patrick.net

No one should listen to any advice but mine.
Any other advice is useless and wrong.

Me: the best adviser and investor. You: the moron that doesn't listen to my advice.

I am not worried.
Really, I'm not worried!
Everything will be fine...

I am always right in every argument. Even when I'm wrong, I'm right.
I will search for old posts that you wrote during the housing crash to remind you that I am right.

Because I'm always right.

Right?

Right?

And I am still not worried.
Everything will be fine...

Are we becoming like China, where the people invest in real estate because they have to invest in something (and don't trust their banks)?

egads101 says

Never? the last bubble kind of proves that ain't true.

I guess it depends on what one means by "completely" disconnected. When assests or any type of trading or investment vehicles get truly overpriced, even if many know they are overpriced, it's anyone's guess how much more overpriced they can get. (see greater fool theory).

What has happened has already happened. So what is the strategy now?

Don't pay attention to any of the above.
Move to Toronto.
meetyaks says

What has happened has already happened. So what is the strategy now?

"-------->I wish I did not know this web site"

By meetyaks Follow Sat, 16 Nov 2013, 12:31am 1,027 views 58 comments

I hate this website too. IT IS SO ADDICTING. I can't give it up. I love it.

egads101 says

2. QE. etc. served to lower interest rates. maybe. that is all. So, you re-run your mortgage compared to rent. When I saw mortgages with 25% down, that would be half or less than rent, I bought. I don't need to think about QE ending, my mortgage is set for life. On one home I pay $605 and it is rented for $1500, on another I pay $425, it is rented for $900, and a third, I pay $675 and it is rented for $1500 as well.

My personal residence, I pay $1150, and it would rent for $1700.

Yes but even though you might be paying more for rent over what a mortgage would cost, keep in mind:

1. $200,000 if left invested in something other than a house brings at least $1000/month in return (spendable cash). Maybe more.
2. A mortgage doesn't cover maintenance (new roof, paint, carpet, plumbing repairs and so on). This has also to be added in.
3. Even if you borrow money to buy a home, your investment is very risky because of the leverage. Borrowing $200,000 with a small down payment (lets say 5%) means anything more than a 2% (or so) decline in house prices results in a 100% loss on your original investment.

Obviously item 3 works in reverse also, in that a small percentage increase in home prices results in dramatic percentage returns on your original investment (downpayment). That's why, even with moderate home price increases, many people will brag about how "smart" they were to buy a home.

Keep in mind that if there is so much seemingly "easy" money to be made by "investing" in houses, there is a huge amount of risk hidden somewhere. There is always the risk/return tradeoff. There is no such thing as a no risk, high return investment.

Of course some people will claim that they may very well have made tons of money investing in houses. Maybe even year after year. Which makes them brag even more (and claim even more that they are smarter than anyone else). But keep this in mind:

If someone flipped a coin 10 times, on average, you would expect them to get heads half the time, tails half the time (50% probability of heads or tails). A few people might get heads 60% of the time. But then imagine you had 100 million people do the coin flipping experiment. Out of that 100 million, there would like be one person that got all heads, for all 10 coin tosses. Does this mean that person had any particular skill at coin flipping? NO. It's just luck. Same thing with investing. Some people might claim to know the secret of when house prices will rise or fall a few percentage points up or down. And then brag about how "smart" they are. But, just like the coin flipping experiment, it might really just be LUCK. Even if someone has had consecutive "success" over time!

bullshitmagnet says

Obviously item 3 works in reverse also, in that a small percentage increase
in home prices results in dramatic percentage returns on your original
investment (downpayment). That's why, even with moderate home price increases,
many people will brag about how "smart" they were to buy a home.

The big difference between primary residence and investing in stocks/bonds/funds is that the former provides for consumption and investment value while the latter is solely an investment vehicle. That is a very important difference. Additionally I would argue that for most people bying primary residence that the investment considerations are secondary to consumption considerations. The proper analysis to use is price/annual rent ratio for apples to apples properties.

bullshitmagnet says

1. $200,000 if left invested in something other than a house brings at least
$1000/month in return (spendable cash). Maybe more.

