Why do an all cash transaction when interest rates are so low? Looking at interest rates tracking house prices over the last couple of years, the monthly payment seems to have stayed the same, tracking the prices pretty closely relative to interest rates. If you do all cash, it seems you’re paying a premium price that’s premium due to low rates, but not getting the benefit of the low rate? Or is it because the rates on an investment property are too high?[/quote]
because I have the money sitting in a money market account earning 0.01% interest.
I think stock market is a bit frothy right now so don’t want to put money there.
we went to look at 3 properties this past weekend but were not interested in any of them.
will update in the future…[/quote]
My sentiments exactly. Share values are way too high. Bonds can only go one way from here. Cash earns nothing. What else is there? Hard money lending? Not for the timid. Sure you can get a loan, but the magnified gains on the capital you put in can just as easily be magnified losses. That’s the high risk nature of leveraged investing. Buying all cash is what many investors have been doing, because you are parking money in a tangible that is less volatile and a little more transparent than other forms of investment. The returns were (past tense) promising. Now it is more of a challenge thanks to a crowded market, but I believe not impossible.
Home prices are way too high in most of CA and other major metro areas, and I would steer clear of anywhere with herd investors. That is of course, unless you think prices will continue with an upwards momentum. Signs are, however, the tide may be turning. My rule of thumb is to aim for a cap rate of 5%. So for every $100k invested I want $1,000 rent a month. The lower price range (+/-$100k) can achieve this but the risk increases. The rent will cover all expenses (50% of income) including management (8-10%) and void periods (5-8%). With a CA budget you can buy multiple homes elsewhere and strive for a diversified portfolio. You will need time, patience, and expect a steep learning curve.
