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surveyor
ParticipantROE calc
I don’t buy the 12% year after year inflation returns in the general case. If you were really able to get real estate returns like that with such a simple method, no one would even bother with stocks or bonds.
Here is the calculation:
Return = (Cash Flow + Appreciation + Loan Reduction + Tax Benefit)/Downpayment
(all numbers annualized)
Analyzing properties using this formula, it is very possible to achieve more than 20% annual returns. A few people I know get more than 30%.
And it doesn’t surprise me that people don’t get into real estate because they don’t know about this. How many times have I read on this site about how moronic people are still buying houses? How many people here have derided the financial acumen of those who posted “well should I buy now or not?” And then you’re surprised that most people don’t know about how powerful real estate can be if used properly?
And to be honest, it’s a lot of work. But for those people who think that stocks perform better than real estate, I shrug and wish them luck.
Lastly, your home is an asset that you can live in. You can pay the mortgage, expenses, and all that, but it’s possible for you to use it to make your life easier. Now maybe it’s too risky, and maybe it shouldn’t be used that way. But if the equity gets to be great enough, it’s like having money socked under a mattress – sooner or later, you’ll ask yourself if you can somehow make the money work harder for you. Can you make your money work harder for you? Can it be efficient? If it’s too risky, great. Go ahead and sleep well at night. A lot of people do the standard – savings, 401k, Roth/Regular IRA, pension, CD’s, stock market. I do too. However I go the extra step and use the equity. That way, 100% of my money is working hard.
My suggestion is to research it yourself and see if he is correct. From where I stand, he’s wrong. I know a lot of people will read this guy’s article and think, yeah yeah he’s totally right because it fits with the bubble. However, like I said, don’t let your ideology blind you.
(disclaimer 1: i am not telling you to buy any California property or properties)
Participantleveraging
It doesn’t take overnight and it won’t make you a bazillionaire, but you can get rich using real estate through what davelj says.
Don’t let your ideology blind you to the fact that there are ways to make money in this real estate market, bubble or no.
ParticipantN/A
This article is only applicable to certain areas of the country where it is cheaper to rent than to own. For those places where rent is about equal to ownership, his argument starts breaking down.
For San Diego, New York, and other bubble areas, yes what he is saying applies.
Participantglass houses…
“Analyses” is the plural of analysis.
Participantgloom and doom
I will say what I have said before, too many people in here have too large of a gloom and doom view of things, and as a result miss good opportunities.
CAN I HEAR AN “AMEN” TO THAT! 🙂
Way too true.
Participantno bacon
I haven’t found a blog like piggington’s around Denver. This is the blog I usually read, but it is a realtor’s blog and they tend to be somewhat bullish on real estate.
http://adurbin.realtownblogs.com/
There is, of course, a huge amount of foreclosures around Denver. However, multi-units are and have been heating up in price.
Participanttalk about hopeless causes…
It just so happens I’m appraising a piece of land that will be built out as a subdivision right now. This one is located in Carlsbad. The timeline to get all the preliminary work done necessary to obtain approvals and record the subdivision map is at least 2 years, and that’s if the developer is on top of things.
Hmmm… City of Carlsbad. Two years to do the work for the subdivision map.
The best developer in the world couldn’t do that timeframe within the City of Carlsbad. The City of Carlsbad tends to ask for the moon.
The developer has my sincere sympathies…
April 26, 2007 at 11:08 AM in reply to: Tech is BACK!….Housing downfall might be limited in San Diego afterall. #51215Participantanecdotal data
I will have to say this is just another urban legend unless you have data to prove it?
The fact that my wife told me the information can be construed as anecdotal data. I do not claim it as prevalent, but it’s out there.
Anyways, the point is that maybe a number of engineers are frugal, but maybe their spouses do not feel the same way.
Me, I’m the spendthrift. My wife is the frugal one. Fortunately my vice is cash flowing real estate properties.
🙂
April 26, 2007 at 9:50 AM in reply to: Tech is BACK!….Housing downfall might be limited in San Diego afterall. #51199Participantengineer spouses
while engineers may be frugal, their spouses may not be. my wife would always tell me about how a few engineers would be always asking for promotions and raises so that they could fund their spouse’s excess (usually because they were second wives).
