WatchI posted this same thing last year around this time.
http://patrick.net/forum/?p=1174499
Once again, 2 years ago the doom and gloomers were telling me that I made the biggest mistake buying and that houses will crash ridiculous amounts from here. (1975 prices coming soon)
The truth is...I was happy with our mortgage when we initially bought because it was around what we used to pay in rent for a much smaller house. Then we refied...and now we refied again - what can I say? It seems like one of the few best moves I have made. Our "old" house we used to rent is still rented out to another sucker to what we used to pay for years. The best feeling knowing...our payment is frozen for 30y. It will never go up.
The doom and gloom has still not happened. Prices are higher now (which was reflected in both our appraisals in both refi's).
Let's take a moment and admit - you guys were wrong.
Well...I'll be back next year with the same message - and so the years go on...
Keep up the doom and gloom - if you do it long enough, you'll be right again! Good luck!!
Merry Xmas!
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RentingForHalfTheCost says
I am not sure how I would save 3500/month by renting? Since the refi I am saving more money monthly than when we were renting. Something like 350 a month more than when we rented.
Please lay down your math of how you are saving $3500 a month?? Living with the parents for free would be the only option but who wants to live with the parents for 10 years??
Patrick says
Thats a non sense assumption I think. I know way more people that have been in their houses for more than 10 years. Most of our neighbors (except the renters) have been here for more than 10-20 years or even longer.
I think if you have a job that calls for constant moving then...don't buy. I personally work from home and can live pretty much anywhere as long as within a 1hr drive to the city where I have an occasional meeting. So, I am not moving anytime soon, if ever. Will only change around / update the house around over time...and completely mold it to my taste and liking. Been looking forward to that my whole life. We so much hated rentals, always in bad shape and never a landlord that doesn't want to just update in the cheapest possible way...need a new floor...how's that linoleum working out for ya guys? - argh!
It's such a crappy life quality and we used to travel a lot and spend a lot more money outside of the house because we hated being home. So in essence, we saved way less in those times than just comparing rents to mortgage.
To each is own.
But even in your assumption of 6 years patrick. I could move if I wanted to because as of right now, I could rent the house out for $500 more a month than what we pay. So if I wanted to move to Florida, I rent out this house and move...just like anybody else.
dodgerfanjohn says
Who says you need to commute to the West Side??
TO for example has its own job infrastructure.
Look at traffic in the morning. The 101 going towards TO is PACKED, bumper to bumper. It seems like a lot of people from LA are traveling that way. puzzles me but thats a fact. Every morning. The side going towards LA is empty.
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iwog says
To the first, I don't need to make you believe anything about me and my covered call success. Live your own life. I am just stating facts here and have shared even the stocks I have used over the years in earlier posts. Your insults where you call me a liar, show how you are disarmed sometimes. ;)
To the second, now you are just misquoting me. The landlord does not in any way want me out. I suspect I can live here for many years. She actually wants me to buy her house. I have always had a great relationship with my landlords. If I ask to stay another 2 yrs when the lease it up, I am pretty sure it'll work. I could ask the next time I have her over for a dinner party. :)
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Null post. You really didn't answer a single one of my points in any way. Nor did you address what anyone else said. Again.....I simply don't believe your off the cuff numbers. You refuse to provide specifics or support, and even if everything you say is true your example is so beyond the norm that the vast majority of renters can't even touch it. Therefore why even put forth the assertion?
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iwog says
Here is some light reading for you then. I employ a strategy like BXY (out of the money covered calls). Just doing it against the SP500 nets you over 10% annual since 1990. My approach is more specific to only high dividend paying stocks. These are where I get the 15-20% returns annually. Like I said though, YMMV and believe what you want. Aside from showing my my trading statements for the last 15 years, not much I can do. I do know I have enough to buy a house outright now, one that I would still have 15 years left to pay down. I don't think this approach is for everyone, but it definitely worked and still works for me.
http://seekingalpha.com/article/596391-covered-call-portfolios-a-look-at-historical-performance
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On the flip side of the coin.
I really wish like hell, all of the rent I payed on the same house for 11 years, went to my current mortgage.
