patrick.net

You are dealing with a business, not a families emotional ties. They focus on ONE thing, the highest return. If you were dying of thirst, they would not offer you the sweat off their assets.
They will violate you smiling.
Find at least three better properties and offer them the honor of your business. Remind them, it will be worth 20% less next year !

TMAC54 says

You are dealing with a business, not a families emotional ties. They focus on ONE thing, the highest return. If you were dying of thirst, they would not offer you the sweat off their assets.

They will violate you smiling.

Find at least three better properties and offer them the honor of your business. Remind them, it will be worth 20% less next year !

How much invested ? How much back ? What's the risk ?

Yeah. My realtor sent them the last 2 sales which where sub 160, thought those were fixer uppers.

I REALLY want to pay under 170k. But I also REALLY want the property also, cause I think the cash flow works well. I just can't decide which REALLY is more important.

My realtor got an email from the seller:

"Thank you for submitting an offer on the above referenced property, however the Seller has decided to REJECT your offer at this time due to offer price being too low. If your client is seriously interested in pursuing the property, you may submit a revised offer to be presented to the Seller through their *********.com website."

I resent the implication that I'm not seriously interested. I could argue that seller(which was bailed out by my tax dollars) isn't seriously interested in selling the property.

You should have countered lower, 159K. That is the sign of power and banks have absolutely no power now in this game. One paper they are bankrupt entities. Your 159K in the positive make them envious.

It doesn't mean your bid is low relative to other bids, could be the highest. Is below the reserved price for sure. The seller is hoping that you would resubmit.

burritos says

"Thank you for submitting an offer on the above referenced property, however the Seller has decided to REJECT your offer at this time due to offer price being too low. If your client is seriously interested in pursuing the property, you may submit a revised offer to be presented to the Seller through their *********.com website."

Here is your reply

"My friend. Thank you a thousand times over for your consideration on buying this beautiful property. I am deeply saddened by the rejection from the Seller. If your Seller is seriously interesting in selling the property I encourage him to again consider this offer from a very serious buyer. I am willing to again offer to purchase the property for the large sum of $160,000, which is very generous considering the current state of the housing market and the overall economy. This offer is only valid as long as I have the means to extend it. There are multiple competing properties on the market and I have many bids outstanding. The first serious Seller to accept my cash will be the winner.

Your truly,
Serious Kickass Buyer"

The problem is you should never counter above your last offer price.

robertoaribas says

Obviously, there isn't enough info in this thread to know... If comparable rent is $1500 a month, and this home doesn't show any sudden need for major repairs (ie aging roof, old ac, etc. )

It looks like the home is in pretty good condition.

burritos says

1. Move in ready. I do have to buy a frig, washer, dryer, and a few blind(estimating 5k). No carpet, paint and wall repairs like I had to do with the grow house I got a year ago.
2. FMV is 180k for move in ready, though the last few that were sold, sold at 160k(they were fixers needing carpet, painting).

robertoaribas says

this is exactly the kind of nonsense that passes for advice on the now worthless patrick.net site.

It could be the home is a terrible purchase at 150K, or the deal of a century at 180K. Obviously, there isn't enough info in this thread to know... If comparable rent is $1500 a month, and this home doesn't show any sudden need for major repairs (ie aging roof, old ac, etc. ) Then a buyer at 180K, depending on tax/insurance, hoa etc. could be looking at a reasonable return even at 180K. with AZ tax and insurance, I'm seeing a mortgage close to $1000 a month with 20% down...

The buyer would be far ahead of the renter in short order...

I think the money would work, but my realtor thinks there's still a significant shadow inventory that'll be coming down the pike. She says I should hold firm at my offer, though I doubt she'd be against my offering more.

The best deals I got in RE (not a lot of them) were ones I had to outbid other people and pay well OVER ASKING PRICE and this was pre bubble. (2001)

Robert is right - so much bad advice here.

Its only a clueless noob who would think 'never pay asking price' is good advice. As if asking price is market price! Sales price is market price.

