Get Rich Fast (you chump)

[DRiP Guy]

Did not work out so swell for this "investor":

Casey Serin - Wikipedia, the free encyclopedia

Casey Serin - CaseyPedia

 

[honobob]

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.

 

[Lsbcal]

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

 

[RunningBum]

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.

 

[FinanceGeek]

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.

 

[tryan]

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.

 

[LOL!]

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.

 

[JustCurious]

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?

 

[honobob]

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?

 

[FIREd]

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...

 

[Texas Proud]

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...

 

[SecondCor521]

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

 

[kombat]

$600 divided by $0 is infinity.

Small nitpick: no, it's not.

 

[honobob]

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.

 

[JustCurious]

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.

 

[DblDoc]

Small nitpick: no, it's not.

LOL

Reminded me of my early days programming and having to debug those pesky "div by 0 errors"

DD

 

[eridanus]

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.

That reminds me...none of my friends or colleagues have gone to Vegas and lost money. I wonder how the casinos stay in business?

 

[eridanus]

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.

If you have enough liquidity, you can't be forced to sell your stocks either.

You can get leverage of 95% on futures.

 

[RetireDon]

My father retired without a pension and $100k in savings in 1953 and when he died in 1977, his estate was worth >$750k - after living well for 24 years on nothing but social security and the money he made from buying, renting, and selling real estate. Whenever I came home from school and smelled bread baking in the house, I knew that our house was for sale and Dad had prospects coming to look. Real Estate has always been a good, long term investment!

 

[honobob]

... you should not attack someone simply because they challenge what you are saying. That is immature.

• I do know the value of my properties at this time within 10%. I used the absolute lowest value in my computations to not over state my returns. Wouldn’t want to appear boastful. I could put both properties under contract within 2 days at the figure I used.

• “Loss of rental income” Never had it but I know what it is. Didn’t you see the smiley face? If you read any of my posts you’d know that I have not had one day of vacancy in my rentals in over two decades. You’d also know that I advocate buying properties that are and probably will be in high demand for the foreseeable future. The people I see that fail in real estate buy “deals” and then find out why they were deals. I also pick tenants that are highly unlikely to default. I have high demand so I can be choosy and if there is any skill in what I do I’d say it was the ability to pick the correct tenant and live up to my contractual obligations. And if you didn’t get the smiley face I thought the “lost lease” was a knock on the head. My friends talk about starting up a secure storage business for leases since so many places go out of business when they lose their lease. Lose their lease. Rim shot please!

• I posted some facts about my real estate experience to demonstrate leveraged returns in real estate against some hypothetical 12% market returns on the same amount of money invested. YOU came along out of the blue to ridicule my claims and to claim I’m a braggart and encouraged others to ignore me or anyone else who claimed to make money in real estate based on nothing.

• And now you want to cry that I’m the attacker? Immature? My measured response, “Am not!”

 

[calmloki]

• My measured response, “Am not!”

Am so! Sorry, it had to be said. I accept that you've done what you've said and that your values are correct. We also have way more in rental property than stocks & bonds and wouldn't be anywhere near where we are had we not done what we did - But you are in a good area - kinda hard to lose. We are in a slower growth area, but good - values are still going up, but we are way undervalued compared to Hawaii or SFO.
Glad that the rentals are so low maintenance for you - I need to call in the Voodoo priests and do an exorcism. After getting rent 20 days late from a new tenant the law called about to kick in the door - ON THE SAME APARTMENT they kicked in a couple months ago! New late paying tenant was choking out his pregnant girlfriend. Did a 24 hour notice, he will get served in jail. Sigh. whatnhells wrong with people?
I rent to lower income folks and figure most everyone is entitled to a decent place to live, but this sure does make me cranky and less than charitable in being willing to give people a break.

 

[honobob]

[/list]Am so! Sorry, it had to be said. I accept that you've done what you've said and that your values are correct. We also have way more in rental property than stocks & bonds and wouldn't be anywhere near where we are had we not done what we did - But you are in a good area - kinda hard to lose. We are in a slower growth area, but good - values are still going up, but we are way undervalued compared to Hawaii or SFO.
Glad that the rentals are so low maintenance for you - I need to call in the Voodoo priests and do an exorcism. After getting rent 20 days late from a new tenant the law called about to kick in the door - ON THE SAME APARTMENT they kicked in a couple months ago! New late paying tenant was choking out his pregnant girlfriend. Did a 24 hour notice, he will get served in jail. Sigh. whatnhells wrong with people?
I rent to lower income folks and figure most everyone is entitled to a decent place to live, but this sure does make me cranky and less than charitable in being willing to give people a break.

Are you saying low income people are deadbeats, law breakers and wife beaters or just the ones you choose, or do you just open an empty apartment, throw some food stamps in and see what you catch?

Voodoo priest? Again a wrong choice, IMHO, I had a Chinese blessing ritual done on the unit with my 7 year tenant. Voodoo bad juju!

The OP was wondering if there were better returns possible in real estate. I know there are in the areas SF/Hono/Las Vegas where I invest. Don't know where he is but planes fly all over the country. My methods are easily reproduced and are actually very low risk. You seem to be making enough to put up with all the sh*t you complain about. There's a guy in my neighborhood who was written up in the paper because he's made a bundle in multi-family apartments. He keeps them very nice but collects the rent in person carrying a baseball bat. He's a high school dropout and worth way more than me but it's not the type of real estate activity that I would do or encourage anyone else to copy.

