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January 21, 2013 at 3:08 PM in reply to: Over 21% of homeowners in SD County have paid off houses #758173January 21, 2013 at 2:46 PM in reply to: Over 21% of homeowners in SD County have paid off houses #758169carlsbadworkerParticipant
Thank you for sharing, especially flu for your numbers.
I now know why I originally arguing for less debt why you argue for more debt even though we have the same view point. Your debt/asset at 21% is quite low. I do think you can safely increase your debt level.
My family expense is relatively rather significant to my paycheck now. So I have some mental push back when people are saying that more leverage is a good thing at 3.5%. Like you, I don’t want to end up with a debt/asset over 50%, considering the chance of $0 cash flow from rental property, which is so easy to happen as I have only one right now.
January 21, 2013 at 1:24 PM in reply to: Over 21% of homeowners in SD County have paid off houses #758166carlsbadworkerParticipantI am agreeing with AN/flu now since they are not really talking about leveraging at all costs and never pay off the house ever.
I actually don’t mind having a mortgage or all in for “risky” assets when I get old, contrary to the conventional wisdom. I don’t believe just because you are in 70s, you should avoid stock market.
The key to me is cash flow. If you have enough cash flow to handle your retirements, you (and your heir) are better off if you are invested in an asset class that over-perform in the long run. For the same reason, I am against over-leveraging, because all you have is quite some assets in your balance sheet with no cash flow to show for it. You probably won’t need the cash flow now but your investment strategy should have a plan for positive cash flow 15-20 years from now, which means that you will start to pay off the houses (investment property first, then perhaps the primary) at certain point of your life. I am against addicting to leverage just because it produces better return because sooner or later you may lose your ability to earn your paycheck…and it could come earlier than you expect it.That still leaves us one question, AN/flu. What do you guys think is a proper cash holding right now in this kind of environment? I would think there would be some of emergency fund plus enough down payment for the next rental property? I don’t know what’s the magic formula here? Since you are not finding a rental property with the limited inventory in MM and you don’t want to pre-pay the house, you just watch the cash reserve starts to grow? Or just gamble it with the stock market even at the current high valuation?
January 19, 2013 at 4:00 PM in reply to: Over 21% of homeowners in SD County have paid off houses #758044carlsbadworkerParticipant[quote=earlyretirement] Absolutely leverage can and does work out for people but it does people in as well. From my experiences over the past many years investing, I’ve learned that people are quick to tell you about all the great genius stock picks or other investments they have made that made great returns. However, they neglect to tell you about all the bad investments or stocks they have made that have lost a lot of money. (Especially on these message boards).[/quote]
I am agreeing with ER on this one. What is so nice about other investments that are tempting people to leverage up at the moment? Jeremy Grantham’s GMO is forecasting 0.1% annual return from U.S. large and -0.8% annual return from U.S. small in the next seven years. If U.S. stock is at the 2009 low, I would agree to leverage up. But what do you leverage up for right now? For rental property, it is not like you have many selections out there. So it is pretty much sitting in cash earning 0.1% anyway waiting for the right opportunity to come.
January 18, 2013 at 9:16 PM in reply to: Over 21% of homeowners in SD County have paid off houses #758022carlsbadworkerParticipantI have seen many arguments against paying off houses but still I am not convinced. Equity is like a bond (in fact you are buying your own mortgage bond) and I don’t think it is a good asset allocation strategy to completely avoid bond.
I think it depends on the goal of your life. I would rather have 4 paid-off investment properties that generate cash flow every month than 10 investment properties that are cash-flow break-even. Besides, it is much easier to hold on investment properties with up and down in market value if it cash flows.
I do agree that equity in the primary home that you live in is pretty dead though…because by definition since you are living in it, the money won’t generate any cash flow. (Maybe except at the very end of it, you save the extra mortgage payment)
And tell me how you can get more than 3% with craps on craigslist without much effort with $100K+?
carlsbadworkerParticipantscaredy, at least you got a nice house. Not everyone does. Most people just got an OK house for what they can afford…especially now there is no inventory.
carlsbadworkerParticipantI feel stupid most of the time lately…except occasionally when I am very productive at work. Life is just a giant roulette. Even if you just won a lot, you are never able to tell whether you will lose all the next round.
January 15, 2013 at 7:53 AM in reply to: Hottest Up-Coming Neighborhoods in 2013 : Mira Mesa #757729carlsbadworkerParticipantYeah, but imagine what will happen when Zion’s new store opens to take away Hmart’s business.