It all depends on the asking price. At Patrick.net, most people are from CA and have the CA RE mindset (overpriced RE.) In other places where the prices are much more affordable and closer to bottom, the stories are different. I just DOUBLED the asking price here to outbid 10 other people or so on a foreclosure and I'm still looking at a return (rental property) of 10%-15%.

burritos says

I think the money would work, but my realtor thinks there's still a significant shadow inventory that'll be coming down the pike. She says I should hold firm at my offer, though I doubt she'd be against my offering more.

significant? That is an understatement. Schiller just said we might not see the housing recover in our lifetime. I completely agree. Any asking price today is tomorrow laughable price. Store the cash! Wait until you can buy two houses for that price. All the advice from people leveraging up on housing will prove to be the worst you have received. Let them lose their shirt because of their greed. Keep your cash (hardly anyone has any that bought over the last 10 years), and wait out the stupidity of multiple bids, unreasonable sellers, etc. You have all the marbles, they have none.

PockyClipsNow says

pay well OVER ASKING PRICE and this was pre bubble. (2001)

If you think that 2001 was pre-bubble, then you are the clueless noob, around here. Prices are already back to 2001 levels or below, in a lot of areas of the country, and, if you paid above asking price, back then, you are already looking at a lost decade, and, you will get at least 2 more.

E-man says

$6k difference in purchase price is equivalent to $30/month in mortgage payment. Is it worth getting or not getting the deal?

That's not the point. Why would he want to offer even one cent above his initial offer, if he knows that he will be getting a much better deal 1 year from now?

E-man says

$6k difference in purchase price is equivalent to $30/month in mortgage payment. Is it worth getting or not getting the deal?

This argument is just wrong. It is used in the housing and automotive industry by sellers all over. Hey, don't look at the cost, look at the increase in monthly on the credit. So, why can't you argue the opposite. If it works one way then it works the other. 6K less on the purchase is only $30/month to the Seller in a dividend fund that pays the same as a mortgage rate. Are you not going to sell your house over $30/mth.

Down right criminal argument, and I feel like shoving a tire-iron up anyone that uses it on me when I make a purchase.

RentingForHalfTheCost says

significant? That is an understatement. Schiller just said we might not see the housing recover in our lifetime. I completely agree. Any asking price today is tomorrow laughable price. Store the cash! Wait until you can buy two houses for that price. All the advice from people leveraging up on housing will prove to be the worst you have received. Let them lose their shirt because of their greed. Keep your cash (hardly anyone has any that bought over the last 10 years), and wait out the stupidity of multiple bids, unreasonable sellers, etc. You have all the marbles, they have none.

Well. There is a somewhat limited supply. The area I'm buying is in a development of about 1100 homes built and sold in the bubble(2004-2008). I'm betting that a lot of people who originally got into these homes probably did so via 5 year ARMS or I/O. We are in the final years of these recasts. Obviously not all homes go in to foreclosures because of this reason, but this is something we as investors(vultures) can count on. I've been following this area since 2005 cause mistakenly, I bought one in the peak. While I've lost a ton of equity, the carrying costs are covered by the rent. On principle, I'd like to get the price that I've arbitrarily set in my mind to purchase at. After all, I pay a lot of taxes and some of those taxes bailed out fannie. Also, I'm insulted that they imply that I'm not a serious buyer. And there aren't multiple buyers, cause it really is hard to get a loan these days. OTOH, if I were to buy at their asking price, I'd still get more monthly income(with this financed investment) than the interest in a t-bill or my ING account. And while I'm not Apple with 50 billion in cash, I don't like too much cash sitting in the bank doing nothing. Decisions decisions.

burritos says

OTOH, if I were to buy at their asking price, I'd still get more monthly income(with this financed investment) than the interest in a t-bill or my ING account. And while I'm not Apple with 50 billion in cash, I don't like too much cash sitting in the bank doing nothing. Decisions decisions.

