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Old 09-19-2007, 01:00 PM   #21
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The thing with leverage is that it cuts both ways: Buy a $200,000 house with 10% down. If the property value increases by only 10%, you look like a genius who just earned a 100% return on his money. If the property value decreases by only 10%, you look like a sucker who just lost 100% of his initial investment. As you can see it does not take much to go from the genius to sucker status when you use that kind of leverage...
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Old 09-19-2007, 01:37 PM   #22
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Tonight I was chatting with tennis buddies ... [one] said, "You should be ... looking to double your money every couple of years." ... rather than agonizing over money market and index fund yields.
If your friend can double his money every couple years he will be a billionaire in what, 20 years? And own the world a few years after that. Keep close so that he will invite you to play tennis on his yacht.
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Old 09-19-2007, 01:44 PM   #23
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People want to believe they can get what they want without hard work, sacrifices
and patience. They want to believe they can safely lose 50 pounds overnight by taking a pill with no exercise or dietary changes required. They want to believe they can safely get rich quickly without taking chances of losing everything.

The snake oil salesmen prey on this instant-gratification-without-sacrifice desire in a big way. And people who buy into these schemes -- great when they work -- could find themselves in a world of hurt if things turn around as if they don't think the gravy train will ever derail...
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"Hey, for every ten dollars, that's another hour that I have to be in the work place. That's an hour of my life. And my life is a very finite thing. I have only 'x' number of hours left before I'm dead. So how do I want to use these hours of my life? Do I want to use them just spending it on more crap and more stuff, or do I want to start getting a handle on it and using my life more intelligently?" -- Joe Dominguez (1938 - 1997)

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Old 09-19-2007, 02:28 PM   #24
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I not going to say I doubled my money with each sale of my houses (because I didn't put anything down on any of them). I will say I've earned a lot of money without putting to much of my own money into a place. The first house I owned was IIRC $100 cheaper per month in payments and was more energy efficient than the place I was renting. The second place I owned for just over two years and walked away with only 20k after expenses, because I gave my sister-in-law a very sweet deal on it. If I sold it at market price I should have been able to receive at least another 15k. The place after that I owned for four and a half years and walked with about 24k after expenses. The most recent was a house I owned for three years I put about 15-20K into it, paid less per month than the rental a couple doors down, and walked away with over 80k in my pocket after expenses.

None of these houses had any down payments on them. The second and fourth house required some fixing, but the first and third were clean to start with. So yes during the bubble money was there to be made, now it will require more shrewed investing and plan to be in it for several years.
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Old 09-19-2007, 03:09 PM   #25
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Yawn - location, location, location and er heh heh heh -decade,decade,decade.

Some of us ER's are approaching 'old phart status' - the 60's, 70's, early 80's real estate was king and we dufus dollar cost averaging stock cats were a lesser breed.

I remember talking to my apartment building owner in the 70's(he owned 8 bldg's around Denver) saying he gave his Son an apartment blg for his 21st birthday.

Ya gotta work at acquiring the skill - I owned a Duplex for 15 years in New Orleans - did fine - but it cured me of wanting to become a landlord/real estate mogul. Knew many a person who funded their retirement via RE over the years from raw land to landlords. BTY - the fix and flippers - at least in New Orleans burnt out the fastest/had the highest attrition rate - aka got easier jobs.

Looks cool on tv though!

heh heh heh -
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Old 09-19-2007, 04:13 PM   #26
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Did not work out so swell for this "investor":

Casey Serin - Wikipedia, the free encyclopedia

Casey Serin - CaseyPedia
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Old 09-19-2007, 05:12 PM   #27
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You can get similar leverage in the stock market too, by going heavily on margin, buying options, etc. Similar risk too. Nowadays you can only go about 50% on margin on stocks vs. 95% or so on real estate, so you're unlikely to owe more than you own even if the stock tanks, but a margin call on a dip can force you to sell when you'd really rather be buying more.
Can you explain how this is similar to leveraged real estate? I can't be forced to sell my real estate. No matter what the market does I still have the use of my purchased real estate and the terms for holding it (mortgage)can be set in stone or reasonably anticipated(taxes and insurance).

