patrick.net

Hey Peter. That's why I haven't really been by much-- there really isn't much to debate anymore. The only unbelievable part is that there are still trolls like TOS hanging around....

No offense to Mo-Town, but the place is an armpit.

Sorry... I though Mil-PIT-as is an armpit. Mo-Town has to be something worse than that...

Oooh, Mil-PIT is bad. But Modesto is not good.

The only unbelievable part is that there are still trolls like TOS hanging around….

Kudos to their courage and thick-skin. You are so fortunate, there are not too many sci-fi trolls. I wonder what would they be like.

Bronco, you can call it whatever you want but it's marketed as 30 Year interest only loan in the same way 5/1 arm is marketed as 5/1 30 year ARM as it is amortized over 30 years.

I wonder what a sci-fi troll would argue about? .....Kirk or Picard?

HiThere, I really don't know how secure the insurance they use is, but there would have to be a real meltdown for something like that fail. I personally only have my savings and checking money with them and one small CD.

I have actually been moving all my spare cash to my Citibank/SmithBarney trading account, waiting for the right buying opportunity.

I wonder what a sci-fi troll would argue about? …..Kirk or Picard?

They probably root for the Romulans or the Cardassians.

Sir Francis Drake eh? I thought maybe I knew you but I thought she lived in Sleepy Hollow. I won't tell your hubby if you don't tell my wife.

Jimbo, for mortgage accounts I really don't care, if they go under water somebody else will buy it and they will have to honor the original terms. I opened my CDs there as the interest rate (5.85%) they offered that time was far above the market rate. What is the yield on your trading account?

"What the hell is a "30 year interest only loan?"

Well, exactly. Why would I or anyone else take the pains to explore that any further? Especially considering Vegas and PHX (or Scottsdale, or whatever) PEAKED in 2004! Probably should change his name to:

"Hi There, I'm Toast"

Kind of lost on him, but the reason loans like that were even available at the time was BECAUSE of the outrageous appreciation! Now that his 10% down has gone bye-bye (along with ANOTHER 20% to boot) it's sure nothing I'd be bragging about?

Randy, you are mistaking..........you don't know me (and it's not she)........I can't just publish my identity in an open forum but we can definitely meet in Marin brewing Co next time you have a blog party. I don't whether I will be welcomed there or not as I am not a JBR...........

Randy, you wrote if the market goes down more you will look for investment property in midwest. That's good idea but personally I think. Research Triangle, Charlotte area in NC and gulf coast area have better prospects.

I thought by definition an investment was supposed to MAKE money. I suppose you could look at a real estate 'investment' that is 10% down (opportunity costs) and costs money each month as some sort of peculiar offset device. If you are just waiting to cash in on appreciation isn't it just speculating, and not really an 'investment'?

I'm not a JBR but I'm going to a blog party when I can. I am merely a bear.

Exactly right, SFWoman: an investment is supposed to make money. But being cashflow positive is not even enough, this "investment" better to a whole lot better than the risk free rate of return (5-6%) given the precarious state of RE.

... better DO a whole lot better...

It's settled then, we'll have a Marin Brewing Co bash. I've yet to meet most of you anyway.

I'm not a JBR either. Just an impatient bubblesitter with way too many people living in my rented, crappy McMansion. I am bitter sometimes, but not because of people who own homes. Because of all the things I regularly bitch about.

I won't buy investment property in the Midwest anytime in the next decade. There's a lot left to that terrible cycle before it comes back. I won't buy anywhere I don't know intimately, so The Triangle is out.

It’s settled then, we’ll have a Marin Brewing Co bash. I’ve yet to meet most of you anyway.

When? We can also do Sushi Ran.

Randy H,

Can we wait a couple of weeks until Hell Week (city charity fundraisers) and school re-entry coffees are over? September is the month from hell in the city (but has great weather at least).

and I am sure by then FED will decrease it lower enough for me to re-finance…..

Hi There,

You might want to double check and make sure your ARMs are not tied to Libor, rather than the Fed rate.

SFWoman, to answer the question you raised about investment, I need to explain a little farther.

In real estate let's say you are buying a 300k investment property with a 10% down...that's 30k....with 30k you are leveraging 300k. In no other investment you have that flexibility.....in stocks you could buy in margin but the interest rate there is much higher and you could not borrow 10 times.

Now, you can do the maths.........if you take historical standard of 5% appreciation...that's an appreciation on 300k but you invested 30k.....you return will be many folds. So if I lose 200 a month......that's $2400 a year. For simplicity let's make the rent and expenditure constants. Now in 20 years I will lose $48000......... where as if I take 5% appreciation that 300k property will be much more than 600k due to compounding effect. And the best part is I started with 30K.

This is a very simple maths without getting into details. I think staying power and patience are keys here. I would definitely call this an investment.

SFWoman/Bronco,

Additionally our friend hasn't read the fine print. Even during the height of the insanity, these "loans" (actually are work-out loans) in sheep's clothing. They will only allow for you to go maybe 10% neg. equity before they instantly move you to an amoritizing schedule. So once you've gone over your allowable arrears... the pain, the pain. :(

30 Year interest only loan was widely popular during boom time. Generally you pay interest only for the 1st 10 years before it balloons.

That's called a hybrid loan. If you only pay interest for 30 years, it's called RENTING from the bank.