Don't compare it to the t-bill or ING account interest. That is all just as funny as the housing market. They are one in the same. If you believe in housing then you must believe in Corporate America. I just believe in Corp Amer. In that logic you at least need to compare the chores and risk of being a landlord with a low-risk 7% appreciation.

http://seekingalpha.com/article/525531-investing-in-coke-the-7-solution-for-rookie-ira-investors?source=yahoo

I've been using the technique of writing covered calls and collecting dividends all through this credit crisis and enjoying much higher than 7% return. Obviously, I am not leverage 10-to-1 like housing lets people, but that is the way I like it. I envision the greedy investor on the other end who is buying my calls hoping to get-rich-quick. Better to make money off these people and keep your savings adding to your power to take advantage of Greed. I'm sure some people buy calls for protection, but I bet many do it for greed.

RentingForHalfTheCost says

I've been using the technique of writing covered calls and collecting dividends all through this credit crisis and enjoying much higher than 7% return. Obviously, I am not leverage 10-to-1 like housing lets people, but that is the way I like it.

I don't know what that is. Sounds like I'd get my hat handed to me if I were to attempt doing that. Sounds like you're doing well. Are you recommending that anyone who wants to have a safe decent return do as you do?

Covered calls is just selling your upside potential on a stock: you sell the right to someone else to buy a stock that you own. If the stock moves up above the strike price they can buy it from you, and they will buy it from you and you won't get that price gain. So your risk is limited. If you own a stock that pays a dividend and just stays flat, you get both the dividend and the price of the covered call.

It's a reasonable strategy. I wonder if anyone has done it with houses: "Give me $5,000 now and I'll give you the right to buy my house at $500,000 at any time in the next 7 years."

You keep the $5,000. But if the house value goes to $600K, they are going to buy it from you, resell it, and make $100K profit.

Covered calls is just selling your upside potential on a stock: you sell the right to someone else to buy a stock that you own. If the stock moves up above the price they can buy it from you, then they will buy it from you and you won't get that price gain. So your risk is limited. If you own a stock that pays a dividend and just stays flat, you get both the dividend and the price of the covered call.

It's a reasonable strategy. I wonder if anyone has done it with houses: "Give me $5,000 now and I'll give you the right to buy my house at $500,000 at any time in the next 7 years."

You keep the $5,000. But if the house value goes to $600K, they are going to buy it from you, resell it, and make $100K profit.

You can do this with a individual account, like a fidelity or schwab account?

Yes, as long as you get permission to trade options.

You can totally bankrupt yourself with options pretty easily, so they make you sign something that say you know what you're doing.

burritos says

my realtor thinks there's still a significant shadow inventory that'll be coming down the pike.

You can get actual numbers of shadow inventory by doing a [free] search at foreclosureradar.com. They'll tell you how many homes are REOs, scheduled for auction, and preforeclosures. Of course, there's no way to know how many of those will end up on the MLS (and when), but it can give you a general picture of the area's inventory.

As I mentioned in another thread, in my zip code and an adjacent one (two parts of Oakland where I'd like to buy), there are TWICE as many homes in the shadow inventory as there are active listings. For the city of Oakland as a whole, shadow inventory is 2.5 times the active listings. And a reliable source said that for every house that's received an NOD (i.e., is in 'Preforeclosure' stage), there are two others that have defaulted by against whom the bank has not yet taken action.

Just something you might want to consider in your decision.

Yes, as long as you get permission to trade options.

You can totally bankrupt yourself with options pretty easily, so they make you sign something that say you know what you're doing.

True. The real risky playing of options is when you deal with naked calls. You don't own the underlying stock. That has unlimited downside risk and the source of margin calls. Using the option strategy with a covered call is like Patrick said, selling part of your upside potential in the stock at a price. That price then reduces your cost of ownership of the stock. I set the sell sticker price to a value I am happy to reach. In effect, I am reducing my downside by limiting my upside. On companies like Coke that pay a decent dividend I think it works perfect. The dividend (3%) becomes the back-bone for the stock price. As long as they continue to pay it (they have since 1920), the stock hovers around your purchase price. You basically don't need it to appreciate to get the 7% return.