That's $158,000 I'll never see again. In fact, it's $2K shy of what I paid for my house, that I'm paying a mortgage on.
$1200 a month
X12
X11 = $158K
$432K will be what I end up paying on my house if I take 30 years to pay it off. That's only a 160K loan. But it's the same I would pay for rent, provided my rent never went up due to inflation in that 30 year period.
Never happen.
Plus there's a bonus, I will actually end up with a house I own out right free and clear in 30 years or less. That would also never happen as a renter, renting the same house for 30 years.
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CaptainShuddup says
YES.
In my case that is 10 years of renting places for around $2400.- = 288k! I never see again! Ouch!
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RentingForHalfTheCost says
lets see them! btw, deflation is very easy to fix (just ask Bernake HA HA HA) but inflation happens every year.
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RentingForHalfTheCost says
And what does that have to do with my post??
Good for you, you spend your days following the stock market. I rather be at the dentists office.
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RentingForHalfTheCost says
total bullcrap... so much in fact a shovel won't do, you need a bulldozer and a truck to handle this amount.
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SubOink says
Well, as far as your mortgage payment goes, you'll never see your interest, taxes, or insurance portion of the payments again either, and the principal repayment would only be realized, if you sold the house. After paying 6% commish to a realtor and giving the buyer assistance. And at that point, you're back to homeless
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errc says
The interest portion (throw away portion) is a fraction of what my rent used to be. And it helps with taxes on top of it.
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iwog says
I dunno, my $2400/mo rent feels a lot less than my former ITI of $4400/mo for a slightly smaller and less well equipped house.
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robertoaribas says
Believe what you want. Amazing, how people asked for the numbers, and then when presented they can't take it. All is left is to kill the messenger. Good luck to you guys/girls. Last time I share my details here, cause people are downright mean when it goes against their thinking. I'm extremely happy with my choices and they have done me well. Sounds like the OP is as well. Good for everyone. Others just seem mean around here. ;)
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robertoaribas says
Which part? The S&P 500 has 9.6% return rate since 1990. Bond index funds were around 6% since 1990. That's definitely not BS.
What was housings return over that time period?
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errc says
Also remember to add in any money you spend to upgrade or replace fixtures, appliances, etc. that a landlord would normally pay for.
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Patrick says
The average tenure for owner-occupiers in California is 13.44 years, and over 11 years in Texas and Florida, according to this study - http://dss.ucsd.edu/~miwhite/wasi-white-final.pdf. Where is the 6 year figure coming from? The median and average couldn't be that different.
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Goran_K says
Depends when you sold (and bought). :D
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RentingForHalfTheCost says
Oh BS. You didn't give any numbers, you just threw out a bunch of nonsense that can't be verified. All you had to do is name a few of these miracle dividend stocks. They are public and easy for anyone to check.
You couldn't even do that.
Part of my income is derived from writing naked options contracts. I have intimate knowledge of how the market works, what the best plays are, and how much money a person can reasonably expect from doing this. I also have a decent portfolio of high dividend stocks as well as managing a multimillion dollar trust fund that is full of stocks and bonds.
I'm calling you out.
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@iwog:
what brokerages, and what requirements are needed to right naked options? particularly puts? I want to write covered calls and naked puts.
I was working on a paper years ago, a time analysis of put and call pricing in changing beta environment, combining some results from black sholes and the put call parity law...
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After reading this site since the beginning and reading Patrick's book, I just joined this site thinking it was far more grounded in fact and realism but what I see is absurd. I am not staying.
Recent threads read to me like the type who troll forums planting seeds of why someone should do precisely what Patrick always warned against. I do not buy into a minute of it. To me this is just more illusion and BS, this blind push on here that was on here in 2004 and I find it now as I found it then, just plain sick.
Thanks to Patrick and this site then I stayed away from that kind of BS talk then and saved my behind by not purchasing a life debt on a dump, while plenty of others did and in the course of it went bankrupt.
I have to say many of you appear to me like nothing but a bunch of ignorant and arrogant amateurs to me trying to prove to your own minds you are hot shots by bragging how much you have or make dreaming of that never ending real estate rise that is largely in my view in your own minds to entice others to follow. I don't buy it. I've seen this all before and find it really sad.
