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People Using their Equity to Live on
Old 12-09-2005, 09:01 AM   #1
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People Using their Equity to Live on

Leveraging real estate is an excellent way of making money, if timing and market conditions are right. In the past, people have made millions on their investments. I do believe this lady outlined in this article teeters on the side of losing big time. A 5000 negative monthly cash flow? Living off their equity to pay bills?

http://sfgate.com/columnists/lloyd/

Personally, I don't have the intestinal fortitude in having all that debt hanging over my head. :P
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Re: People Using their Equity to Live on
Old 12-09-2005, 09:13 AM   #2
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Re: People Using their Equity to Live on

Quote:
They have $2.3 million in mortgage debt and negative cash flow that ranges from $5,000 to $15,000 monthly depending on the season.

So how do they pay the bills?

"We sort of count our equity loans as our income," she says, with the slightest wince. "If we had real jobs, we'd be fine, but we just need to get some money in. Some people call it a pyramid, but I don't like to think about it that way."
They've built a house of cards on little more than shag-carpet as a foundation.

It'll be a rough road ahead.
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Re: People Using their Equity to Live on
Old 12-09-2005, 09:55 AM   #3
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Re: People Using their Equity to Live on

Just reading that clip from the article gives me the heebies bigtime. Why do people do things like that and do they really think it won't blow up in their faces?
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Re: People Using their Equity to Live on
Old 12-09-2005, 10:20 AM   #4
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Re: People Using their Equity to Live on

This thread doesn't belong in "Young Dreamers", it belongs in "Older Hallucinators"...
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Re: People Using their Equity to Live on
Old 12-09-2005, 10:36 AM   #5
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Re: People Using their Equity to Live on

Note to self:* Check on these folks in a few years.* :
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Re: People Using their Equity to Live on
Old 12-09-2005, 10:45 AM   #6
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Re: People Using their Equity to Live on

This type of investing makes a lot of sense for a certain type of person. I would guess that people who leverage the heck out of themselves think it's a sure-fire way to get rich, but all the real estate bankruptcies tell a different story. Still, if you're young and have very little net worth then you're making a nearly free gamble. Heads you make a couple million dollars and get started in real estate. Tails you go bankrupt and aren't that much worse off then when you started. With the money that I have to lose right now, and given the way real estate prices are right now, I won't touch the stuff, but even at the rediculous prices that we have I would be a buyer if I were back at my early 20's net worth.
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Re: People Using their Equity to Live on
Old 12-09-2005, 11:21 AM   #7
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Re: People Using their Equity to Live on

Leveraging the equity in property to acquire more property is the game that Robert Kiyosaki and other financial "gurus" espouse rather strongly. That's a great strategy if you can weather the invariable downturns in the market, both in the form of falling real estate prices and empty rental properties, where you still need to come up with the monthly mortgage payment. Even Suze Orman pushes ownership of real estate as a way to leverage huge gains on a small down payment. Real estate is never as simple as the foregoing "experts" represent, for if it were, why would they be spending most of their time selling books, going on speaking tours, and writing newspaper/magazine columns?
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Re: People Using their Equity to Live on
Old 12-09-2005, 01:50 PM   #8
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Re: People Using their Equity to Live on

Quote:
Originally Posted by Jay_Gatsby
Leveraging the equity in property to acquire more property is the game that Robert Kiyosaki and other financial "gurus" espouse rather strongly.* That's a great strategy if you can weather the invariable downturns in the market, both in the form of falling real estate prices and empty rental properties, where you still need to come up with the monthly mortgage payment.* Even Suze Orman pushes ownership of real estate as a way to leverage huge gains on a small down payment.* Real estate is never as simple as the foregoing "experts" represent, for if it were, why would they be spending most of their time selling books, going on speaking tours, and writing newspaper/magazine columns?
I agree.
One has to evaluate the reason someone would want to train you as a competitor.
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Re: People Using their Equity to Live on
Old 12-09-2005, 02:01 PM   #9
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Re: People Using their Equity to Live on

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but even at the rediculous prices that we have I would be a buyer if I were back at my early 20's net worth.
Been there done that. *Bought 9 units north of Boston at the 1989 "peak". * Nearly bankrupted me and my partner as prices dropped 40-50% over the next 5 years. *Took 12 years to dig out of that hole. *Wrote checks at my first 3 closings as a seller (albeit small ones). *The next downward cycle is just a matter of time ... but when is anybody's quess.

It's all the same as it was 20 years ago: *cheap money, loose banks, greased appraisals, no money down, and a large crop of naive buyers. *Heck even the midnight RE info-mercials are reruns from the last boom ... they never specify the DATE the sales took place because they are reruns from 20 years ago.

Put yer seat belts on! *We live in interesting times.
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Re: People Using their Equity to Live on
Old 12-09-2005, 02:06 PM   #10
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Re: People Using their Equity to Live on

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Originally Posted by SteveR
I agree.
One has to evaluate the reason someone would want to train you as a competitor.
Try "coconspirator". More buyers in the market cause prices to increase, which leads to higher cap gains!

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Re: People Using their Equity to Live on
Old 12-11-2005, 08:45 PM   #11
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Re: People Using their Equity to Live on

I think her strategy would work if she had positive cash flow. The debt balance doesn't bother me BUT the $5k to 15k negative cashflow PER MONTH is way too risky. If I was them I would sell and invest in high quality TICs (Tenant in common) returning about 7-8%. If she had 1.3 million that would net her about 90k per year with less headaches and no taxes due on the sale of her beachfront golden handcuffs.
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Re: People Using their Equity to Live on
Old 12-12-2005, 05:27 AM   #12
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Re: People Using their Equity to Live on

She is doomed. Doesn't understand the difference between having stuff and having wealth. I guess "having" a bunch of properties makes her feel successfull even though none of them are payed for.
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Re: People Using their Equity to Live on
Old 12-12-2005, 07:40 AM   #13
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Re: People Using their Equity to Live on

Some of the more successful real estate investors I've met already have a buyer for any properties they're looking to puchase. For example, one guy I know is a mineral rights lawyer and an amatuer geologist who looks at properties around the country over long weekends. Through his professional work, he's gotten to know various executives with different mining companies and investors in mining interests. When he finds a decent property he buys it, already knowing several individuals that might have an interest in purchasing the property or the mineral rights.
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Re: People Using their Equity to Live on
Old 12-14-2005, 06:41 AM   #14
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Re: People Using their Equity to Live on

Quote:
Originally Posted by Arif
I think her strategy would work if she had positive cash flow. The debt balance doesn't bother me BUT the $5k to 15k negative cashflow PER MONTH is way too risky. If I was them I would sell and invest in high quality TICs (Tenant in common) returning about 7-8%. If she had 1.3 million that would net her about 90k per year with less headaches and no taxes due on the sale of her beachfront golden handcuffs.
Hey Arif. I've never heard of these (TICs) can you point me towards some info on this type of investment.
Thanks in advance
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Re: People Using their Equity to Live on
Old 12-14-2005, 07:18 AM   #15
 
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Re: People Using their Equity to Live on

These people probably got crushed when the dot bomb bubble burst.

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Re: People Using their Equity to Live on
Old 12-15-2005, 11:33 AM   #16
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Re: People Using their Equity to Live on

tick...tick...tick...tick...
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