No one has every committed suicide for taking a profit. :)

burritos says

I don't know what that is. Sounds like I'd get my hat handed to me if I were to attempt doing that. Sounds like you're doing well. Are you recommending that anyone who wants to have a safe decent return do as you do?

I think covered calls are perfect for this market time. American companies are taken advantage of the low interest rates to both reduce the payments on their existing debt, and also to expand their business with pretty much free money. If you have a good product and a global outreach that is a pretty good story. Take Coke for example, the growth rate in China(20%) and India(9%) is very impressive. Any capital expenditures to keep building in these countries is done with free money from the US gov't. So, to me, what is meant to pump up the ailing housing market is creating a frenzy for the Fortune 500 companies. Don't limit your potential growth in cash to fixed interest payment from the gov't. Get on top of the real growth stories. That is my 2cents.

burritos says

There is a somewhat limited supply.

Nah. They're always making more homes. Even in countries like Japan or Hawaii where land is truly limited they're always making more homes.

The awful horrifying truth is that rents have been thrown out of whack just as home prices were by the bubble. Right now there is demand there for the rentals in many areas but that won't last as more people are forced to move back in with Mom n' Pop or take more room mates to make ends meet.

Ultimately rents are subject to wages and employment levels just like houses are.

RentingForHalfTheCost says

Don't limit your potential growth in cash to fixed interest payment from the gov't. Get on top of the real growth stories. That is my 2cents.

Like I've said many times before, my interest in RE isn't so much as an investment as it is as a hedge against inflation. I don't see the government raising taxes to pay for all the things we need/enjoy. So they'll continue to use the same ploy that we've been using since government has been using debt and that's inflation. Now, I'm not a hyperinflation conspiracy theorist, but no one can deny that inflation is an inexorable inevitability. So, while I can fix my payment for 30 years and record low levels, the rent more than likely will continue to track inflation over time. Working on my 5th property. Have already paid off one, so the rent I collect there is basically tax free(or deferred) cause I write it off against the depreciation on the other properties.

Covered Calls :

Everytime you see a 'cant lose' investment ask yourself why isnt everyone doing it ???

Go pull up a 5 year chart of KO - now pretend you pulled this stunt at the beginning of 2008 - things are good, not much to worry about, you buy your stock (at around $65) and sell you matching covered calls.

9 months later your calls expire worthless (yahoo !) and you make your $350. And your stock is now selling for $41.

Congrats you just lost about $21 per share on a $65 (+ commissions) investment.

All investing carries with it a loss of principal, even cash carries such a risk, thanks to the Fed.

There is someone here who kept on pumping the 7% you get from one of the gov bond funds instead of being a landlord. Unfortunately when you pull up a chart the NAV has fluctuated greatly over the last few years.

And we're not even considering things like your broker's clearing firm 's Obama fundraiser CEO stealing all the funds in your supposedly segregated account.

As for being a lanlord right now - no thanks. It's a shitty business to begin with, and right now with the rental bubble (and yes, it is yet another fucking unsustainable bubble just like all the other ones) you see lots of newbies piling in based on the idea that rents are only going to go up from here and will never go down.

Now, where have I heard that before ?

RentingForHalfTheCost says

n companies like Coke that pay a decent dividend I think it works perfect. The dividend (3%) becomes the back-bone for the stock price. As long as they continue to pay it (they have since 1920), the stock hovers around your purchase price. You basically don't need it to appreciate to get the 7% return.

Performing a covered call on a dividend stock that is level pays very little. So you essentially have to sell the call at very near the actual stock price to get any kind of meaningful income. Which means you will likely have the option executed.

Performing a covered call on a volatile tech stock, would pay hansomely even at a strike price far beyond the current price of the stock.

There's advantages and disadvantages to covered calls. The biggest disadvantage is you are giving up a lot of your upside on the stock. (which is where most of your gains come in sudden spurts, like the last 3-5 months) If you are a longterm investor, this is utter nonsense to get involved in. If you are an active trader who knows what you're doing, then it might have a place in your strategies.

