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Old 09-11-2010, 04:29 PM   #61
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'The Skinny on Real Estate Investing'
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Old 09-11-2010, 06:19 PM   #62
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Our rental and personal properties have all been great investments. We've loaned money on properties that others are living in or developing or flipping and those have been great investments. Now considering flipping a house ourselves - looks like the risk is less, and the return for outlay is much greater.

That is, we have been loaning out $x purchase price to a flipper for 10% interest per annum and they are making $x + $35%+ on the flip in 4 months. If the flip goes bad it would cost us 6 months + legal costs to reposess. If we buy the flip and contract out the redo we can keep far more cash in the bank, have the property in our names to avoid any risk of need to repo, and get a return comparable to loaning out about three times the money. win win win

Oh - loaning $$ to suits in an offfice with no collateral? Not such a great investment. Investing in stocks and such? Not so good.
tangible assets baby - dat's where it's at!

YMMV
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Old 09-11-2010, 09:59 PM   #63
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The article talks mostly about the losses to individuals. I feel he/she will survive by walking away or taking advantage of low interest loans or one of the many government sponsored bailouts.

More important to me is we found out wealth building for our country was almost completely dependant on rising real estate values. If not real estate...then what?
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Old 09-12-2010, 04:41 AM   #64
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Our rental and personal properties have all been great investments. We've loaned money on properties that others are living in or developing or flipping and those have been great investments. Now considering flipping a house ourselves - looks like the risk is less, and the return for outlay is much greater.

That is, we have been loaning out $x purchase price to a flipper for 10% interest per annum and they are making $x + $35%+ on the flip in 4 months. If the flip goes bad it would cost us 6 months + legal costs to reposess. If we buy the flip and contract out the redo we can keep far more cash in the bank, have the property in our names to avoid any risk of need to repo, and get a return comparable to loaning out about three times the money. win win win

Oh - loaning $$ to suits in an offfice with no collateral? Not such a great investment. Investing in stocks and such? Not so good.
tangible assets baby - dat's where it's at!

YMMV


Risk aside... Locating, buying (associated expenses), fixing and selling (associated expenses) is a job. If the last two activities are contracted out... it reduces the take. If you do it then it is more work. Just managing the process (as an ongoing activity) is work.

If you run this like a business... you need to subtract your wages and all expenses to determine your return on investment...
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Old 09-12-2010, 08:38 AM   #65
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Houses are always considered a liability and not an asset. This shouldn't be a surprise to anyone I would think...
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Old 09-12-2010, 11:36 AM   #66
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Risk aside... Locating, buying (associated expenses), fixing and selling (associated expenses) is a job. If the last two activities are contracted out... it reduces the take. If you do it then it is more work. Just managing the process (as an ongoing activity) is work.

If you run this like a business... you need to subtract your wages and all expenses to determine your return on investment...
I've decided that watching out for my money - "Just managing the process (as an ongoing activity)" - is work. Asset allocation, rebalancing, choice of asset classes and their respective ETFs or funds - to say nothing of individual stocks blablabla is work. Closest thing for me to "not work" is our PenFed certificates. And comes Emeritus to cast doubt on the strength of that institution!

Maybe this is heresy here, but if you don't run making money like a business someone else is going to run away with your money. Stocks and mutual funds are about as willfully opaque to me as politicians. Does anyone read the paperback novels sent out on behalf of the different funds? Just got my copy of "Vanguard U.S. Stock Index Funds Large-Capitalization Portfolios Semiannual Report". Stirring stuff. Anyone read that for light entertainment? Everyone think that's all they need to know about the health of largecaps in America today? Everyone make a point of counting a reasonable wage for the time spent reading and researching against their largeCap earnings? For me, houses are easier and the gotchas more evident - right now, the money's better too.
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Old 09-12-2010, 12:36 PM   #67
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I've decided that watching out for my money - "Just managing the process (as an ongoing activity)" - is work. Asset allocation, rebalancing, choice of asset classes and their respective ETFs or funds - to say nothing of individual stocks blablabla is work. Closest thing for me to "not work" is our PenFed certificates. And comes Emeritus to cast doubt on the strength of that institution!

...

True enough... keeping track of the portfolio takes some effort.