January 14, 2013 at 2:55 PM in reply to: Hottest Up-Coming Neighborhoods in 2013 : Mira Mesa #757704carlsbadworkerParticipantYes, scaredy. We have all been there for the five stages of grief: denial, anger, bargaining, depression, and acceptance.
carlsbadworkerParticipantYes, Blackstone is not a dummy but there are mom-and-pop investors who think otherwise. I don’t think this is because of they “add the most value with the least cost and downtime and extract the most profit.” Many long-time mom-and-pop investors can do that as well and they know the local market better. But I think this is because Blackstone seems to be buying a segment of rental property market that is not the traditional “rental property” material. Like the other thread on “nightmare renting to people in a low income area”, mom-and-pop investors seem to focus on the traditional aspects of valuing a property, such as cap rate, gross rent multiplier, etc.
From what I read, the hedge funds have slightly different focus to avoid competition. They focus on bigger property (3000sqft rather than 1200 sqft), somewhat nicer property, and perhaps in somewhat nicer neighborhood. They are buying those houses that mom-and-pop investors would say “there is no way I can make the number work” but at the same time, those are also below replacement costs or 50%+ off properties. So clearly, hedge funds are thinking about their exit strategy few years from now when new constructions will start again and housing market again is healthy, while mom-and-pop investors typically don’t. They will be happy to labor hard to earn the yearly rents.
Maybe when everything settled down few years from now and we look back in history, they may be able to teach us something. Of course, mom-and-pop investors probably still lack the ability to analyze the potential appreciation yield, the economics of scale to execute, and have different investment motive.But then again, there is also the possibility that the hedge funds really lack the experience of buying rental properties so they may be foolish in the end. I don’t bet on it though.
carlsbadworkerParticipant[quote=flu]Seen plenty of people who make a hell of a lot of money, but have shot credit, because they have a spending problem.[/quote]
On the other hand, if people have good credit and good income, they will probably be qualified for loans. Why would they rent from you since rent is higher than PITI in many cases?
carlsbadworkerParticipant[quote=flu]Morale of the story…..borrow as much as you can at these ridiculous fixed term rates. Because in a few years this is gonna look cheap.[/quote]
I won’t over-borrow just because the rates are low.
Couple of years ago when Greenspan first started to offer ridiculous low interest rate, I had a friend who said “I don’t care the housing price is high. Couple years from now, maybe the price will drop but the interest rate will move up. And we end up in the same boat”. Fast forwarding a couple years, he has now foreclosed his house and moved to Arizona.
Maybe the rate will become cheaper again…after the initial bond price hike kills corporate America which is now very addicted to cheap debt. And if unemployment is 25%, I don’t know how one (household or corporation) can pay back the principal regardless of the interest rate.
carlsbadworkerParticipantEnd of QE coming?
From Fed minutes: “In considering the outlook for the labor market and the broader economy, a few members expressed the view that ongoing asset purchases would likely be warranted until about the end of 2013, while a few others emphasized the need for considerable policy accommodation but did not state a specific time frame or total for purchases. Several others thought that it would probably be appropriate to slow or to stop purchases well before the end of 2013, citing concerns about financial stability or the size of the balance sheet. One member viewed any additional purchases as unwarranted.”
carlsbadworkerParticipant[quote=NeetaT]I think we send the wrong message by imposing higher tax rates based on the more money you make. The message says: “You’re not supposed to make that much money” “You’re not supposed to live that good” “You’re not supposed to drive that luxury car, thus luxury tax imposed”. I know that 95% of you will not agree with me, but I just had to throw it out there.[/quote]
I always think progressive tax is a form of bribe from the rich to the poor so that they don’t riot in the street. The rich always has more to lose so they pay more to maintain the status quo.
carlsbadworkerParticipant[quote=no_such_reality]I’m partly bouyed by a ad-hoc poll on the LA Times on the fiscal cliff deal article. It’s showing 90% saying spending is the problem. That’s on the typical uber left LA Times readers.[/quote]
They favor cut spending but not any spending cut that will impact them. Just look at last year’s CA propositions for increasing taxes on education. Just like people say that revenue should be raised but it should not get raised from their taxes.
So as long as we tax somebody else and cut spending that impacts somebody else. As a nation, we will do just fine.
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