sporting events, vacations. You don't need the newest computer or cell phone. Your old clothes still fit. Don't eat out, don't smoke, don't go gambling, don't spend more than you need to live. No impulse purchases. Imagine how all this little stupid shit you don't need adds up. When you have a good income, but live modestly, you'd be surprised at how fast you can save. And as I saved more, I moved up to better property. The only time since then that I've ever had to borrow (temporarily) was when I was flipping, but I never risked my own home.

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Drake

Moral of the story: if you're making real money in real estate, you're not doing it using the house that you live in. You're doing it with rental properties, developing, or fixing & flipping houses frequently, or a combination thereof. The house you live in is for your own satisfaction and you're not banking on it to make you any money.

However, I think most people would benefit from home ownership because as somebody said, it's a forced savings account. Most people will not save money or invest successfully. In the US, it's a paycheck-to-paycheck and credit card debt lifestyle so very few will save or invest. Being able to sell one's house after 25 years or live in it with the mortage all paid off, is ideal for most people.

Drake

Correct, it's not a true investment. If you calculate how much you spend on interest over a 25 year mortgage it's a ton of money. Renting does make sense in some instances, but for most it will always be better to buy.

seven

Dude! If you can't afford to buy a house it's ok. You don't need to get so bitter. Trust me it's not the end of the world

Now, where did you get the average price of house in Vancouver 540k again? Scotia reports? Isn't scotia often being called the poor man's bank in Canada? lol. Anyways, everywhere else I looked for average house value in Vancouver it says 373k toronto 290k and am talking toronto. Also that doesn't mean a starter home is the average value. Let's talk reality for a bit here. I moved from an apartment to a house 5 years ago. Thou I bought a diff a bit bigger house paying cash later bank had told me my mortage would be 1200/month if I decided to go with a houseloan with 10% down for that moderate size home. Well that's what I was paying for the apartment I was renting and also 1000 less than the apartment I was thinking to rent. So 1200/mon mortgage didn't seem bad at all. Anyways without a mortgage my house expenses was 200/mon prop tax + 25/mon ins + 100/mon utility = 325 so I paid 325/mon or with mortgage it'd be 1525.

I keep trying to compare houses to apartments? So? You on weed? Houses to houses the gap would be even lower. If I rented a similar house that I had bought I'd be paying atleast 1600/mon rent=1600 per month wasted.

Now dude, stop crying.. depending on your age you may have many years ahead of you to buy a house

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seven

very true but I still think a home could turn into profit if you run into financial prob down the road depending on how much you put down and how much you paid off and ofcourse how smartly you bought the house to begin with.

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Peaches

So many people miss this step. Especially with their first house. They're so excited about "home ownership" that they go completely numb.

the indigo

Actually I was backing off what you were saying. But you are so insecure that you took it the other way and need to tell people how sheep or retarted they are. Way to go for Gigolocash or whatever is your program.

Success = location & timing. It's the same for real estate.

I'm not saying a standard home in USA will always appreciate. I would not touch your overhyped economy with a ten foot pole.

What I do know is that waterfrond and unique location properties, with a good initial deposit will always appreciate over the Bank's Interest Rate.

My friend did 833% in 3 years with a down payment of $30k selling at $250k three years ago. That is for real so I know exactly what leverage is, whatever how you define it. That's in Country X. Problem with american is that they think the world is USA. Too fucking bad.

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will76

Everything you said is great but there is nothing wrong with borrowing. Borrowing allows you to gain leverage and you can do a lot more at one time.

Unless I hit the power ball I will always borrow money, I don't care if I make 10 million a year. I like making money off of the bank's money. If I can borrow at say 8% and get a return of 12% than I am making 4% off the BANK's money, not my own. I can do that x 10.

Absolutly nothing wrong with borrowing money. Say you pay cash for an investment, so now you are tieing up a lot of your money to save what 8% interest fees, not to mention if you had a loan you could deduct the interest, so your money is making very little for you if you pay cash for something. Instead of taking 100K and buying 1 house cash, buy 5, 100K houses and put 20K down on each (20% typically required for investment property purchases and to insure a better interest rate.) it's all about leverage and making money off of the bank's money.

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will76

true but it is a LOONG term savings account with the "payoff" only happening several years down the road. Go look at your amortization schedule, say you have a 1000K a month note. Your first year you might pay 10K to interest and 2K to principle (equity). If you had repairs on the house (no value building repairs), by the time you pay property tax, insurance, etc... i doubt you really saving much if anything. If you do a 30 year loan you really need to stay in that house 20+ years before you would really start saving an significant amount of money. And you know how most people are, buy a house, stay in it for 5 years, sell it buy bigger house, etc... they are NEVER getting to the sweet spot in the amortization schedule, they are always on the front end of it where they pay like 90% interest....

something to take into consideration.

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rowan

Maybe it's different in your part of the world, but in Australia there are plenty of things you can claim such as interest and depreciation that will reduce the "break even" point to below your required monthly mortgage payment. Even if the mortgage payment isn't fully covered you are still paying off an asset at a fraction of the cost...

