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Re: Own a home or rent??? *Another big debate
Old 05-14-2004, 05:02 PM   #21
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Re: Own a home or rent??? *Another big debate

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Consider two identical houses on identical lots in the same neighborhood owned by the same guy. *Both houses cost the same amount with the same maintenance. *He lives in one and rents the other. *Unless he is into charitable donations of housing space to his neighbors, he has to charge more for the rental than his own house costs.
A short check with your local MLS will show that this is not true, at least most of the time in the large coastal markets. Unless you are buying a hovel in a slum, it is very hard in many markets to get positive cash flow, even with a 20% or so down payment. Some years down the road, if all goes well, there probably will be positive cash flow. When one rents, he pays for the living space. The owner, on the other hand, is buying living space (to use or rent out) and an embedded call option on the price of the unit/lot, etc. Especially when real estate markets have been strong, that call is a big part of the attraction to buyers.

Mikey
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Re: Own a home or rent??? *Another big debate
Old 05-14-2004, 05:12 PM   #22
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Re: Own a home or rent??? *Another big debate

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How much extra do you have to pay for that?
The audio portion is free. The video portion requires a drill, so it's not free.
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Re: Own a home or rent??? *Another big debate
Old 05-14-2004, 05:14 PM   #23
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Re: Own a home or rent??? *Another big debate

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Either my apartments have been well insulated or my all my present and past neighbors are celibate.
I think some apartments are like Jim's, well isolated if not insulated.

My wife lives in a mid-market apartment, and my two sons in a luxury apartment, and neither unit has any common wall with any other unit. I think my wife's kithen/ DR has a common wall with another unit, but I have never heard anyone there in the five years that she has lived there.

Lately some gamers moved in under her, and sometimes on Saturday or Sunday afternoons I can hear their sub-woofer. But I would hear it in the suburbs too, if any windows were open.

She has a piano and an organ in her place, and plays them hours everyday, and no one has ever complained.

Another thing to consider is visual privacy. I have always either lived in the country, or in an apartment, never in a suburb. But when I have visited friends, often they have to walk around dressed for the street, or keep many blinds closed. Many apartments don't have big windows facing the neighbors big windows right across the street.

One last factor that applies mostly to single people. The apartment pool and even tennis courts are a nice social meeting place, and you don't even have to buy a drink.

Mikey
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Re: Own a home or rent??? *Another big debate
Old 05-14-2004, 06:00 PM   #24
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Re: Own a home or rent??? *Another big debate

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A short check with your local MLS will show that this is not true, at least most of the time in the large coastal markets. Unless you are buying a hovel in a slum, it is very hard in many markets to get positive cash flow, even with a 20% or so down payment. Some years down the road, if all goes well, there probably will be positive cash flow. When one rents, he pays for the living space. The owner, on the other hand, is buying living space (to use or rent out) and an embedded call option on the price of the unit/lot, etc. Especially when real estate markets have been strong, that call is a big part of the attraction to buyers.
Is that true? I have not dabbled in real estate as an investment (except for my own mortgage), but it is certainly not consistent with what I've read from other posters on the nofeeboards. And if I read you correctly, I have to conclude that most landlords are nuts. It sounds like a terrible investment.

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Re: Own a home or rent??? *Another big debate
Old 05-15-2004, 04:25 AM   #25
 
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Re: Own a home or rent??? *Another big debate

Real estate is a subject I know a bit about. It can
be a fabulous investment, but like almost everything
else you have to have some knowledge first.

I would guess over the past 11 years (but not lately
as I am no longer active) I've looked at 30-40
rental properties. By looked at, I mean a physical inspection and serious number crunching. Probably
called on or ran the numbers on about 30-40
others (no on site visit). Number of offers actually
presented was maybe 10. Number of rental properties acquired was -0-. The primary reason for no sales being
closed was poor (or nonexistent) cash flow. Who needs
that? In fact, I'd been at it so long that many times I
could see at a glance that anything remotely close to
the asking price would leave the buyer with NO chance
at positive cash flow. Bottom line here is that you
have to look at a lot of "dogs" before you find a good
investment. A lot of sellers know their price is ridiculous
but are hoping to find a sucker. Many of them do.

John Galt
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Re: Own a home or rent??? *Another big debate
Old 05-15-2004, 11:26 AM   #26
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Re: Own a home or rent??? *Another big debate

John, I bought one house in my life - the one I live in. I didn't have a clue what I was doing then and don't know much more now. I'll be moving before too long and buying another house, while simultaneously selling my own. Any advice? What are the biggest mistakes buyers and sellers tend to make?
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Re: Own a home or rent???  Another big debate
Old 05-15-2004, 11:54 AM   #27
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Re: Own a home or rent???  Another big debate

I was encouraged at one point several years ago to buy several properties that would produce negative cash flow (aka "negative rent"). The thinking was that between deducting the costs and depreciating the property, and having the income not offset the costs, it would produce some income reduction like a deduction tax-wise.