I'm Toast,

Did you get that right out of the RE investment seminar audio tapes, (or did you get the CD's?)

The only difference between you and Casey Serin is that he couldn't find a renter.

HiThere,

But you didn't buy during historical periods of 5% average annual appreciation. You purchased at the top of the market in two highly speculative markets. You have both your down payment and carrying costs, but no upside as far as I can see.

I am not anti-ownership, I have two properties in the Bay Area and investments in Japanese real estate. I am anti-speculation and anti-frenzy. I do not see the financial upside to fairly recently purchased real estate in bubble markets.

where as if I take 5% appreciation that 300k property will be much more than 600k due to compounding effect. And the best part is I started with 30K.

Sooooo, you assume your "investments" will not depreciate, or at the very least stay flat over those 20 years? An impossibility? Who knew.

Also, your assumed 5% appreciation is in nominal terms - inflation will wipe out most of that.

Exactly right, SFWoman: an investment is supposed to make money.

It's probably doing very well in HiThere's "mark to model" fantasy land.

I feel like I am the uberlogical Doctor Spock to some emotional being from planet RealEstateInvestor. And I'm not even a numbers person.

Glossary suggestion:

INVESTMENT. A feel-good term used to describe a money pit.

HiThere:
> In real estate let’s say you are buying a 300k investment property with a 10% down…that’s 30k….with 30k you are leveraging 300k. In no other investment you have that flexibility

Leverage goes both ways, faster up and faster down. Right now it's going down, wiping people out who are, without flexibiltiy, caught in their homes, now their prisons.

> Now, you can do the maths………if you take historical standard of 5% appreciation

Yes, except it's not a standard, it's a long-term average, and it hasn't been 5% but inflation plus 1%. Bonds give you better return.

> I would definitely call this an investment.

So would I. Being your own landlord can have financial advantages, just not at the peak of the bubble. People should calculate before making the biggest investment of their life. Randy's spreadsheet can help.

HiThere,

If you want to play the word games "I said BEFORE 2004 and on IN 2004" etc., I am sorry I cannot participate.

But one thing I want to say. I am not a JBR either. And I don't give a sh1t about who comes out ahead. I see that rat-race mentality all around me, especially in my own kind - Indians. Let the buyers (from 2001, 2002, 2003 or whatever) come out ahead. See if I care.

I do that analysis to partly validate MY decision. Time will tell if it was a good decision or bad decision FOR MY UNIQUE SITUATION. I consider this self-analysis as necessary to guide me in decisions I make from this point on.

It's funny b/c I spent a full hour today on a conf. call w/ one of the nation's most respected RE CPA's and there were 37 slides on calculating IRR on RE investments! Talk about dry material. But I do it. I do it for clients just in the off hand instance it were to come up in conversation.

Like Randy H, I guess I was just in no mood to deal w/realtards!

Funny thing (StuckinBA) is that "mark to model" didn't come up once!

SKBUM, you are right .....there are a lot of IFs....it can stay flat for 20 years.....or even go down in 20 years........but as an investor I take historical data and act according to it......and you are right SKIBUM it may not be 5%, it may be 1% or 6%......you just make educated guess. And there will be inflation but I started with 30K......if you take inflation adjusted return on 30k in 20 years that will be more than any other investment....... atleast history says that.

SFWOMAN, that's why I am talking about long long time. I have enough staying power to keep them for loooooooooooong time...20 years or more and if you calculate return on the asset over a longer period you would be fine......now SFWOMAN tell me where can you make positive cash flow on rent now in USA on 10% down payment.....I know some areas but I will not invest there as I don't have faith in the long term visibility of those areas.

OT: So, the Fed "Beige Book" is out, and surprise, surprise, local reports are benign. No massive credit crunch beyond what's already in the news, no massive job losses, no massive ratcheting back on production. So how can the Fed continue to justify a likely FFR rate cut? Hmmm...

Bernanke is not in an enviable position.

Again, WTF?

and SFWOMAN, I live in Marin (I would love to meet you guys in the next blog party in Marin brewing Co) but I invested in Vegas and Scottsdale, AZ as I still stink they have the best prospects in terms of future prospects. I am not talking about 1, 2 or 5 years but 10 or more years. That's my prediction and that's why I chose those 2 areas. Time will tell once this dust settles down in 3-5 years.

stink=think

StuckInBA,

I am fine with what you said. You are your best judge and at the end of the day it's your call. Do whatever is best for you.

HiThere,

You still miss a major point. Long-term appreciation for housing generally is barely above inflation. Sure, some areas will have spurts of significant appreciation for short periods. But this is all about timing. If you bought in 2004-2007, you bought at or near the peak of the cycle. You could have taken that 10% down payment on each of your "investment properties", put them into a better investment vehicle, and bought after the bottom of the RE cycle. It's difficult to time the RE market, but on the other hand, buying at the absolute top is idiotic, if you can help it.

HiThere isn't wrong per se. In time, the rent will presumably go up and fully cover his/her carrying cost (though property taxes, maintenance, insurance, and renter vacancy will seriously bite into the benefits). However, the opportunity cost of that initial $30K + annual out of pocket costs + time expended, he's likely to do much better elsewhere, even with 90% leverage.

On the other hand, some people just love investing in RE because it's concrete and they feel in control. That's fine, but they should realize that they're likely to have a suboptimal return, especially if they are long distance landlords and non-professional.