patrick.net

BayArea says

For now I've pulled back my real estate, stock equities, and have transitioned more heavily into 20yr treasuries (TLT), precious metals and metal mining, and cash.

What about lead and brass?

BayArea says

Bob, thanks for the reply. What city if you don't mind me asking?

Rochester, NY. But there are certainly other areas that offer excellent returns. Duplin/Sampson county NC was originally my first choice. I actually have lived in both areas. I prefer to invest in places I have lived previously (I've lived a LOT of places previously) but Rochester won out because it was drivable (very long drive) from where I live now. You look at duplin/sampson county on hotpads it's like a big black hole for rentals. Always a great sign. My LLC manager (He's offshore. I use offshore because I have properties in several countries and it makes more sense for many reasons to be offshore) is heavily invested into central WI. Check out this realty track map. http://www.realtytrac.com/news/heat-maps/rental-returns-and-cash-flow-heat-map/

You aren't going to get a lot of appreciation (like pretty much zero) in most of the area's that have the higher returns. But if the shit hits the fan there isn't going to be any real downside either. I was invested in the RIo Grande valley (another previous home) in 2007 and the properties didn't lose any value in the crash.Didn't gain much in 10 years I owned either. But the returns were very good. On the plus side these types of rentals are pretty liquid for houses. There's always a market for a good rental.

Currently I'm looking really hard at a 15 house deal for 300k with rehab running at 200-300k (still evaluating what needs to be done) with almost all occupied. Cash only deal. Rents running 700-800 range. That's around 50-60 months gross rent to purchase+rehab. Amazing. Certainly not great area's but not terrible area's either. Beats the shit out anything on the coasts or my state of residence. Stay with the low glamour places you can make a lot of money.

bob2356 says

You aren't going to get a lot of appreciation (like pretty much zero) in most of the area's that have the higher returns. But if the shit hits the fan there isn't going to be any real downside either. I was invested in the RIo Grande valley (another previous home) in 2007 and the properties didn't lose any value in the crash.Didn't gain much in 10 years I owned either. But the returns were very good.

Bob, I like a lot of the opinions you have contributed about real estate, but from a pure investment point of view, I am a little bit confused why someone would prefer Zero appreciation with high rental returns, vs high appreciation rates and lower rental returns? I would think, the latter provides better overall returns over time.
I could be biased as OC where all my rentals are, generally provides high appreciation with lower rental returns.
I ask this question to all.

Ethereum, if you understand it to be another cryptocurrency 'oh it's like bitcoin', look again. The WWW you know is about to change dramatically, for the better. The revolution will be digitized.

i have read a lot of opinions from landlords on cash flow vs. appreciation and here's my conclusions.

- 95% of landlords are the "cash flow" type. the 5% doesn't talk much due to fear of being ridiculed and being called a "newbie."
- appreciation is riskier and requires entering at the right time.
- unless the landlord is from CA, he's most likely the cash flow guy. many CA landlords won big from and swear by appreciation which is the only game here. outside of coastal states, the rest of the country doesn't have this type of crazy appreciation. typically the appreciation rate is too low (barely keeping up with inflation) to make the strategy work. buying multi families in a war zone is more profitable.
- many, many seasoned landlords got burned with their appreciation bets in 2009 so they are now the "money in my pocket now" type.
- if you are a full time landlord (no other jobs) you have no choice but go for cash to pay bills right now.

Strategist says

Bob, I like a lot of the opinions you have contributed about real estate, but from a pure investment point of view, I am a little bit confused why someone would prefer Zero appreciation with high rental returns, vs high appreciation rates and lower rental returns? I would think, the latter provides better overall returns over time.
I could be biased as OC where all my rentals are, generally provides high appreciation with lower rental returns.
I ask this question to all.

Good for you. Whatever floats your boat. Appreciation is a gamble. I'm bailing out of the vegas market hard because the roi numbers are plummeting with the big appreciation the last 4 years. . I prefer putting high roi money in the bank month after month and rolling it into more properties. After you get to a certain point it rolls faster and faster. I'm long since out of having to have loans so I'm not paying any finance costs.

So put some numbers down. Pick a long term property. What was your investment, what was the rental income plus appreciation minus financing costs over a 15 or 20 year time line. What is your long term ROI?