Participantchula vista
awhile back when we were searching for a house to buy, we considered chula vista. chula vista at the time offered new houses, a decent yard, and more square footage than comparable homes in north county/mira mesa area.
of course, that is no longer the case, but that was the reason to get a house there at the time. we ended up not getting a house there because of the traffic and distance however.
Participantdifferent markets
In charlotte 98-2002 rents and house prices went down. 02 rents recovered rapidly followed by a construction boom that saw house prices roughly stagnate but they sucked the wind out of the rents and by 05 rents were pathetic.
Hmmm proof that different real estate markets do not move in the same direction…
Cow, I believe since the discussion was about a Del Mar house, that all comments regarding inflation has been referring to San Diego’s core inflation rate, which has been above the national inflation rate for the last few years. Of course North Carolina will not have the same statistics. (did you live in San Diego recently? things are pretty expensive here).
Participantdiscount
If you do sign up for the class, mention that you heard about the class on cash 1700 AM radio and call on a Thursday. They will give you a discount. I don’t remember the discount, but it does cut the class amount down by 30% or something. Lisa has a radio show on Thursdays at 8:00a.m. (also livecast over the internet) on Cash 1700 AM radio. It’s good listening, but does not take place of the class.
Like I said, it’s really difficult to advise you on whether or not to invest in real estate. There are probably certain scenarios you can consider – like moving to a low tax state, buying properties around the country, buying and living in a four-plex, etc. There is a lot to also consider, because you are single, you might get married and want to have a proper house, or all that. Only you can consider all the variables.
Participantrecommendations
What exactly are you intending? Are you going to work in OK and then move back to California later? Are you interested in out-of-state real estate investing?
If you are intending the latter, you should do more research and take more classes in order to do so. I recommend Lisa Vander’s workshops at http://www.pacblueinvestments.com. Not only can she teach you how to do well in real estate, she also gives you access to various real estate agents around the country.
There are many areas around the country that have not experienced the appreciation that California has, and those areas are now experiencing growth. Will they grow like California? Most definitely not. However, if you realize the attributes of various market areas of the country and use those attributes accordingly, you will be successful in real estate.
I know that Lisa has recommended Oklahoma as one of the areas that will see some decent appreciation for the next few years. She classifies Oklahoma (as well as Missouri and Kansas) as a cash flow market – it provides good cash flow, appreciation is somewhat low. Other areas that are experiencing good real estate activity – North Carolina, South Carolina, Georgia (she classifies these areas as high appreciation, low cash flow market).
Like I said, it really depends on what you are intending and how much work you are willing to put into it. At least take the first class (real estate investing basics). If you feel that this is something you want to pursue, you can take the Road Trip Workshop, which shows you what areas to invest in and the various features of certain markets and how they can fit what you want.
Right now this is basically what I’m doing – taking the real estate gains that I have received here in California and then re-investing those gains in out of state properties. It has allowed me to lower my taxes to a great degree.
Now that all that have been said, yes, I would recommend investing in out of state real estate properties once you go through those classes. It will lower your taxes more than you can possibly imagine, you will gain appreciation which you can tap when you are ready to buy here in California. Also, it can help set up a second income for you so that you can essentially stop working at some stage and still get income. Once you see how it all works together, you will probably kick yourself for not doing this earlier.
Go do the classes first though.
Participantstill more research to do
I still have more research to do into it, but some of the things I’ve learned so far:
1. This depreciation also includes items such as carpet, hardwood floors, and other things that usually have to be replaced during the lifetime of the property.
2. The depreciation can be accelerated, allowing you to get 52% of the tax benefit within the first two years.
3. Chattel depreciation usually runs about 10% of the worth of the property.
I have to talk to one of my group, who is the person who is setting up a company that will refer you to chattel appraisers nationwide. From what he has said, it costs around $600. Probably not worth it if you have only one small worth SFR, but if you have a lot of properties, that 10% that you can depreciate can add up. It’s an interesting concept.
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