N8

It depends on the market but it all depends on your personal situation. If your taking out an interest only loan so you can get a house to keep up with your friends, not only are you retarded, but your making a bad investment. However, if you get a fair loan on a place in an appreciating market, and most importantly, YOU BUY THE HOUSE AT A GOOD PRICE, it can be a great investment. For example, in the NKY/Cincinnati area where I live, we have just come off of 5 or 6 record years for home sales. That means sellers have been able to get top dollar for thier homes, and with interest rates a few years ago, alot of people got great mortgage deals, so they made out. On the other hand, it has now switched to a buyers market, things have slowed down, or returned back to normal I should say, and some people that got adjustable rates (arms) on thier mortgages are freaking out because thier payments have went through the roof and they can't keep up. They made the bad investment when they got thier mortgage. Keep in mind though, an ARM loan is cool as long as your gonna move before your rate adjusts. Anyways...i'll quit blabbering...blah blah blah...

Boobzooka

I understand, but my point is don't advise people to risk more than they can afford to lose. Using the scenario above, what would you do if all your paper wealth was tied up in 5 mortgages that you now can't get rid of if/when the economy collapses and you suddenly have no income. I'm afraid people are making too many assumptions, basing their financial decisions looking back on the last twenty or thirty years, and drawing lessons that conflict with more common-sense priorities like securing a place to live. I believe there's plenty of reason to worry that 2007-2037 will be nothing like 1976-2006, so I am trying to take a longer view, and conclude that historically the land-owners always do better than the serfs. No tin foil hat pics please. I'm not telling anyone to buy a cave and horde ammo. But there are fatal flaws in the way we create "money" that will finally be exposed if diminishing energy supplies halt what those funny economists call "growth". Need before greed, that's all I'm saying.

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Theo

Best post, i freak out to see so many generalizations here.

V_Rock's example shows just one of the cases for him makes sense to rent. These events vary and there's no universal rule. What's important is to be in position to identify yourself these factors that determine buying or renting is better for you and if that particular real estate "opportunity" you spotted is a good or bad investment.

wyldworx

that is my point exactly, Houses are as individual as the person, but there is a solution for everyones needs.

will76

you are making tooo many assumptions. Every situation is different. The chances of you not being able to rent all 5 properties in my example is very very slim. Most people will have more income coming in from other sources, I doubt they will go get 5 rentals in my example and quit their job.

The point is, making money of the the bank's money is the way to go.

if you pay cash for everything you are never going to grow.

Think it through. You save up for years to collect 100K, you go buy your rental. 100K home should make at least $700 rent (EXAMPLE) so minus, upkeep, taxes, vacancy, insurance, lets say you manage to put away 6K a year. I think that is being generious. If it is a cheap house you going to have some major repairs more often. so put away 6K a year, now you have to collect for 20 more years to get enough money for this 1 house to buy the next one.

Wow at this rate you will be lucky to own 4 houses before you die.

it's not "greed" its called business. Go ask anyone, the model i gave is the standard model used by people who do this day in and day out.

paying 100% cash for investments is just plain stupid, sorry can't put it any other way. You can try arguing it all you want, go ask your bank, financial advisor, anyone who makes investments and they will tell you the same thing.

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will76

The smartest thing to do is to either buy a double and rent out the other side which should cover the majority of the note/expenses so you are close to living for free. Or you go rent a dirt cheap aptment and save your money and invest it, when your investments are making you a nice return then go get your own house. Same things with cars and all that other shit. You should have your money working for you and every bit you make going into some type of money generating investment, let your money work and grow, the more your money works the less you will have to over time. Thats the golden rule.

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sickbeatz

equity is king when it comes to property investments, just make sure you're in a developing area that's free of any risk for disaster

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ADL Colin

Well said.

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ADL Colin

Shiller's last two books were very good.
http://amazon.com/s/ref=nb_ss_gw/103...0&Go.y=0&Go=Go

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Avery

samp!!!!!!!!!

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jayeff

Absolutely wrong.

The average person is not someone who takes, as you put it, the bank's money and turns it into profit. Would that it were so easy. He or she is much more likely to begin working life with $20K in credit card debt and $30K in student loans. And from there it is downhill: $400+ a month to buy a car, etc, etc. Within a few years they will add a mortgage to their debt mountain. Off the top of my head, someone taking a 30-year note on $500K will pay back about $1.2 million...

Because so many get stuck on a credit treadmill they can barely handle, then yes, the prospect of saving to accumulate the cash for some project or other becomes daunting. But without the credit culture which puts us on that treadmill in the first place, the picture could be completely different. You cannot escape the reality that the interest people pay on everything from store credit cards through to mortgages is often more than the ticket price of the goods they were able to buy. Most do not get far into adult life before their money starts to buy less and less because so much of it is covering interest in one form or another.

Just as the theory of using credit to make a profit depends on everything going right, so does the idea that if people used cash, they would actually save what they would otherwise being paying in interest. Thus there is a world of difference between theory and practise in both cases. That said, especially now it is harder for people to declare bankruptcy, regardless of whether people would actually save by not getting into debt, at the very least they would reduce the risk of catastrophe. Particularly when an economy is weak, carrying debt is an extremely bad idea.

