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Randy H
2006 Mar 23, 3:11pm
@Cheerful,
Thanks for posting the details of your experience, and as others have said, please continue to post. You won't be labeled a Troll by most of us unless you purposefully incite things without being willing to engage in serious debate. Surfer-X has had a very long, bitter battle with genuine Trolls here for years, so his response is easy to understand. See how your post did bring out another much more "Trollish" response from another commenter.
Anyway, as to evaluating your situation, all I can say is that ultimately all real-estate transactions are LOCAL. We talk a lot about averages and trends, but it is always possible to find exceptional deals in any market -- just harder in some than others. This is really what the professionals like Zephyr or FormerAptBroker here do well. They have the experience, intuition, and stomach to run profitable RE investment/income businesses.
What you did was speculate (again, in my opinion), and got lucky. If you take your luck as such and use your gains to invest in learning how to run a RE rental business, then you stand a chance of doing well. If you think your luck was something else, more directly due to your own incredible prowess, then I'm afraid I'm not very optimistic about your future ability to generate returns. And, by the way, X is right that you have not *realized* some of the gains you are claiming. With RE, your gains are not realized until sale or asset restructuring occurs -- until then it's all book value. We don't do fair-price valuation on RE for tax or financial accounting in the US. So unless you're pulling out equity and restructuring the asset, it's still only worth the book value to you now (because you can't tell the future. it could drop to what you paid the day before you sell it).
Remember this, for a RE income business, or any business for that fact, the value to you is ONLY based on the expectation of future FREE-CASH-FLOWS. This means cash in excess of all capital budgeting needs, operational needs, and working capital. What you have described doesn't give me enough info to evaluate whether you're doing this or not.
If you think your luck was something else, more directly due to your own incredible prowess, then I’m afraid I’m not very optimistic about your future ability to generate returns
Another truly excellent post, Randy H.
SFWoman
I think you've got it right. Trolls working together for their own benefit...like con men passing the mark's wallet...
just to flog a dead thread... on the 10x rule, interestingly, there's a 'licensed boarding house' nearby on the market i was looking at, don't ask why – to do with one of my partner's hare-brained business schemes.
the owners paid $657K for it 2 years ago (bought at the top of the market), have been making a loss on it ever since, prices have dropped, and it's back on the market for '$640K negotiable'. Even at that price, they have lost 17K + the stamp duty and conveyancing costs, so maybe another $20K. Plus the money they've lost every week in the repayment shortfall.
When you calculate the actual annual rent gathered on it (assuming fully occupied) and multiply by 10, you get $426K. $640K asking is almost exactly 50% over the realistic rule of thumb for a sensible investment (to realistically be able to pay back interest and principal, and not be praying for capital gains to bail you out). Interestingly, a recent OECD report stated that Australian property was 50% overpriced on 'fundamentals'. Uncanny.
Just want to note that Cheerful was in all likelihood quite confident that when his 1.2 haha stock market investment still existed, it was as good as "hahas in the bank" until it wasn't. If Cheerful could have predicted that crash, he would have 1.2 hahas plus interest more than he does now.
Unless Cheerful's predictive abilities in terms of housing futures vis a vis stock market futures are dramatically superior, equivalent risk exists today.
As pointed out by X and Randy, your hahas are not in the bank until they are.
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Truism: while many --though by no means all-- of the regular Patrick.net bloggers are renters, at some point most of us JBRs would like to become homeowners (something the bulls/trolls frequently like to point out). Aside from that oh-so-powerful "ownership" psychology and pro-ownership cultural bias we discussed in previous threads, there are also valid reasons to choose buying over renting in a sanely valued market: it's generally easier to find detached houses for sale vs. for rent in many areas, or places with a big yard or garage, no pet restrictions, fewer restrictions on remodeling (excepting HOAs & condos) and you can't be arbitrarily evicted --unless you fail to pay your mortgage or taxes of course.
Some renters prefer renting to owning, even when the rent vs. buy equation is balanced, due to moving frequently, preferring more freedom/fewer maintenance headaches, etc. But for this thread, I will focus on renters who --for whatever reason-- would like someday to become owner-occupiers (as opposed to landlords or speculators). Personally, I'd be lying if I said I didn't like the idea of owning a nice, roomy tree-shaded craftsman with a big garden and workshop someday. I might be termed an aspiring "buyer-users" (coined by Mike Dwight). The way I see it, many of us Bubble-aware aspiring BUs are either: (a) looking to move out of Bubble-afflicted areas, or (b) waiting for prices to mean-revert. As I often like to put it, we are needing to see "housing prices reflect economic fundamentals" --namely rents and incomes-- before buying.
But how does one exactly determine when prices are "in line with rents and/or incomes"?
For the more financially saavy among us (Randy H, Peter P, Zephyr, etc.) this means feeding reams of housing data into your personal SPARC parallel processing super-computer and generating results using some insanely complex Black-Scholes stochastic risk valuation derivatives model, which would be virtually incomprehensible to the rest of us.
So what do the rest of us mere mortals use? How do we know when it's the right time/price to buy? How do we know when prices have "mean-reverted" enough to be safe?
Some of us use online Rent vs. Buy calculators. These are great, because they can calculate the P-E (rental) ratio of housing with decent precision. Condos and townhomes make direct buy vs. rent comparisons easy, because they are often physically identical/interchangeable with typical rentals units. Calculating the precise rental-equivalent for detached SFRs is a bit harder (unless you live in an area where many are for rent), but rough estimates are always do-able. Here are some good Rent vs. Buy calculators:
Dinkytown.net Rent vs. Buy
CEPR Rent vs. Buy
Others prefer using Cap-rates. Here's a good Cap-rate calculator:
Owner's Equivalent Rent Calculator
Some prefer even simpler rules of thumb:
What are your favorite "sane housing price" rules-of-thumb?
Discuss, enjoy...
HARM
#housing