The risks of the stock market leveraging don't seem to compare at all to real estate.
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Old 09-19-2007, 05:31 PM   #28
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RE investing is really more like starting up a small business. It has to make sense on a cash flow basis. If land is cheap in the area there is always the possibility of overbuilding and an extended period of flat (declining?) rents plus higher vacancy rates. Rents and vacancy rates are part of the cash flow equation. Leverage is part of the cash flow equation too as you have to service the debt. If it doesn't pencil out and/or you don't know how to do the calculations then stay away. And it does take management unless you have a large property and can afford a manager for it. If you can hire a manager you will still have to manage the manager.

People get rich at this and people loose their wealth too. Envy of other peoples success can drive us towards doing some dumb things. On the other hand, if you're really serious about RE then get educated about the financial and management challenges. Then jump in.

Now I'll step down from my soap box .

Les
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Old 09-19-2007, 05:36 PM   #29
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Can you explain how this is similar to leveraged real estate? I can't be forced to sell my real estate. No matter what the market does I still have the use of my purchased real estate and the terms for holding it (mortgage)can be set in stone or reasonably anticipated(taxes and insurance).

The risks of the stock market leveraging don't seem to compare at all to real estate.
Similar in that you can owe more on the asset than it's worth. I have the impression that some of these real estate flippers are running on the edge and count on the sale of one property to give them cash flow to make payments on others. Those people can easily get in trouble if they can't make a sale to cover a mortgage. And if they can't make payments, eventually the mortgage company will repossess, which is essentially a forced sale.

Your point is well-taken that if you are in it for the longer haul and can weather long vacancies (if you're renting the properties) and continue making payments, you can ride out a housing dip. In some areas of the country, you might be riding it out for a long time, but you can still use or rent it in the meantime.

I can also protect myself in the market by paying down some of my margin to get back to 50%, from other investments or perhaps a line of credit on my home. Not ideal, but maybe better than selling at a low.

You are right that there are differences, and probably more of them favor real estate. But one of them is that unless this is an Enron or Worldcom type stock, I can almost always put in a sell order at market price (bid) and get out. With real estate, you can price it below market and still have it sit for a year.
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Old 09-19-2007, 05:47 PM   #30
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As many have said the degree of leverage is what makes real estate returns highly variable (to both the upside and downside). Personally, given the relative lack of liquidity and high carrying costs associated with real estate, I prefer paper assets.

BTW, situations similar to that in real estate are readily available to equity oriented investors through options and futures.
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Old 09-19-2007, 05:51 PM   #31
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Yeah, any leverage benefit RE has over stocks is offset by the poor liquidity of RE.

Plenty of "margin calls" in my backyard as foreclosures are near all time highs. Point being, either way (stocks/RE), you still have to make those interest payments ... it's not free.
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Old 09-19-2007, 06:11 PM   #32
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Hey, I got a leverage deal for you: get a 0% interest, no-fee cash advance credit card and just put the money in a tax-exempt money market. That's none of your money invested (i.e. 0) and maybe $600 tax-free interest in a year. $600 divided by $0 is infinity. Try to beat that return.
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Old 09-19-2007, 07:35 PM   #33
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Well I'm not an econ teacher but that was my major. I invested in two properties recently, one in 2003 for $200K+ and again in 2004 for almost $300K. Together they are worth over $800K turning my almost $100K into $325K for a profit of $225K. If I'd invested that same amount in the market and got 12% returns I'd have less than $75K profit. That's leverage.
Look no further than honobob's post to see why you should ignore people who boast about real estate riches. Notice that honobob claims what they are worth, but they are not sold, so the profit is yet to be realized. Also, he failed to mention any of the costs and expenses associated with his investments....property taxes, insurance, maintenance, utilities, repairs, loss of rental income, homeowner's dues, special assessments, mortgage interest, closing costs, commissions for the purchase and the sale of each property, legal fees, time spent, capital gains taxes. I wonder what his REAL profit is?
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Old 09-19-2007, 08:07 PM   #34
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Look no further than honobob's post to see why you should ignore people who boast about real estate riches. Notice that honobob claims what they are worth, but they are not sold, so the profit is yet to be realized. Also, he failed to mention any of the costs and expenses associated with his investments....property taxes, insurance, maintenance, utilities, repairs, loss of rental income, homeowner's dues, special assessments, mortgage interest, closing costs, commissions for the purchase and the sale of each property, legal fees, time spent, capital gains taxes. I wonder what his REAL profit is?
Justcurious Didn't want to confuse you with the facts. Interesting that you think something has no value until sold. Also, you or I didn't mention RENTAL INCOME that pays for all those other expenses you mentioned except "loss of rental income" don't know what that is. My tenants deposit directly into my checking account so there's no chance of loss. Is that like when a business loses their lease? I explained the capital gains tax. Is English you second language? I spend less than 8 hours per property per year so I guess that 56 hours to get an extra $150K is $2700 per hour. Am I boasting or just sharing my experiences?