Options are scary as hell. Remember, the guy on the other end of that trade is someone 10X smarter than you.

Rent4Ever says

Performing a covered call on a dividend stock that is level pays very little.

True if you think 7-10%/yr is little. I tend to think that is all I need. Slow and steady.

RentingForHalfTheCost says

Rent4Ever says

Performing a covered call on a dividend stock that is level pays very little.

True if you think 7-10%/yr is little. I tend to think that is all I need. Slow and steady.

No that's a good return and if you can get that with covered calls, then you're doing something right. They are one of the least risky options positions you can have.

Have you ever had a covered call on a dividend stock called away from you, so you didn't own it over the period of time you had to be holding the stock to collect the dividend?

RentingForHalfTheCost says

Rent4Ever says

Performing a covered call on a dividend stock that is level pays very little.

True if you think 7-10%/yr is little. I tend to think that is all I need. Slow and steady.

7-10% is a good return if that's your whole portfolio. Your whole kit and kabooldle is in covered calls?

kochevnik says

Everytime you see a 'cant lose' investment ask yourself why isnt everyone doing it

I never said such a thing. I said low-risk, which is not "can't lose". I think housing is much higher risk than buying dividend stocks and selling covered calls to generate income in today's market.

Rent4Ever says

Have you ever had a covered call on a dividend stock called away from you, so you didn't own it over the period of time you had to be holding the stock to collect the dividend?

Yes I have and I am glad when it gets called away. It means I already made the 10%. I can dwell on the fact I lost another 10% run-up, but I don't. I just move on and look for other opportunities. The dwelling on missing the 20-40% runup is what gets you in trouble. I shy away from greed at all costs, it comes with too much risk many times.

kochevnik says

Go pull up a 5 year chart of KO - now pretend you pulled this stunt at the beginning of 2008 - things are good, not much to worry about, you buy your stock (at around $65) and sell you matching covered calls.

9 months later your calls expire worthless (yahoo !) and you make your $350. And your stock is now selling for $41.

Congrats you just lost about $21 per share on a $65 (+ commissions) investment.

All investing carries with it a loss of principal, even cash carries such a risk, thanks to the Fed.

KO is just one example. The mistake you are making is just looking at the current stock price rather than the dividend. During the time you mentioned KO paid a handsome dividend. If my goal is to make the 3-4% of the covered call and the 3% of the dividend, then why do I care about the price action. If it goes down the dividend payment just bought me some shares on sale, and it also means I didn't get them called away. I think it is a mistake to make your share purchase decisions based on what others value the stock at on that day. Your own view the of the fundamentals of the company should mean more. Beating inflation with dividends and covered calls is fine with me. The issue is if the company is sound, and I don't think anyone has questioned companies like KO, PG, COP, WMT, JNJ, etc. There is no shortage of 3-5% dividend paying companies that are not depreciating like housing.

E-man says

Burritos,

So instead of $1,050, now your obligation is $1,080/month. Your return is about $5k on about $60k investment. It's an 8.3% vs. 9% cash on cash return. You're borrowing at 4.5%, which is positive leverage. When inflation kicks in, you're essentially borrowing at 0%.

Well, unless you think deflation will kick in first then it's a different story.

Learn from your victory. Prosper from your failure.

Yeah. I know. I'll play the waiting game.

Property went pending yesterday. Guess I wasn't in the driver seat.

robertoaribas says

First off, if you aren't completely familiar with the Black-Sholes pricing of option formula, and the put-call parity law, you are out of your depth.

Is so GREEKS, lol.

burritos says

Property went pending yesterday. Guess I wasn't in the driver seat.

Don't you worry. You have not missed the boat. :)

bubblesitter says

burritos says

Property went pending yesterday. Guess I wasn't in the driver seat.

Don't you worry. You have not missed the boat. :)

DO YOUR MATH

The asking price got me a CAP rate of 10%. I was greedy shooting for 11%