For some more than others, depending on their approach.
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Old 09-12-2010, 01:05 PM   #68
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As a RE Investor, I have to say I am glad to see some sobering of the viewpoint on home ownership. Homes are a Money Pit, even if you buy new construction, and home buyers need to be financially equipped to weather the (financial) storms that will arise, so to speak. Realtors have promoted the image of Landlord as taking/wasting tenants money (like I should grow a hump back, fangs and sharp claws)that could be better invested in purchasing a home. It has been too rosy an image & glad to see reality step in. In our area, homes rent for a lot less than purchasing one would cost, for instance.

Don't take this wrong that I feel Home Ownership is a bad thing. On the contrary, I think it is wonderful. I just feel it is a privilege that should require some financial prerequisites on the part of the Buyer.
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Old 09-12-2010, 01:21 PM   #69
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Houses are always considered a liability and not an asset. This shouldn't be a surprise to anyone I would think...
I'm not sure what you mean by that statement. "Houses are always considered a liability........"

While the bulk of my assets are financial, I do consider tangible holdings such as my home, cars, etc., to be assets, not liabilities.

Are you making your statement using some special meaning of the word "liability"?
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Old 09-13-2010, 10:56 AM   #70
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No, but the costs of keeping that house up is a big liability, so I consider a house a liability always.
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Old 09-13-2010, 03:48 PM   #71
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That is, we have been loaning out $x purchase price to a flipper for 10% interest per annum and they are making $x + $35%+ on the flip in 4 months.
Calmloki, let me check if I am understanding you correctly. The average net profit after all-in (puchase price, fix-up costs and costs of sale) is 35% in 4 months, or 105% pa? This is on an outright cash buy, cash fix-up, and after sales commission and other costs? Or is this imore of a bought job? (fix-up labor mostly, staging, and private sale?

Is this in the Willamette Valley? Or do you have to range far afield to find these things?

Last, do you or have you been selling to people who will occupy the house, in a normal bank-financed transaction, or you do wind up with long term paper?

I certainly agree with you that as you describe it, this beats most anything except selling dope. Beats pay-day loan business, which is no easy task.
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No, but the costs of keeping that house up is a big liability, so I consider a house a liability always.
OK Orchid, you are certainly within your rights to call a house whatever you choose, but I guess you realize that it is non-standard nomenclature.

According to your classification, one buys a house and gets a mortgage. So she adds two liabilities to her balance sheet. What are the assets concomitantly added to the other side?

Ha
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Old 09-13-2010, 04:47 PM   #72
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Calmloki, let me check if I am understanding you correctly. The average net profit after all-in (puchase price, fix-up costs and costs of sale) is 35% in 4 months, or 140% pa? This is on an outright cash buy, cash fix-up, and after sales commission and other costs? Or is this imore of a bought job? (fix-up labor mostly, staging, and private sale?

Is this in the Willamette Valley? Or do you have to range far afield to find these things? And how can you sell in 4 months, let alone fix-up and sell in 4 months? In Seattle, properties which are I suppose de facto overpriced but I would not have considered them so, sit, and sit, and sit.

Last, do you or have you been selling to people who will occupy the house, in a normal bank-financed transaction, or you do wind up with a lot of long term paper and credit risk?

I certainly agree with you that as you have painted it, this beats most anything except selling dope. Beats pay-day loan business, which is no easy task.

Ha
Ha, an example or two:

The group we've made 3 loans to bought a doublewide manufactured home on about 1.5 acres between Salem and Turner. Up on a hillside, nice location. They bought it at auction for $74k - the title company screwed up and registered a $17k second before the much larger first mortgage. Come the auction, there were only 2 people bidding on the $17k lien on the property, the bank didn't even have a rep on hand to bid up to the limit of their interest. Property went for $74k, the bank's much larger interest was extinguished as their lien was filed AFTER what should have been the second. Suspect the bank's lawyer and the title company's insurance had a discussion. After the sale, the residents were given a couple hundred $ if they could be out by that weekend - the norm might be a thousand. By the following Tuesday, the flippers had about 8 guys on site - it got new interior paint, a modest update with kitchen passthrough, new counter tilework, new carpet, new lights, new doorhandles, a quick and modest landscaping (weedwhacker, mow, thin coat of barkdust).