Your scenario of 6% return is definitely not guaranteed to be located in secure investment vehicles. Even relatively stable companies such at T and MO are not returning 6% dividend yield right now. Oftentimes when dividend yield is high it's a warning that it's gonna be cut in the near future cause the shares have been getting beat down! Now if you are talking about capital gains "returning" 6%, that is an inaccurate analysis because capital appreciation in stocks doesn't mean anything until shares are sold unless you are a retiree trying to withdraw 4% of portfolio annually for the rest of your life.

meetyaks says

What has happened has already happened. So what is the strategy now?

What I would suggest is that you stop looking at the past. Yes if you compare today to 2012 and especially 2010 or 2011 you will find that not buying will easily cost you 6 digits from lifetime housing costs perspective. However, that is water under the bridge at this point. You need to make projections about buying now vs waiting going forward. Hopefully, you have been able to save some money meanwhile from 2012 or whatever period you originally wanted to buy which will somewhat soften the blow. Additionally, compared to 2010 or 2011 the interest rates are lower, so you should be able to afford a higher principal balance.

Keep in mind that overall bay area is not friendly to renters. There's evidence that wall street investors have been buying single family homes to rent out around here. The reason they do that is because they have ahem "confidence" that they can rent out properties at high rents which is what they call "stong rental market." What this euphemism means is that renters pay boatload in rent in this area so when you make your projections into the future, I would suggest that you don't set very optimistic assumptions for rental variables.

"The "housing is an investment" idea is a fad"

http://research.stlouisfed.org/fred2/series/CUUR0000SEHA

Bellingham Bill says

"The "housing is an investment" idea is a fad"

http://research.stlouisfed.org/fred2/series/CUUR0000SEHA

What this graph demonstrates is that housing is an excellent inflation hedge which should provide motivation to purchase as soon as it's feasible granted that price/annual rent ratios are reasonable.

http://research.stlouisfed.org/fred2/graph/?g=ozj

stunning to me that rents are up 50% since I came back to the US in 2000.

Rents in Tokyo have been flat or down since then.

Japan's depopulation is going to be a beautiful thing.

The US, not so much.

http://research.stlouisfed.org/fred2/graph/?g=ozm

Shows they've been 180deg out of phase with us since 1970.

Our boomer echo is just arriving into the work and housing market.

God help us.

egads101 says

So, where is the risk? if the home value dropped, which at this point it would have to drop a freaking ton to even where I started... well, I keep making nearly $10K a year in rental profit. on my $50K investment.

if you don't understand how good a 20% return is, well there is no hope for you!

Cocksucker? Such language. I apologize if I have offended you! Running a business as a landlord isn't pure investing. That's running a business/creating a job for yourself. So yes I would expect to hear that you would be making money doing it. Otherwise nobody would be a landlord and there would be no rental properties for rent.

BTW: there is no such thing as a risk-free 20% return on any investment. If any such investment exists, why would anyone invest in risk-free government bonds and earn next to nothing? Everyone would simply invest in your 20% risk-free idea instead (and, at some point thus lowering the return on your risk-free 20% investment to what other risk-free investments are earning in todays environment: essentially zero). Such high returns on something that is risk-free won't last long.

dublin hillz says

Your scenario of 6% return is definitely not guaranteed to be located in secure investment vehicles. Even relatively stable companies such at T and MO are not returning 6% dividend yield right now. Oftentimes when dividend yield is high it's a warning that it's gonna be cut in the near future cause the shares have been getting beat down! Now if you are talking about capital gains "returning" 6%, that is an inaccurate analysis because capital appreciation in stocks doesn't mean anything until shares are sold unless you are a retiree trying to withdraw 4% of portfolio annually for the rest of your life.