In that manner, one could buy (in the plan I was looking at) six fairly new homes @ 30% down on each, see a 50-60k annual reduction in taxable income, while six people paid off those properties for me. As rents increase over time, you eventually turn "rightside up" and start creating actual income, and by the time you retire (which would have been about 62 in this plan), you have six 30 year old properties fully paid off, all producing about 60-70k (in todays dollars) worth of net income.

I actually bought one, however before we closed escrow the owner backed out. While I had two more in my sights at that time, interest rates were starting to rise and property values had ticked up at the same time. While the "negative cash flow" proposition was edible up until that point, it now wasnt as good, and I was annoyed with the bail-out on the first sale so I decided to wait a while, and never got back in.

Turned out to be pretty damn stupid. Those homes I was targetting were selling for about 150-160k, and the rates then for "rental mortgages" were about 7.5%. I could have redone the mortgages to about 5.5% this year and those same homes are now selling for $250-275 just 5 years later. I could have either kicked back and started enjoying the 7500-8500 a month in rents or sold them all, pocketed a 100k capital gain per unit (with some tax hit), bought the same 150k homes in the cheaper area I just moved to, and ER'ed without the stock market windfall that ended up enabling me.

Of course this was a special situation. These were fairly low maintenance (1 year old, stucco exterior, concrete roofs, small lots), a 5 minute walk from several of the areas largest employers that LOVED to relocate people, and in a depressed RE market that was about to boom.
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Re: Own a home or rent??? *Another big debate
Old 05-15-2004, 12:38 PM   #28
 
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Re: Own a home or rent??? *Another big debate

Negative cash flow can be tolerated and is not
necessarily a big deal as long as the other
advantages are in place and you can see the payoff
in a "reasonable" period of time. It's always been
my idea that if you look hard enough you can find
properties with everything, i.e. solid cash flow/ROI,
appreciation, and maximum tax advantages. Then
if you get really lucky you might get great tenants too.
I was never that lucky.

John Galt
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Re: Own a home or rent???  Another big debate
Old 05-15-2004, 01:35 PM   #29
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Re: Own a home or rent???  Another big debate

I was a little worried about the tenant thing, but it was entirely likely that all of my tenants would be newly relocated people with good jobs and money who worked at the company where I was a very senior manager, and we didnt relocate people unless we anticipated them succeeding and sticking in a particular job for at least 3 years.

Not only would they be in good financial and work shape, I had the means to pull their employment files, read their reviews and see any performance issues current or prior. I'd also have a lot of potential positive and negative influence on their careers.

I doubted I'd have a whole lot of trouble with those folks.
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Be fearful when others are greedy, and greedy when others are fearful. Just another form of "buy low, sell high" for those who have trouble with things. This rule is not universal. Do not buy a 1973 Pinto because everyone else is afraid of it.
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Re: Own a home or rent??? *Another big debate
Old 05-15-2004, 03:14 PM   #30
 
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Re: Own a home or rent??? *Another big debate

To Bob_Smith

Buyers pay too much. Sellers take too little.

John Galt
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Re: Own a home or rent??? *Another big debate
Old 06-08-2004, 09:36 PM   #31
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Re: Own a home or rent??? *Another big debate

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Renting also gives you 30-50 years of steady inflation and housing market indexed payments and never stops. ...*you're simply paying someone else to take a risk.
I agree with the statement that it fixes your basic overhead. Mine is paid off and I live in a prop 13 state. So although my 400 Earthquake Ins / 1200 Fire Insurance can rise, my property taxes will only go up marginally from 2100 annually. If I rented, I would be paying 2500 a month to live here ... this way I pay around 310 per month + 90 for the gardener 'cause I don't want to do it ... about 400 per month. Improvements have averaged 500 per yr. Roof won't need replacing for another 35 yrs and windows have recently been replaced.

Owning my own home mortgage free enabled me to RE
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Re: Own a home or rent??? *Another big debate
Old 06-09-2004, 05:00 AM   #32
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Re: Own a home or rent??? *Another big debate

Location and lifestyle in ER. In my mind - that's it. Given the variety of poster's to this forum you can range from 'perpetual traveler' with your homebase in some boxes left with friends(Terhorst extreme) to homebase 'sticks in the mud' like us who don't travel anymore(at least currently). In LA outside New Orleans the renting case can be still comepetitive. We have a paid up fish camp over water.
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Re: Own a home or rent??? *Another big debate
Old 06-09-2004, 12:37 PM   #33
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Re: Own a home or rent??? *Another big debate

Unclemick,
There can be "something in the middle"...we recently put a link on our web-site www.geocities.com/ba264 titled, 20 QUESTIONS...or FAQ'S. We answer questions that have been asked of us over the 14 years we have been retired, including home ownership.

I hope this helps many of the future retirees.

Billy
Web-site www.geocities.com/ba264
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