They do a minor but effective staging including light draped mesh curtains and pictures on the wall. They paid 3% commission to the company that found the deal and are selling the place, maybe $15-20K (guessing) on the redo, and 10%/annum to us, plus $400 as a spiff for going in to the title company and doing loan docs and having funding fast. We loaned on 7/16. They have earnest money for a $148k purchase price right now; we'll see if the deal goes through. THAT was a smoking deal - the potential buyer is also getting a great deal on a nicely shined up home.


On 6/4 we loaned on a Salem duplex. Was by yesterday and the crew was doing some repairs for the new buyer's financing bank - can't imagine that they will have $20k in expenses and repairs/improvements and it looks about ready to be a done deal. I figure they will net $20k. A bonus for them is that one side of the duplex remained rented throughout, which made their interest payments to us! Since they are using mostly our money for the purchase it looks to me like they put out 20 and take in 40 - in maybe 4 months.

Normal lending cost to investors is 12% + 2,3,or 4% points depending on how fast the property is flipped - 4% if it takes a full 6 months. This investment group is happy to pay us 10% and no points. We are impressed by the effort they go to to dig up the best deals; paying as little as possible at auction or direct to lenders; the speed with which they have decent contractors on site; the tastefull and price appropriate way they do the rehabs and staging; and the aggressive pricing they do. People aren't likely to find a better deal. They do business well.
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Old 09-13-2010, 05:17 PM   #73
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Thnx, Calmloki. They obviously don't let any moss grow, like you say a squared away group.

Ha
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Old 09-25-2010, 12:17 PM   #74
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Old 09-26-2010, 02:00 PM   #75
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Old 09-26-2010, 08:59 PM   #76
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I'm kind of "buy and hold" myself. My parents bought the house in 1957, we bought it from them in 1977. Big renovation in 87. Not much since.
Same employer for 35 years (full and PT)
Same wife 35 years
Same house 33 + 20 years
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Old 09-27-2010, 11:34 AM   #77
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Lifestyle choice not an investment. Most people make any real estate money on the depreciation on the mortgage, I think.
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Old 09-27-2010, 02:37 PM   #78
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I think the RE business (whether doing rentals, or flipping, etc.) has a certain amount of (for want of a better term, "luck"), but more importantly, "talent", skill and experience. I know a guy who made a fortune selling tractor tires out of his pole barn. He started small, found and put dealers/farmers together and took a 20% (minimum) to 40% profit on most sales. The way he explained it, it was "easy" money. I'd no more try that than flipping houses. Still, some folks are just geared for doing that kind of stuff. I say, more power to them! Sounds like calmloki has it figured out. More power to him!!! Just not my thing. But I do LOVE to hear the stories of folks who can make such things work for them.

Me, I did it the "old fashioned" way, w*rking for the man!

Full disclosure: I did buy a property (here in paradise) and rented it out for 25 years in preparation to claim my little piece of paradise. I doubt we made any money on it, but it was our way to stake our claim and not be priced out of the market. I know we were WAY under market in our rent for 20 of those 25 years (we doubled the rent when our long-term tenants finally went to the other Paradise.) Shows how some folks know what they're doing and others don't - in all fields of endeavor.

If RE in general and "flipping" in particular are "w*rk" as has been suggested, calmloki loves his w*rk and is good at it!
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Old 09-27-2010, 04:10 PM   #79
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Another way real estate is different from stock and bond investing is that there is a fair amount of leverage, and once you get out of your own home, you are generally on the hook for the loans. Of course as time goes on, and you have so far survived, you could throttle back rather than go on betting it all back. But plenty of very wealthy RE estate investors have thrown craps fairly late in their careers.

That, and it is not possible to succeed over cycles and be poorly informed or inattentive or lazy. Whereas with index investing, you get whatever is to be gotten. And I think it is also not advisable to rely too much on the "way things are sposed to be".

But it must be a lot more fun than the torture that many of the corporate types on the board have described. I did just a few things in this area, and I think were I going through again I would make that my career too. I also admire the activist real estate investors on the board.

Ha
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Old 09-28-2010, 08:32 AM   #80
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I have not seen my place from an investment view point.
Considering current economic turmoil, is it safe to say we are heading towards deflation? Houses have never been so cheap in the past.
To lazy to look it up, but I'd think, even at current reduced prices, that house prices are a larger portion of median wages than the historical average.
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