If the bond market crashes as all predictions say is very near I pity many of you in real estate.
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robertoaribas says
I'll be very frank about this. Here's how I obtained level 4 options trading rights on etrade:
1. Lie on the application form. Claim over 10 years of experience with options writing. The brokerage just wants to cover its ass in case you sue them for losing all your money.
2. Have lots of money. I found it necessary to keep about a quarter of a million dollars on account (it can be invested in stocks) to have enough wiggle room to write multiple naked options without margin calls.
3. Don't take large risks, especially at first. They will call you if you're a new naked trader and it looks like you're doing something stupid. A few years ago I was selling naked SLV calls with large physical reserves of silver but nothing that Etrade could verify. They got upset.
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woopee says
so you get sickened by seeing people with different opinions? you only want to read opinions that agree with your own? Interesting. that is generally a bad way to operate, because if you only read opinions that agree with your own, and you are wrong, you just because more certain of your own incorrect premise...
Also, you don't recognize a few key differences between 2004 and today? For example 2004-2005 the median price in phoenix was pushing $300K, at the depth of the crash it nearly touched $110k... It is beyond your grasp to see a small difference in buying a home at $300k than at$110K? Really?
woopee says
I pity anyone who has to operate at the cognitive skill level evidenced in this post.
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iwog says
Not at all. Good luck to you. I gave my numbers, just because you don't like them doesn't mean they are wrong, no matter how loud you bang. I don't need to lie to show how bad an investment housing has been in the US these last 10 years and for the foreseeable future. I think you are pushing into an obvious head wind, but all the best. Maybe you get lucky for a while at the tax payers expense, but there is no legs IMHO.
Also, selling naked call options is a fools game. Just because you did that makes you no expert on options. I wouldn't sell a naked call with your account. Just plain gambling, and I am an investor. Makes sense though, because housing in the US right now is just like gambling again.
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iwog says
And you call me a liar? Nice
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robertoaribas says
I think you just proved the whole point of his post. Nice.
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RentingForHalfTheCost says
He had the physical silver. So, that would make it a covered call. If silver prices skyrocket, the value of his silver would go up as much as the loss on his call option...
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robertoaribas says
Then, your right, I wouldn't call it a naked call. Covered calls make a lot of sense.
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Goran_K says
Let's run the math.
$100k invested in the S&P 500 since 1990 with 9.6% annual return would give you about $800k now. Pretty impressive.
A $100k invested in two $200k houses at $50k down payment each. Say you're only breaking even from the get go. Didn't rent double over 22 years? Don't you think those $200k houses now are worth at least $400k each? Don't you think those mortgages are long paid off given interest rate fell from 10% to 3.25% now while rents have gone up over the year. Only if you snowball a little of the positive cashflow over the years, those two houses would have been paid off between 15-20 years.
I'd say the return is on par with the stock market, not as edvard normally claimed with his faulty analysis.
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I think your analysis is full of assumptions (not sure about edvard's, I didn't see this analysis).
Why don't you break down the numbers so it's less full of assumptions?
- Amount of interest paid out
- maintenance
- Taxes, HOA
- etc
I'm not saying you're wrong, or that your theory is incorrect, but I'd like to see you break it down.
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Going forward from this point I think most would agree 10% returns in the stock market is a dream. 6% is probably more realistic.
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Goran_K says
forget it man.
these guys have been using the same bad math for years. they refuse to include commission, interest, taxes, insurance (not to mention inflation and opportunity cost) to make it look like real estate is this guaranteed great investment.
they make dumb statements like "principal isn't a cost" while ignoring actual costs. there's a gazillion RE calculators they could have used to make their case factoring every conceivable variable, but that would just show the return is less than claimed. the arguments sound like they're coming from used car salesmen. it feels sleazy.
if i thought i could have an intelligent debate i would ask for clarification, but i know it's futile. it's not worth anyone's time. just let them make the same statements they've been making for so many years.
i have faith smart people can draw their own conclusion and dumb people will just follow the loudest loudmouthed sheep. it's actually better for me when people misallocate capital since my net worth will grow relatively faster; if people want to buy million dollar PA houses, by all means go ahead.
i do believe everyone should have some real estate exposure; whether it's buying a primary resident or owning REIT or some other liquid investment. but the lack of sophistication in determining how much is the right amount and what investment vehicle to use is mind boggling.