I looked up the OC numbers. OC prices 2017 are at $2 sq foot rents and right at 300 aq foot to buy. I'm buying at 40 a sq ft (actually slightly less but I don't have my calculator) and renting at .8. So for a 2k sq foot house you would be paying 600k and getting 4000 a month 48,000 a year. For 600k I can get 12 houses renting at 800 or 9600 a month 115,200 a year. That 66,000 a year difference. The expenses will work out differently but are houses in oc actually appreciating 60k a year each and every year long term? If so great of for you, but there are very very few markets that is true for and tying up half a mil plus for one house on that gamble doesn't turn me on at all.

bob2356 says

I looked up the OC numbers. OC prices 2017 are at $2 sq foot rents and right at 300 aq foot to buy. I'm buying at 40 a sq ft (actually slightly less but I don't have my calculator) and renting at .8. So for a 2k sq foot house you would be paying 600k and getting 4000 a month 48,000 a year. For 600k I can get 12 houses renting at 800 or 9600 a month 115,200 a year. That 66,000 a year difference. The expenses will work out differently but are houses in oc actually appreciating 60k a year each and every year long term? If so great of for you, but there are very very few markets that is true for and tying up half a mil plus for one house on that gamble doesn't turn me on at all.

My old house, worth almost $800K rents for $3,300. The condos worth around $500K rents for $2,800 per month, with a $1,000 per month in expenses for association, property taxes, mello roose taxes. Still a 3.5% to 4% cap rate, which is still very high in OC compared to the past.
Also keep in mind the management headaches you would have with a dozen properties, and constant cost of fixing them up. $50K properties, anywhere, cannot be in great shape.

With all this crap going on right now in Saudi Arabia, I would think that non-Saudi oil stocks might be a good short term play. Might be a good long term play as well.

Strategist says

My old house, worth almost $800K rents for $3,300. The condos worth around $500K rents for $2,800 per month, with a $1,000 per month in expenses for association, property taxes, mello roose taxes. Still a 3.5% to 4% cap rate, which is still very high in OC compared to the past.
Also keep in mind the management headaches you would have with a dozen properties, and constant cost of fixing them up. $50K properties, anywhere, cannot be in great shape.

You didn't read very carefully. My number included rehab costs on the bulk deal. Your numbers are coming up just about the same as my rough 1 minute guesstimate. Getting 3300 on 800k is 242 months rent to purchase. There better be a hell of a lot of appreciation. Yes the properties I'm getting into are really big time outliers at 50-60 months. Even 60-70 is very tough to find but they are out there. But appreciation in CA is an outlier too.

You dodged my question. What is the long term ROI? What was the original price, what is the price now, what is rent paid over what time period? You keep telling me appreciation works better, but you aren't laying out much of a case why. You also can't reinvest appreciation until you sell the house and then you pay 7% closing on it. I can keep reinvesting the higher rents relative to purchase price in an ongoing basis to create additional revenue.

I have a property managers to take care of headaches.

Bobs numbers are way exaggerated.

$50k purchase $800/m is war zone territory. Vacancy will be at least 30% and maintenance will be through the roof as tenants will cook meth turn tricks and trash the house before leaving.

anon_1b829 says

You dodged my question. What is the long term ROI? What was the original price, what is the price now, what is rent paid over what time period? You keep telling me appreciation works better, but you aren't laying out much of a case why. You also can't reinvest appreciation until you sell the house and then you pay 7% closing on it. I can keep reinvesting the higher rents relative to purchase price in an ongoing basis to create additional revenue.

Two houses I purchased were to live in, now rented. Presently getting a 10% return, including appreciation. Condos were purchased at the lows of the market, early 2012. So far I have received 20% returns on them mostly due to high appreciation rates. My expected future returns on all properties is 10%.
All the tenants are professionals with high incomes. They are the ones who don't give you trouble and take care of the property. Knock on wood. I will not deal with low income tenants in cheaper neighborhoods.

anon_b4677 says

$50k purchase $800/m is war zone territory. Vacancy will be at least 30% and maintenance will be through the roof as tenants will cook meth turn tricks and trash the house before leaving.

Good luck collecting the rent, dealing with bankruptcies, high lawyer costs, high maintenance, and the risks that accompany low end homes.
My preference is to sacrifice some returns for high quality real estate.

6mo later with increasing volatility, I’d like to bump this back to the top to see how people’s strategies are changing and if any stocks stand out in your portfolio moving forward?

FortWayne says

GOOG

This would have broke me even over 6mo... I’m sure that changes in the long run

BayArea says

6mo later with increasing volatility, I’d like to bump this back to the top to see how people’s strategies are changing

Well I'm down to 70K I Owe on my mortgage that originated in 2010.
I keep slamming my $1400 mortgage with an extra $2k a month. I'll be paid off by next election.

Pay absolutely every debt that you have. Pay down/off mortgage. Don't try to grow it right now.

If you own a home, invest in solar, be careful and make sure it is 8 years or less of payback.

Consider leasing an electric car, you can pay for it in gas savings, if you do it properly. Certain places have free charging, you can literally drive a new car for less than the cost of gas.

