Purchase of Rental House

[honobob]

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Originally Posted by free4now Case Schiller data is out for March 2008, and the SF bay area is still declining. The bay area index value is at 168, down from 174 last month, and the high of 218 from 2006. This means no net appreciation between March 2008 and May 2004 when the index was last at 167. S&P | Indices > Alternative Indices - S&P/Case-Shiller® Home Price Indices - Home Price Values

Unfortunately Case-Shiller excludes ALL non single family home sales. All the condos that have appreciated 8-14% per year are excluded! Plus it is just a "three month moving average" of single family home resales. Just because one property appreciated 14% and another property was sold cheap in forclosure does not mean that there is no appreciation for the smart investor. It only means that some people weren't very smart.

This information has very limited use for the individual investing in real property. I'd love to see what paired sales he's using. I think they are also including the larger Bay Area to represent SF and that totally distorts the actual SF market.

[M Paquette]

Quote:

Originally Posted by honobob Unfortunately Case-Shiller excludes ALL non single family home sales. All the condos that have appreciated 8-14% per year are excluded! Plus it is just a "three month moving average" of single family home resales. Just because one property appreciated 14% and another property was sold cheap in forclosure does not mean that there is no appreciation for the smart investor. It only means that some people weren't very smart. This information has very limited use for the individual investing in real property. I'd love to see what paired sales he's using. I think they are also including the larger Bay Area to represent SF and that totally distorts the actual SF market.

What they call the 'San Francisco Metropolitan Area' is pretty darn large, and includes places that aren't exactly like the City of San Francisco...

http://www2.standardandpoors.com/spf...dology_Web.pdf

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San Francisco-Oakland-Fremont, CA Metropolitan Statistical Area Alameda CA, Contra Costa CA, Marin CA, San Francisco CA, San Mateo CA

This is a pretty large area. At least they didn't include San Joaquin County and Stockton. A few years ago, real estate types were actually pushing places way out there as 'an easy commute' to the San Francisco Bay Area. (An easy 3 hour each way commute to the SF Bay Area job centers!)

The downtown SF condo market doesn't correlate well with the Pittsburg/Antioch home market. Different target market, price range, and clientele. (Folks don't buy SF condos with nothing down to run them as urban pot farms until foreclosure... http://www.mercurynews.com/breakingnews/ci_9583397 )

[Pete]

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Originally Posted by rogersteciak The point is that each form of investing has its tradeoffs in terms of leverage, taxes, risks, time, capital, expertise, and so forth. As long as you stay within your circle of competence and use common sense, you will do OK financially over the long term.

I agree. That is why Baskin Robbins makes 31 flavors. But this type of bantering is what makes the forum. So the person who originally asked the question can get varied opinions and make a decision of their own.

For me, I'll take two scoops of easy and stay out of real estate.

[Deadbeat]

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Originally Posted by Pete I only have one problem with this. P+I on 80K (at 6.5% ?) is only 500 per month. What is wrong with a person who can buy for 500 per month and is paying you a 1000 in rent instead? Probably not the kind of people I want to deal with.

There are also taxes, maintenance and vacancies. These are the people you deal with every day. They live in all the apartments and many of the houses around you. There are many reasons people don't or can't buy a house. We have a new plant being built here creating a demand for upper end rentals to house the managers for two year stints; they don't want to buy. I have a 10+ year renter who is a bank manager (single lady), another who manages a Sports equipment retail store.

Quote:

Originally Posted by Pete The only other problem for me is that I live in Calif, and there is no such scenario here. If I did like owning real estate I would borrow out of my home and put the money in the Vanguard Reit which has a 12 year record of over 13%. If I borrowed 100k out of my house at 6.5% my payment would be 632. My return in Vanguard would be 1167, for a nice monthly profit of 535. Did I mention these REIT funds have nice dividends too? The best part is no renter headaches and I can be out of the investment this afternoon. If I was smart enough to average into the REIT over the years in my Roth there would be no taxes on the profit, and I could write off the interest on the loan. Capital gains and recup of depreciation stuck me good on the rentals I sold. Not to mention points, the real estate agent, etc.

R/E is local, but the ratios will still be close regardless of location. If price, term and rental rates aren't favorable don't buy. Properties can be exchanged to avoid capital gains.

To overcome and offset most of the the costs of buying and selling my wife became a part time agent and ended up going full time. She is now making many times what she had been in working for someone else. Sales are still fine in the South (not Florida). Although prices went a little high, we never had a bubble.

I also own REITS, stocks and funds but they will never make the kind of money I've made owning property.

As others have pointed out, there is no one best way for everyone, but people should understand the long term potential from owning rentals.