Why are you p*ssed at me? I know people who have problems with tenants/toilets/trash. My way has pretty much eliminated that. I'm not charging anything or trying to dispute your results in your situation or in your area. Yet some people need to vent on anyone who shares a way that works! I know misery loves company but didn't realize the intolerance level.

What have I done to deserve your wrath? You seem to be taking your frustrations with your tenants out on me. Maybe your inability to deal with the source of your problems is part of your problem. Just suggesting.

I empathize with your problems and realize it's possible I could get a bad tenant at some point. I'll deal with it in a professional manner and hopefully learn from it. But to your attack and name calling, "Whatever"!!

 

[calmloki]

Are you saying low income people are deadbeats, law breakers and wife beaters or just the ones you choose, or do you just open an empty apartment, throw some food stamps in and see what you catch?

Voodoo priest? Again a wrong choice, IMHO, I had a Chinese blessing ritual done on the unit with my 7 year tenant. Voodoo bad juju!

....
What have I done to deserve your wrath? You seem to be taking your frustrations with your tenants out on me. Maybe your inability to deal with the source of your problems is part of your problem. Just suggesting.

I empathize with your problems and realize it's possible I could get a bad tenant at some point. I'll deal with it in a professional manner and hopefully learn from it. But to your attack and name calling, "Whatever"!!

Hey Honobob - no wroth on my part at all - I was just funning you with the "Am so!" remark. Poor judgement on my part - ought to have realized you'd be a bit testy after people calling you out on the things that you've actually done. To be clear: all respect to you - well done on your choice of properties and tenants.
We've been dealing with low cost single bedroom units mostly, and it may well be the case that people in a lower economic strata have greater basic financial stressors, which may result in more disharmony at home. Could be that we are dealing with 51 units and the odds favor us getting more duds in a decade. Could be the VooDoo i was kidding about just isn't the right tack - one of my AmerInd tenants actually has offered to burn some sage and do a water ceremony (?) to clear that apartment of whatever bad energy might be there. Probably is the case that I'm a mutt and rent to more good story people than i should.
Bottom line though - real estate has been very good to both of us. Peace.

 

[honobob]

I am sorry. I did read it wrong. In SF the funning back response is "Are to! Am not! Are to! Am not!" "
"Am so" is as bad an insult as calling the City "Frisco". No wonder we Californians aren't appreciated in Oregon.
And I probably wasn't in the best space to enjoy the joke as it did go over my head.

I don't mind anyone calling me out, I support everything I say. It's just frustrating when people make statements about real estate that they can't back up or use generic graphs without any analysis of what it actually represents or the story of their friends sisters brother-in-law who lost BIG.

It's strange how all the people who are negative about real estate investing most always insist they made a deal on their purchase but anyone buying after them are certain to fail.

In my over 20 years of experience I've seen friends who sold their $200,000 homes cause the $100,000 equity was burning a hole in their pocket. They were convinced prices who drop back below $100,000 and they'd rent in the meantime only to see prices jump to $400,000 and rents increase so much that their $100K would only cover a few years rent. Now we're over $600K and new friends think this is the top and they want to sell cause they think their $300-400K equity has them set for life.

To see people who keep posting that you'll be able to buy properties at 50% off "if you just wait" just seems ignorant to me. I don't think they're doing anyone a favor on this board who are contemplating adding real estate as a component of their portfolio to reach FI. Does anyone have proof of a property selling at 50% less of a previous market value? Texas?

Bottom line though - real estate has been very good to both of us. Peace.

In the spirit of peace and rituals I'll "burn one" in your honor tonite.

 

[Texas Proud]

To see people who keep posting that you'll be able to buy properties at 50% off "if you just wait" just seems ignorant to me. I don't think they're doing anyone a favor on this board who are contemplating adding real estate as a component of their portfolio to reach FI. Does anyone have proof of a property selling at 50% less of a previous market value? Texas?

Yes... mine... and the house that I had bid on before my house...

First, I had bid on a house that had sold for over $200K back in the early 80s.. I had told the realtor that I could only afford maybe $75K... well, this house was just forclosed and it was NICE.. big yard, big house and cheap... they said I could get if for maybe $115,000... I said I could not go over $90K.. they did not want to put in such a low bid, but I insisted... well, they agreed to $90K... but, I could not get financing so it went down the tubes...

The house I am in I am not sure how much they had paid for it, but the closing docs said the existing mortgage was more than double what I was paying for it... maybe $1 or $2K more than double....

Now, will this happen again... I doubt it very seriously... from what I understand Houston had the worst drop in history in the 80s...

For another example... but this is condos.. my friend had bought a condo for $45K.. when the bottom fell out, they kept going down and down.. nobody wanted to lend money to someone buying a condo.. the prices actually dropped down to $5K... yes, you read it right FIVE thousand for a condo... but, it was in a bad part of town where you could hear the automatic gun fire of the drug dealers a mile or so away...

Again.. will it happen in the middle of SF.. not a chance... Hawaii not a chance... Vegas.. well, maybe.. there is lots of land there to spread out.. that is the problem with Houston.. but if you are in a good location.. not a chance...