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Old 06-15-2011, 07:34 PM   #21
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The line between investment and speculation is always a grey one and in real estate even grayer. The folks who flamed out spectacularly were the people who had multiple rental units in hot markets like Florida, Vegas, Phoenix, and California.
I think Gatordoc was referring to only successful real estate specuvestors...
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Old 06-15-2011, 07:35 PM   #22
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Values are down here too. Last winter one up the street sold at foreclosure, now the one across the street from that is a short sale. So if we had to sell, even though we bought in 2001 before the big runup in prices, we'd almost certainly take some loss but we're in no hurry.

I take the view that there's only two times when the price really matters - when I buy and when I sell. And prices will be somewhat relative anyway in that the same type house here will sell for about the same as a similar house in a similar area somewhere else.

And if it doesn't, well, that's just another of life's lessons.
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Old 06-15-2011, 08:02 PM   #23
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After buying a second home for our own use last year we may just have to do more buying yet. Anybody actually see anything (stocks, metals, ?) being offered at anything like the sale prices of real estate? To me this is a huge screaming bargain bin and crying opportunity for market timers.
It's the old real estate saw: be cash flow positive. Otherwise you're just speculating. Being a bargain or not will depend on your local area and if the returns based on rents are there. Otherwise, you can hope for appreciation, and look at the last few years to see how that could work out.

IMO, this is probably the best comment on this thread:

Quote:
Originally Posted by W2R
In my opinion real estate is probably a great bargain right now, for those willing to tie up their money in an asset with little to no liquidity (and to be landlords) until the economy improves. That could be years or even decades, though, and I wouldn't touch it with a ten foot pole.
I'm bullish on real estate right now, but Want2 nailed two of the biggest downsides: illiquidity (which today is even worse than real estate historically is, and that's saying something) and being a landlord.

If you can't stomach the latter, stay away. If you can, you can find some amazing deals (cap rates of 15% plus, huge cash on cash returns plus tax benefits, etc)

Better be prepared to hold for 10-20 years though.


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Originally Posted by Nords
Has anyone on this board ever met a landlord with an actual exit strategy, other than "probate"?
Hmm. Interesting. Can't say that I have off the top of my head. Even thinking through the real estate investing books I've read (including some recommended by you several time on this forum), I can't think of legitimate exit strategies... Just 1031 into the next one. And most the landlords I've talked to mention benefits for heirs after death. Now I'm curious, I may research into that more.
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Old 06-15-2011, 08:06 PM   #24
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Ahh - depreciation - a sore point of mine. F'rinstance: Buy a place for $100k, the land is worth $40K, you get to write off - er - defer tax - on $60k/27.5 years, or $2181.81/year against your rental earnings. After 27.5 years lets say that the place has neatly kept up with inflation and appreciated at 3%/year and is now worth $225,364. The IRS will say that they expect depreciation recapture of the $60k and your $125,364 profit after the $100k purchase price. So you pay taxes on $185,364 of say 25% and walk away with $139,023.

My gripe is that if the property appreciated at the rate of inflation you need to walk away with $225,364 to have your $100k have the same purchasing power it had 27.5 years ago. Now I know my labor is inconsequential and all that rental income was "unearned income", but just what did the gubermint do that made me want to pay them $46,341, leaving me with less purchasing power than I had 27.5 years ago? Leaving out costs of sale, rental income, improvements and all that jazz because they don't have anything to do with the philosophical issue the IRS and I have.

Rentals better make money, 'cause you gotta die to win on the sale or transfer of them it seems like.
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Old 06-15-2011, 08:29 PM   #25
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There are so many houses for sale in our neighborhood. Many of them have been for sale for 9-12 months or even longer.

Then there is the house 3 doors (2 BR ranch) down that sold in about 3 weeks. I was waiting for an Open House to go take a peek and they never had one.
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Old 06-15-2011, 08:41 PM   #26
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Originally Posted by REWahoo

I think Gatordoc was referring to only successful real estate specuvestors...
People were buying dairy cows for the meat. I'm sorry their "investment" failed. Better luck next time.
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Old 06-15-2011, 09:09 PM   #27
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How about this: 1031 exchange all your little multi-family/rental properties at once in exchange for a small mansion. Live in the mansion for 2 years to make it your primary residence and then sell it. Walking away paying zero cap gains on the first $250k/$500k profit depending if you're single/married because of the cap gains exemption for primary residences.
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Old 06-15-2011, 10:35 PM   #28
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For the first time we are seriously looking at the possibility of a 2nd home. With that came the thought ...o.k. we want an option of having it produce income. We have found a short sale at a popular beach destination. Have not put an offer in yet. While I get the depreciation and the stepped up basis at death and the tax deductions...etc. I'm more concerned about what happens while I am on this earth.