Yes, 6% dividend in todays environment without counting capital appreciation is optimistic. However there are funds paying nearly 4%, which aren't risk-free but do carry only a moderate amount of risk. And, as I mentioned, interest rates might rise in the future.

Please note that there are people posting on this board that are trying to convince each other that they are earning a risk-free 20% annual return by investing in homes.

dublin hillz says

The big difference between primary residence and investing in stocks/bonds/funds is that the former provides for consumption and investment value while the latter is solely an investment vehicle. That is a very important difference. Additionally I would argue that for most people bying primary residence that the investment considerations are secondary to consumption considerations. The proper analysis to use is price/annual rent ratio for apples to apples properties.

Yes I would agree. "Investing" in a home has benefits over investing in pure financial assets (stocks/bonds) in that you can actually live in a home. That benefit would need to be accounted for.

dublin hillz says

Keep in mind that overall bay area is not friendly to renters. There's evidence that wall

Most of the country in unfriendly to renters. You can be evicted for no reason, or have the rent raised at any point. There has been so much mentioned about the "rights" of homeowners/mortgage holders, with bailouts, multiple year squatters, QE buying mortgage bonds, and on and on. But why never any protection for the rights of renters??

bullshitmagnet says

So, where is the risk? if the home value dropped, which at this point it would have to drop a freaking ton to even where I started... well, I keep making nearly $10K a year in rental profit. on my $50K investment.

You could also buy a lawnmower for $100, and earn $1000 your first month mowing lawns. That would return to you over 10 TIMES your original investment!

egads101 says

if you don't understand how good a 20% return is, well there is no hope for you!

Not as good as 30% return without leverage. LOL. Both of us should probably count in the opportunity cost of money during renovation time if 20-30% accounting return is normal for us, and don't forget our own time's worth. e.g. for every $100k capital tied up for 3months to half a year for renovation, at our 20-30% supposed portfolio return rate, some regression has to be taken into account for the $10k or so rent missing when calculating overall portfolio return rate.

BTW, what's wrong with cocksuckers, Roberto? We need suckers. I only wish I could spend more time with cocksuckers, the work on the houses are taking time from having our cocks sucked . . . so that has to be taken into account too when it comes to calculating how much successful business is costing us. Sometimes, we lose not just the sucking, but the beloved sucker altogether due to our obsession with work . . . so raise rent accordingly to reflect the true cost of our labor.

egads101 says

Reality says

egads101 says

if you don't understand how good a 20% return is, well there is no hope for you!

Not as good as 30% return without leverage. LOL.

when someone says something like that, you know you are listening to a fucking moron.

Never under-estimate Reality. $110k all cash purchase, $40k renovation over 6 months (other houses/buildings had to be renovated first, so this one was on hold for 3-4 months after the roof leak was fixed immediately after closing). $5k monthly rent revenue now, of which about $4k is net; can potentially rise to $7k for revenue in the next couple months, as there are units not finished yet.

20-30+% is the accounting rate when money is working after fully rented, but we have to take into account times when the money is sitting idle, like being repaired and waiting for repair, not to mention the time for accummulating money shopping for houses. The real return is not 20% for you and not 30+% for me. We can't just count the winnings, and not fully count the time when money is sitting idle, in order to pounce on those opportunities or having too much on our plates after pouncing to bring each building online right after closing, or simply the building taking more work than a few days or few weeks.

egads101 says

Reality says

The real return is not 20% for you and not 30+% for me. We can't just count the winnings, and not fully count the time when money is sitting idle, i

dude, it took me 18 days from signing papers, till collecting rent. I've had the home for 20 months now, changed tenants once, it is on contract for 2 years with this second guy, and I STILL haven't had an entire month's vacancy since the day I put my John Hancock on the deed.

this newest guy made a big cash deposit too, since he has a cash business repairing motorcycles and hence no paychecks to verify...so do I get to count the $3.5K he has as security in my bank account?