What is your point anyway? Can you share your real estate experience?
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Old 09-19-2007, 08:42 PM   #35
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Justcurious Didn't want to confuse you with the facts. Interesting that you think something has no value until sold.
Maybe what he meant is that until you sell the property you won't really know what the property's really worth because its actual value is determined by what people are willing to pay for it. And until you sell, you won't know for sure. It might be different from what YOU estimate the property to be worth (in all fairness, the actual value of the property could end up being higher or lower than your estimate). Maybe I misunderstood, English IS my second language...
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Old 09-20-2007, 11:31 AM   #36
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As someone pointed out... it is location, location, location...

Go up to Detroit and try making money in RE... you will lose big time... their prices are falling and have been for awhile...

In Houston, the prices rise very very slowly... you will not make money here... unless you have a lot of time on your hands... and then, stocks would do better....

Now, in SF, or NY or Boston etc... yes, you could have made a killing if you had the money to invest.. I know of one guy who was trying to buy up places in downtown NY after 9/11... prices dropped throught the floor. I bet he did very very well...
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Old 09-20-2007, 02:43 PM   #37
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Hey, I got a leverage deal for you: get a 0% interest, no-fee cash advance credit card and just put the money in a tax-exempt money market. That's none of your money invested (i.e. 0) and maybe $600 tax-free interest in a year. $600 divided by $0 is infinity. Try to beat that return.
I do something similar to this, except it's a balance transfer, not a cash advance, it's six cards, not one, and I use a taxable money market. This year I will earn about $5K in (taxable) interest. Still worth my time.

2Cor521
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Old 09-21-2007, 10:55 AM   #38
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$600 divided by $0 is infinity.
Small nitpick: no, it's not.
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Old 09-21-2007, 11:22 AM   #39
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REALIZED PROFITS?

What is Schiller missing? Condo sales!!
Here’s a history of a nice little 2 bedroom in SF. 999 Green street #2904
Sold 12/2/98 $635,000 Resold 4/4/03 $918,000 +$283,000 in 52 months
44.5% increase
Resold 10/7/05 $1,435,000 +$517,000 in 30 months 56.3% increase

Real estate is dead! Long live real estate!

And in case you missed this in “you know when you’re in a bubble”

Newer 192 unit condo. Sales in 2004, right around this bubble prediction and resales in 2006 & 2007.

200 Brannan SF CA
Bought
8/30/04 $440,000 Sold 2/9/07 $640,000
+$200,000 in 30 months
9/10/04 $795,000 Sold 4/19/07 $1,150,000
+$335,000 in 33 months
9/22/04 $932,000 Sold 3/7/06 $1,265,000
+$333,000 in 18 months
10/22/04 $708,000 Sold 2/23/07 $890,000
+$182,000 in 29 months
11/9/04 $678,000 Sold 3/31/06 $820,000
+$142,000 in 17 months

Walking away with over $300K in tax free money would go a long way towards early retirement.
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Old 09-21-2007, 12:27 PM   #40
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Justcurious Didn't want to confuse you with the facts. Interesting that you think something has no value until sold. Also, you or I didn't mention RENTAL INCOME that pays for all those other expenses you mentioned except "loss of rental income" don't know what that is. My tenants deposit directly into my checking account so there's no chance of loss. Is that like when a business loses their lease? I explained the capital gains tax. Is English you second language? I spend less than 8 hours per property per year so I guess that 56 hours to get an extra $150K is $2700 per hour. Am I boasting or just sharing my experiences?

What is your point anyway? Can you share your real estate experience?
Oy Vey. I didn't say something has no value until it's sold. I meant that you don't know the value until you sell to a willing buyer. Until then, you are making an educated guess based on comps.

"Loss of rental income" refers to the risk that your tenant will simply not pay the rent, or, that the tenant will move out and you will not be able to find another tenant for some period of time. Thus, you lose some rental income.

The fact that your tenant deposits directly into your account does NOT mean that there is "no chance of loss." What if they simply decide to stop making deposits?

By the way, English is not my second language, and you should not attack someone simply because they challenge what you are saying. That is immature.
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