So I am asking myself the questions others have brought up. Do I want that much money tied up in one asset that is not liquid? What happens if it doesn't rent? Do I want this headache and this risk?

I'm also finding the marketing on properties interesting..."things like 30% below tax assessment! Great Deal!" Well...if one does their homework and calls the assessors office one realizes that those assessments were 2006/2007 or 2008 assessments with new assessments scheduled to be performed in 2011 and 2012. People who are not in foreclosure or short sale and want to sell their home are trying to sell them now because they know the new assessments are likely to blow them further out of the water.
So in my mind the question for the assessor's office is "What did it assess for in 2002?
And that is the main question I'm asking.

We might just wait for new assessments....to take hold.

As a side note: I read in the Wall Street Journal there is something like some trillions of dollars from this housing mess sitting on the books of our banks with about 70% of it held by the 4 biggest national banks.

Personally I think it is slowly deleveraging...but it will take years to clear out the current and future inventory that will hit the books.
Scary times....
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Old 06-15-2011, 10:45 PM   #29
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So I am asking myself the questions others have brought up. Do I want that much money tied up in one asset that is not liquid? What happens if it doesn't rent? Do I want this headache and this risk?
We're holding on because:
(1) Landlording's not that bad, except when it is, and
(2) Our primary residence is in a good school district. Someday our daughter might want our grandkids to attend her old school (after the statute of limitations expires), so we'd put her family in the primary residence and we'd move into the rental.

And then, of course, the tax situation could get really interesting.

Or maybe none of that will happen. But in the meantime there's no compelling reason to sell.
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Old 06-15-2011, 11:03 PM   #30
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Has anyone on this board ever met a landlord with an actual exit strategy, other than "probate"?
Well, I did meet one whose exit strategy was "divorce" and a few whose exit startegy was "bankruptcy".

On a more serious note, why do you need an exit strategy at all? If you have brought properties which provide positive cash flow, why sell? Selling is expensive (transaction costs, taxes).
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Old 06-15-2011, 11:04 PM   #31
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We're holding on because:
(1) Landlording's not that bad, except when it is, and
(2) Our primary residence is in a good school district. Someday our daughter might want our grandkids to attend her old school (after the statute of limitations expires), so we'd put her family in the primary residence and we'd move into the rental.

And then, of course, the tax situation could get really interesting.

Or maybe none of that will happen. But in the meantime there's no compelling reason to sell.
Nords... That is sound logic as school systems are important. Not selling our primary either. Don't need or want to.

I just don't know if 50% off in this market is enough for me to bite. Some of these properties we've been looking at appreciated a ridiculous amount during the bubble. In some cases it was 300%.

If we can find something closer to the 2003/2004 assessment values which were more realistic then we might do something.
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Old 06-15-2011, 11:23 PM   #32
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Well, I did meet one whose exit strategy was "divorce" and a few whose exit startegy was "bankruptcy".
Ouch. Good point. I wasn't thinking globally enough.

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On a more serious note, why do you need an exit strategy at all? If you have brought properties which provide positive cash flow, why sell? Selling is expensive (transaction costs, taxes).
You're right, it's just my time and my labor... both of which the IRS claims are non-deductible, and to everyone else are worth only their barter value. At some point it begins to resemble "work", only with lower pay and fewer benefits.

We've been landlords for 14 of the last 17 years. It can become tiresome, but I suppose in another 20 years we'll know whether it's necessary for the progeny's schooling plans.
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Old 06-15-2011, 11:36 PM   #33
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For those that might be interested...on short sales. I was told by our agent that the bank involved is paying the seller a $33K moving fee. This particular seller has been out of the house for a year. So if by chance we actually did get the short sale...at settlement the previous owners who are severely upside down on their mortgage get paid a 33K moving fee. I told my husband this and he went "Huh? How does that work?".

So all sorts of hidden stuff goes on during a short sale.
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Old 06-16-2011, 04:56 AM   #34
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If someone is careful with their purchases and can fix them up themselves, they can probably make some money. This seems to be a unique time and it can provide an opportunity for those that want to work it.

Landlord/Renting single family homes is usually a small business with the owner being the manager/worker. Fixing them up is a job (labor equity).