Does AZ state law allow you to use that $3.5k to buy new houses and keep up with the 20% return? How long did it take you to accumulate the $50k to make the down payment? What was the return on that money while being accumulated? How much time does it take you to accumulate $50k now from rent income to get another house? That's what I'm saying. . . it's not a 20% return business for you, and not a 30+% one for me.

meetyaks,

There's a silver lining. You could have overpaid then but you still have the chance to overpay today.

egads101 says

Reality says

BTW, what's wrong with cocksuckers? We need suckers

I am planning to outsource some jobs :-) sawasdee krup, khun sabai dee mai?

I actually genuinely enjoy interacting with the same target demographic: young Americans not yet burdened by family and mortgage. I stay strictly professional with my tenants. CS duty and being my tenant are mutually exclusive. I do however get to know the target demographic better through my beloved CS girl: their priorities and their aspirations, so I can deliver housing services to the same demographic in a more cost effective way. Out-sourcing CS could be a costly business mistake if that makes me lose touch.

Also I prefer a challenge over a cake-walk. . . or I wouldn't be dating girls half my age. Sometimes it can hurt, but such is life. Some day, we will all move on, and the younglings will own the world.

Hey, for those doing the "disliking," lighten up! I buy dilapidated multifamily buildings and renovate them. First-time home buyers on FHA loans can not hope to buy them or fix them, at least not before I condominimize them many years down the road. My presence in the market definitely helps increase supply and thereby driving down cost of rent, at least enabling renters get more bang for their buck. Would you prefer a dilapidated eyesore in your neighborhood attracting copper thieves or would you prefer a renovated building attracting young professionals and grad students?

egads101 says

I sold 4 investment properties in 2004-2005 and put the money away, waiting for the crash.

So we are talking about 6%, 6%, 2%, 1%, 1%, 1%, 20%, 20% for each of the 8-9 years.

egads101 says

Reality says

I actually genuinely enjoy interacting with the same target demographic: young Americans not yet burdened by family and mortgage.

I am not a party person, so that makes it tougher,

I'm not at all a party person. I do not at all want party persons as my tenant, therefore there would be nothing to be learned from having a partier CS. OTOH, competent young people with a full life of possibilities ahead of them are just so much more fun to be with.

egads101 says

Reality says

Also I prefer a challenge over a cake-walk. . . or I wouldn't be dating girls half my age. Sometimes it can hurt, but such is life. Some day, we will all move on, and the younglings will own the world.

Well, why fish in the lake where the fish don't bite? there is always the philippines! and I'm learning to read, write and speak thai!

Not biting is the least of my concerns. Sometimes the bite backs can really hurt. LOL. I guess we are playing slightly different kinds of sports. I'm not using hooks and barbs, but trying to get them to eat from my hand instead ;-)

BTW, best of luck with your run. I remember those sub-5min years. I'm in my 40's, haven't run a timed 1500 for at least a decade. Nowadays I reserve my energy for vertical buildings and horizontal dances . . . and occasional online pissing matches.

egads101 says

I'm not sure what you are talking about, I've never dated a tenant.

Like I said, dating and landlord-tenant relationship are mutually exclusive for me. However, the people I date do often give me ideas what the younger generation value in housing.

I target my business at that specific demographic largely because of my specific location and I prefer an upward mobile clientelle. The home ownership rate in the general population is close to 60% whereas that of the 25-35 is around 40% . . . my estimate for the under-30 crowd is less than 20%, especially in urban areas and especially in areas of higher education prevalence requiring higher barrier to entry to good jobs..

I don't meet most of my tenants, or if I do, it is after the fact. I have a property manager for most of my properties.
In fact, sometimes I've gone over to do maintenance work, and they never know I'm the owner while I'm installing a faucet, or disposal or something. I find it fascinating to see how people talk to/ treat what they perceive of as a blue collar person who is beneath them! (and I've often wandered how it would play out if I told them I own the home, but I never have!)