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How to do finance, use the New York Times rent versus buy calculator, etc.
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Hysteresis says
Well, he answered it for me. Anyone with a double digit IQ can do the math. I see it first hand from my uncle and cousins who own rental properties since the 80's and 90's. There's no reason for me to go through the exercise. My results speak for themselves. Acquisition of 10 rental properties in 3 years is pretty impressive in my book.
After June 2013, there's a very high chance that I will get 90% to 100% of my initial investment out of all my rental properties. My $5,500/month net positive cash-flow will likely drop to $3,000/month. That should be alright when you're gambling with OPM wouldn't you say?
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E-man says
So... you're not going to break down the numbers?
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woppa says
True, 6% appreciation with a 4-5% dividend, then another 3-5% covered call grab. And that is with companies that have 20-40 years of increasing their dividends. The gov't is broke, housing is broke, large fortune 500 companies are the only real thing that looks strong in today's economy IMHO. WMT, GE, PG, JNJ, MCD, KO, etc. Time will tell if I am right, but so far so good.
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woopee says
Why pity those that intentionally and knowingly demonize the market...
For every action there is an equal or opposite reaction...
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E-man says
You acquired 10 rental properties in socal or bay area in 3 years?
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lostand confused says
Yep. All properties are in the beautiful City of San Jose. Still have two more in contract. Hope to close both in January or February.
I started my RE investing journey back in 2000 shortly after I graduated and worked two jobs. One is an engineering job, and one is a side business that I had since 1994. So the money was rolling in. However, during the boom years, things didn't pan out here in the Silicon Valley. I thought about investing out of State. I flew to Texas and Florida a couple of times to visit relatives and friends, and at the same time checked out properties.
Things looked great on paper and the Internet until you're there to see the neighborhoods in person. A duplex in Tampa Bay was selling for $60k-$70k and rented for $650/unit. An $80k house in Dallas selling for $60k and rented for $700/month, etc. It turned out. It was not what it seems. :)
Came back to the Bay Area and watched home prices kept on appreciating year after year was disheartening. So I flew to Texas and Florida again. However, prices in Florida went up quite a bit by now. Texas was much more stable. Wife hated me because we were supposed to be vacationing, but I was checking out properties all day long. LOL!
Long story short, the numbers in the Bay Area never added up. I would have been happily invested if I could just break even on the PITI with 25% down. 2009 came and the numbers made sense so I bought. With limited resources, I can only buy 2 to 3 per years. There were times where the deal was so good that I had to borrow $220k cash and was paying $2.2k in interest/month. The property appraised $60k higher after 6 months. I took the cash out and paid off the borrowed money and interest. That property is worth $150k more now. It probably has another $100k to $150k more to go before it tops out. At the peak, it was sold for $435k higher than what I paid.
We just borrowed $100k at $1k in interest/month to close a deal in November. Yeah, we were short on cash. We'll return the money in January when we complete our cash-out refinance on another property. $3k in interest is a small price to pay when you can acquire the property $30k to $50k below FMV wouldn't you say? I'd do it all day long. :)
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E-man says
That is close to the rate I extend to my landlord each month for her to carry the 30 year debt, property taxes, maintenance, insurance, etc. for me. ;) Good love her heart.
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errc says
Or I could pay it off early or double up on payments, which all goes to principal with no fees. My title lawyer was impressed with the terms of my FHA loan. He said he's never seen one so one sided to the borrower.
It would almost take an act of congress to foreclose if I get behind on payments. They can't even charge late fees.
Of course I got my FHA mortgage at a time when Washington was playing around with the format of the single GFE form, and ridged hard fast rules to protect the consumer. But I've noticed since my Mortgage the FHA applicant has become the new whipping post, with fees and MIP premiums so high, it may was well be 6% interest.