One might use the opportunity to transition to this type of arrangement (semi-retirement) if they are ready to quit their day job (and willing to take some business risk). It is a longer term proposition... It has to be run like a business. As far as the exit goes, even in good times, real estate is somewhat illiquid.
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Old 06-16-2011, 06:28 AM   #35
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excellent discussion here on real estate and being landlords. I think exist strategy in real estate is like any other business. Sell take the profits (if any) and pay IRS and commission fee PERIOD. How is it different from selling a business, stocks, golds or any other assets

Of course, real estate investment is a business. You're in it to make money, just like you're go to work 8-9 hours a day to make money. Unless you're an expert in picking stocks and you buy gold and both of those investment appreciate then you "don't" really have to work or put money in the bank and get 1% in return.
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Old 06-16-2011, 06:30 AM   #36
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You think we might actually be in a depression? Not sure about others here but my part of the country is not good. There are 17 homes in my neighborhood for sale and have been for two years. Good time to buy?? Who can guess that one. oldtrig
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Old 06-16-2011, 07:02 AM   #37
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Sell take the profits (if any) and pay IRS and commission fee PERIOD. How is it different from selling a business, stocks, golds or any other assets
Still don't think real estate is as liquid as some of those other assets you mentioned. If I want to sell my jewelry or gold there is a market. Want to sell stocks, it's a click on the computer or a phone call away. Any business with decent assets and generating a profit should sell rather well. We've had my parents home on the market since 2006 (over 5 years). It's 51 years old, well built but the younger generations want newer, better (granite, stainless steel appliances, soaring ceilings, views..etc). It's a catch 22. To take advantage of appreciation you have to hold it for 20 years plus. By the time you get there, there are newer things on the market that are more desirable. Plus ...for primary homes...if it is over a certain price point, buyers think to themselves..."why don't we build ourselves and get what we want" (that's what I did)
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Old 06-16-2011, 07:24 AM   #38
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Of course, real estate investment is a business. You're in it to make money, just like you're go to work 8-9 hours a day to make money. Unless you're an expert in picking stocks and you buy gold and both of those investment appreciate then you "don't" really have to work or put money in the bank and get 1% in return.
And there are some CEF's out there yielding 8%+....

But...back to your main point. Some of the better yielding properties seem to be student housing in a university setting or vacation rental properties. Unless you can be very hands on doing all the work yourself...property management fees eat up 15% or more of your proceeds off the top.

I did the math on this property we are looking at and asked my husband "O.K....this thing has a positive cash flow of 3% of the mortgage balance a year and/or 3% of the downpayment. All expenses plus property management fees total 91% of projected profit. This was a straight line calculation and didn't include depreciation or tax advantages. It showed me we absolutely had to get good rentals in order for the property to carry itself.

So my questions/points were:
1. How long will it take us to pay off the mortgage if I throw the 3% back in against the mortgage? (we were going to put 50% down). The answer is 15 years. If I doubled down against it ...then may be cut to 7 years.

2. 3% doesn't sound like a lot for the risks

If I just kept my money and invested it...then I make money only for myself. On properties such as vacation properties, I make money for a ton of people such as the property management company, insurance company, utility companies, housecleaning, pool maintenance..etc..etc. (We are 3 hours away and there is no way we can do all of it ourselves).

Everyone gets a piece of the pie but I have all the risks. With that thought...I thought to myself..."Am I crazy or what?"


Other properties where it is not as important to have a property manager...might do better...
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Old 06-16-2011, 08:50 AM   #39
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Still don't think real estate is as liquid as some of those other assets you mentioned. If I want to sell my jewelry or gold there is a market. Want to sell stocks, it's a click on the computer or a phone call away. Any business with decent assets and generating a profit should sell rather well. We've had my parents home on the market since 2006 (over 5 years).
That means it's priced too high for the market.

If I tried to sell gold right now for $5,000 per ounce, it'd sit there for years with no buyer. If I tried to sell a stock way above its ticker price, I'd have no buyers.

If you want to compare selling houses to those other things, you have to compare it at market prices. Drop your parents house by a tied (or more, depending on how much they've overpriced it) and it'll sell. Sure, it'll take a bit longer (30 days for escrow, maybe), but it'll sell at market price, not above, like any other asset.
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Old 06-16-2011, 10:50 AM   #40
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That may be arbelspy...but there have been no offers at any price. There are few if any buyers in this area.

For the most part on this entire real estate topic...I'm playing devils advocate with myself. Am struggling with the decision. At the end of the day.we all have to do what we are comfortable with.
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