If you own a home, a few upgrades could be smart. It may not pay off, but it is a safe way to improve your qualify of life and you do get a lot of it back when it is time to sell.

Take care of you, get dental work done if you need it.

Take a vacation. Sounds like a funny financial pointer, but holy crap, you and someone can do a 10 day trip in China right now for $399pp. That includes airfare. It is an expense, but great travel deals available right now. When I was on my China trip, someone showed me the Movie Pass card, that saves each of us $1,000 a year, so our China trip actually paid for itself with good advice.

Prepay anything that you can, even make funeral arrangements from now.

Prepay for entertainment. Again, sounds funny, but $100 Movie Pass gets you in to the movies every day if you want. That saves on AC during the summer. Season passes at zoos, fun centers, all turn into a great rate of return.

Buy discount gift cards. Again, sounds funny, but why not buy a $25 Red Lobster gift card for $20? That is an instant 20% return for something you will definitely use.

How much is left over now?

Malcolm says

How much is left over now?

Nothing.

You just spent all your available cash and your emergency money.

So now, you're going into a recession with no cash cushion and all your available cash tied up in hard goods or just evaporated on crap?

Really, that's a plan?

BayArea says

with increasing volatility,

The whipsaws lately have been really strange. The Algos are running the show.

Even today, market was up 440 points, as soon as the news about Trump's lawyer hit the air waves, instant 400 point smackdown by the Algos.

The retail investor doesn't stand a chance in this market against the computers.

Invest with a new city builder. Always demand to move out of old housing stock and into a new city with new housing stock, modern amenities, fraction of cost of outdated cities.

Institutional investors expect 20% returns. We build such cities and return 200-300% plus passive income at the tail end.

With my smart cities play, our cities will have play with this trillion dollar market on top of already being lucrative without being smart.

Shameless plug. Although I feel I owe a debt to Patrick.net as it kept me out of the housing bubble and I would like to return the favor in this way.

Sniper says

Really, that's a plan?

Absolutely. You can always get money back out if you need it. Paying debt is the safest investment you can make. When everyone’s defaulting you will be golden.

And believe it or not, I believe we are in a recession at this time given the insane bargains on things like home improvement, travel and entertainment

His question is what to invest in, not whether to save or not. It is way easier to not have to spend money in the future than to save and plan for it. That is a real investment.

Malcolm says

Pay absolutely every debt that you have. Pay down/off mortgage.

@Malcolm I absolutely agree. Simply not paying interest is usually a good investment.

Mooncoin

Malcolm says

And believe it or not, I believe we are in a recession at this time given the insane bargains on things like home improvement, travel and entertainment

Where are you seeing insane bargains? I’m in the Midwest and am not seeing anything approaching a bargain on travel at least. I’m mainly talking domestic, Caribbean and Mexico.

Airlines have some of the highest fares I’ve seen lately, especially domestic summer travel. If you can afford the airfare you can afford whatever the lodging and entertainment in those areas is charging. That’s only one metric, but I’m just not seeing/feeling any deals around. Might be different by you.

Patrick says

Malcolm says

Pay absolutely every debt that you have. Pay down/off mortgage.

@Malcolm I absolutely agree. Simply not paying interest is usually a good investment.

That depends.

If you can make a higher return putting that money to work than what your interest rate is, do it. Plus, it's better to stay more liquid than having your money tied up in equity, which can be difficult to extract, if needed. It's the net cost that matters.

Malcolm says

Paying debt is the safest investment you can make.

Not always. When I make major purchases, I play the zero percent game, and use other people's money and hang on to my cash. I'll take that type of debt every day of the week.

Malcolm says

When everyone’s defaulting you will be golden.

Which is why you need dry powder on the sidelines, just waiting to suck up the bargains. In tough times, try going and refing your house to get the cash you want for a fire sale. Good luck finding a bank that will loan the money during a meltdown and recession.

Malcolm says

It is way easier to not have to spend money in the future than to save and plan for it.

You won't have to spend money in the future, as you won't have any. It will already be spent on all that other stuff.

Sniper says

That depends.

If you can make a higher return putting that money to work than what your interest rate is, do it. Plus, it's better to stay more liquid than having your money tied up in equity, which can be difficult to extract, if needed.

Just be sure you factor in a risk premium for those comparisons. Yes, ridiculously low mortgage rates are tempting to leave to invest, I have done it in the past. I say, take the safe bet any day. You have plenty of liquidity when you are debt free. I've also never said don't save, or don't invest, I just maintain that those activities are further down the priority list.

Other income is also a huge factor to consider. If someone has a good job, they may opt to save and invest differently.

If you have passive income, like rentals, you could also invest that way. Not necessarily by acquiring, but you could improve cash flow from rentals by paying down liabilities relating to passive investments.