LOL. Yes, the younger generation is often more class-conscience than we were.

egads101 says

investment, that earlier on this thread someone is saying was "just luck" keep saying that if it makes you feel better!

If luck doesn't factor into it, why can't you make the same investment right now?
I'm not discounting you. Rocket scientists exist, and you just might well be one of them. If you've had such investing success, you just might know something or have some technique that works.

I was just trying to make the point that just because someone has flipped a coin 10 times, and gets all heads each time (i.e. investing success), doesn't automatically mean they have some special skill in coin flipping. But as I say, when it comes to investing, you just might be that one in a million, rocket scientist.

Also, my point in thinking about gains as a landlord is that being a landlord is essentially a business that requires skill. If you are good at it, and have happy customers, then you will profit. That's totally different than just buying a house, holding it, and selling it.

I'm not sure if this is a good time to bring this up, but Robert Schiller has made the point that the average annual real return one can expect by buying a home, counting for everything, (repairs, maintenance, property taxes and so on) is:

0%

bullshitmagnet says

I'm not sure if this is a good time to bring this up, but Robert Schiller has
made the point that the average annual real return one can expect by buying a
home, counting for everything, (repairs, maintenance, property taxes and so on)
is:

0%

Not true. He claims the average annual real appreciation is zero. But, you have to factor in the rent "dividend" to get return.

tatupu70 says

Not true. He claims the average annual real appreciation is zero. But, you have to factor in the rent "dividend" to get return.

I think this is probably true if there is very low growth in population and productivity. But what about changes in demographics? In 2010 the US population was 80% urban, vs 75% in 1990 vs 63% in 1960 etc. With rising fuel costs and so on I expect this trend to continue, and if so isn't it reasonable to expect that urban areas will appreciate more than 0?

Is it just me or do yous see a paradox that Reality a staunch Austrian and Egads 101 a staunch Keynesian come to the same conclusion on what is the best investment?

bullshitmagnet says

But why never any protection for the rights of renters??

renters don't vote, and of the ones who do, half vote for social reasons not economic.

"Moral Values" -- 22% of the electorate. One of Bush's strongest groups in 2004 was "Walmart Shoppers" -- they broke 78% for him, the same level as the evangelicals, billionaires, and Orthodox Jews.

Also, once you buy a house, you become conservative to some extent. Rove knew this, which is why the Bush Admin pushed the "Ownership Society" so hard.

http://www.vdare.com/articles/karl-rove-architect-of-the-minority-mortgage-meltdown

Government is certainly the problem, when it is funded in a way such as ours is today.

Do away with income taxes on working people altogether would be a solution

Its not "got mine screw you" its quit picking my tattered pockets to fund your life of luxury

I didn't say that we should have no taxes. I said we should do away with income taxes on working people.

There's plenty of alternative means to funding government,,,,

egads101 says

The deficits are coming down dramatically as we speak. To further that end:

1. end the wars.

2. legalize and tax pot.

3. legalize and tax prostitution.

4. raise taxes on those who make more than $300k a year.

5. reintroduce an estate tax, on estates over say $2 million.

6. Sell visas to illegal immigrants, give them a legal right to stay. why the F should coyotes make $10K to bring a gardner into the country?

Thats just a start.

I agree with 1,2,3,6.

The real problem stems from the entitlements. Any politician who makes any serious reforms to these is committing political suicide. The real key is educate the mutts so they vote intelligently.

Another factor is that the US has been forced into being a spending country because China has held down the value of the Yuan. This is changing a lot.

Another factor is that US history has conflated government with other things such as religion or "the purpose of equality" in neither is in the Constitution and prevents a reconciliation of these problems because of this conflation.

It should create a rule of law, national defense, some regulation and that is pretty much it. It sure as FUCK has no business in healthcare, subsidies, tariffs, endless wars, financial equality, ANY violations of the 10 amendment, or a Federal government that subjugates the states.