Quotealex

From personal experience, I doubt buying a double will pay the majority of the note/expenses of the property. Initially, the rent of tenant will cover the taxes and insurance and a very small percentage of the mortgage. It is only 25-30 years later once the mortgage is paid for, the tenant's rent will suffice to pay most or all (assuming there are no major work needed in house) expenses and allow you to live mostly "rent free".

And in today's market, renting both units most likely will not cover all the fees and expenses in the property; As an owner, you'll still have to pay for some of the expenses out of your pocket even if you don't live there.

seven

absolutely. Dunno why everybody thinks they could get rich off borrowed money from the bank including my best buddy Sam prolly they heard the variations of Donald Trump story and believe they'd get a lots of loan and marry into trump family

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seven

with a duplex it prolly won't but with triplex it will. A buddy of mine doing just that in Montreal.. he's living for free now which is a profit thou his major profits will come once the house is paid off.

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Quotealex

Your friend is lucky finding a triplex that he's able to live rent free off. But for most people, I triplex wont cover all the expenses with just two rents unless they put down a significant downpayment on it. Those type of properties just help the owner in paying part of the expenses. If you want to live "rent free", you'll need a six-units building or more. Then again, not too many landlords want to live in the same building as their tenants (excluding duplexes and triplexes)

seven

Depends on financial sit I guess. I see many people renting out their basements in the GTA that in turn renting their privacy out.. can't even fuck their wives freely in case the tenants in the basement hear them breaking the bed, or couch or whatever lol or the wife couldn't go to the basement to do laundry in her jami's etc. but they don't care about that much since they need that extra money

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Barefootsies

Agreed.

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Barefootsies

Agreed.

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will76

jayeff, maybe I should have clarified. What I meant, and I guess I wasn't clear, everything I said was based on borrowing money for investments.

I have a rule I live by, I always pay cash for expenses (tvs, furniture, even cars,boats etc..) and I always borrow money when it comes to investments.

I was talking about making money with the banks money which can only happen when you borrow money to use it on an investment (income producing property). I paid off and cut up credit cards several years ago. If i am not liquid when it comes to buying an expense and i dont have the cash on hand, I don't buy it.

The first thing people should do it eliminate their personal debt from expenses (school loans, charge cards, etc...) credit cards on average charge in 10 - 20% interest rates. If you have 10K saved and 10K in cc debt, your best use for your money is too pay that shit off, eliminating a 20% interest debt is better than making an investment that makes you a 10% return.

All personal debt and spending money for "expenses" a side, I stand behind what I said about using the banks money to make you money and give you leverage when it come to investments.

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will76

I've seen this done more than a few times where the owner/occupant collected enough to cover 2/3 of the expenses (mortgage, insurance, taxes, etc..) , it depends on your market, how much rent is going for, and how good of a deal you got on the double, your interest rate, etc....... All things you can caculate before you buy it. If the deal doesn't look good then you look for a better one.

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will76

LOL thats it. I speak out of my ass not personal expenses.

ok, that's enough to end my posting in this thread. I just spent 30 mins posting here trying help people. fuck it if i am going to get ridiculed for providing first hand info to try to help people.

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Peaches

I have at least a dozen credit cards. IMO, they are the best way to spend "cash". I use the ones with rebates or rewards and pay them in full every month. None has an annual fee. I don't even know what the interest rates are on them since I've never paid interest. When one comes out with a 0% rate I use it exclusively until it tops out then pay it off right before the 0% expires.

Purchasing with credit cards gives you more benefits - you have more pull with getting satisfaction with a company when you have a chargeback you can put into process. In addition, many cards double the warranty on products you purchase with them and carry additional insurance when you rent a car.

Yes, there are people who can't handle credit cards, but personally I've found them VERY advantageous in comparison to cash over the years

I'm also a BIG fan of 0% purchases. Just make sure to pay it off WITH A RECEIPT a month before it's due and put your cash into a savings account until then

sweetcuties

Nice post man, very well said

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Quotealex

In my city, it is not possible to collect 2/3 of the duplex expenses from a tenant rent because rents are very low and they are not really viewed as an income producing property. You are more likely get 1/3 of the expenses paid by the rent and the owner/occupant will have to pay the other 2/3 of it.

seven

not really true if you buy smartly.. my bud lives in your very city and doing it since last year.

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mojoGirl

i was a in real estate business. You must have the guts to do that job. It's risk taking and also very stressful

seven

Sorry didn't quite mean to redicule you but my best bud. I now even call him Samuel Trump. I liked your posts actually but just don't agree with you when it comes to borrowing vs using cash. To me CC, student loans, car loans or whatever they are all "loans" and when I'm running my own biz I always consider that my biz could go belly up someday for whatever reason then I could be without a house or without whatever I mortgaged so I feel secured not having loans on them. I believe if you make enough money you can buy a house without picking up a mortgage and still have nuff money left to invest elsewhere. I Know there are people out there who are getting loans and turning good profit off it just that I am not one of them as well as I believe most people couldn't be them but those people still do exist for sure example: Donald Trump

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