Funny thing, just skimming other posts, not one person suggests starting a small business. Pretty sad state of affairs in the USA.

No recession here, nothing to see here folks.

BayArea says

6mo later with increasing volatility, I’d like to bump this back to the top to see how people’s strategies are changing and if any stocks stand out in your portfolio moving forward?

So, to give you a specific answer, the best performing in my portfolio is my defense stocks and defense ETFs. With all the saber rattling and the "my dick is bigger than yours" going on around the planet, a shooting conflict isn't that far away. I'm expecting even better returns in the future.

Sniper says

Not always. When I make major purchases, I play the zero percent game, and use other people's money and hang on to my cash. I'll take that type of debt every day of the week.

Absolutely. Least acquisition cost. I do it too. Different subject. Talking about paying down debts, not on smart financing of purchases. Also, cash is king, the zero financing game is marketing. I opt to use a 3% rebate, Amazon Visa instead of same as cash financing. I pretty much only use Amazon for most things. Changing times and buying habits. Sure, I'll make two or three payments for tires if they are doing zero interest same as cash financing. I love using zero cost money, especially when I had some revolving debt, that's when it is really awesome to borrow. Borrowing at 0% to pay a card at 10-15%? Yes, that's a no-brainer, when you fully understand terms, like cash advance fees, and that stuff.

anonymous says

Bobs numbers are way exaggerated.

$50k purchase $800/m is war zone territory. Vacancy will be at least 30% and maintenance will be through the roof as tenants will cook meth turn tricks and trash the house before leaving.

Even $20K houses in those areas don't work. Stay the hell out of Jackson, MS if you are considering buying rentals. Even if you are given the houses for free, it is impossible to make money as a remote landlord. You lose a productive year of rents every time you have a vacancy. Those people are the scum of the Earth.

Funny thing, just skimming other posts, not one person suggests starting a small business.

To be fair, that was not the question. Starting a small business is not an investment, it is a change of job. The statement "Say you have $100K-150K cash to invest today. Let's say the investment period is 5+yrs" strongly implies someone keeping their job and looking for what to do with invest-able cash.

HeadSet says

Funny thing, just skimming other posts, not one person suggests starting a small business.

To be fair, that was not the question. Starting a small business is not an investment, it is a change of job. The statement "Say you have $100K-150K cash to invest today. Let's say the investment period is 5+yrs" strongly implies someone keeping their job and looking for what to do with invest-able cash.

I stand corrected; not one person suggested investing in a small business.

Malcolm says

I stand corrected; not one person suggested investing in a small business.

I actually tried to do that in my area. I was looking for a place to park some money and diversify, kinda like a "Shark Tank" approach with a local business.

Couldn't find anything respectable. Lots of crazies looking for me to invest in some wacked out idea they had, but no legitimate business that could use the help/money.


Malcolm says

If you have passive income, like rentals, you could also invest that way.

I've looked at that too, but being a landlord in a screwed up state where tenants have better rights than landlords, and where it takes multiple months to evict a squatter, too much to risk.

BlueSardine says

buy low sell high.

Why are there 50 posts after this one? @Patrick ... close the thread on this advice.

Sniper says

I actually tried to do that in my area. I was looking for a place to park some money and diversify, kinda like a "Shark Tank" approach with a local business.

Couldn't find anything respectable. Lots of crazies looking for me to invest in some wacked out idea they had, but no legitimate business that could use the help/money.

I tried that too. I had some money to place and even advertised that I wished to evaluate business plans. Even if there was a seed of an idea, the guys were always nutty.

Unless you are religious about going to the gym, id invest some in good execercise equipment and a good personal trainer.

Also consider a flash car and only giving rides to women with great legs and short skirts.

GridCoin / GRC

BUY AND HODL

Todays Price: 0.00000598 BTC after 20% increase 4/14/18

BTC is $8129 today

You should totally re-fi your house. Lets talk in a year

https://www.gridcoin.us/

anonymous says

Bobs numbers are way exaggerated.

$50k purchase $800/m is war zone territory. Vacancy will be at least 30% and maintenance will be through the roof as tenants will cook meth turn tricks and trash the house before leaving.

Not really-maybe in CA. In many parts of the country 800 bucks is a very decent rent. CA yes.

Being around others that exercise is more lasting, inspirational than home equipment.
Home equipment for the majority of purchasers winds up not being use...

willywonka says

Unless you are religious about going to the gym, id invest some in good execercise equipment

BlueSardine says

Unless you are religious about going to the gym, id invest some in good execercise equipment

Check out an app called AllTrails. It is free. Save the money on the home gym equipment. Go out alone or with friends, but go walk and explore your area. It is one of the best freebies there are. It is amazing how good you'll feel checking out a new place every week or so.