patrick.net

Patrick's point #2 tells you to buy in the Ghetto and never in prime properties, That's it. Does that sound like good rule of thumb to you? I advise that you dump that parameter and use something more closely align to real life. There's a lot of moving parts missing.

No, I never said buy in the ghetto. I said buy where it makes sense.

Those places in the ghetto are reasonably priced now, if you want to rent them out.

But most other places are still too high compared to rents and salaries.

I think the 6% break-even rule of thumb still applies. There are extra expenses on top of interest.

That's the thing, your assumption is too open ended. Of course you didn't mention Ghetto, but we know that the higher the % the worst property, there's a correlation. So if i am comfortable buying in the Ghetto at 6%, when it should be 20%, that sounds like a wrong decision to me. At the same time, if there is a nice Cupertino Property at 4.5% and my ITI are less than 4.5%, net of tax, that rule of thumb says no when it may be in fact not overpriced at all. For all I know, if I can get the property at less than 4.5% ITI, there are many others like me that can as well.

Be careful investing in ghetto property...and not just because it's hard to collect!

The values in the slums of Richmond and Oakland have shot up quite a bit in the last year as foreclosures have dwindled. Deals are nowhere near as good as the used to be.

And if the foreclosure spigot ever gets turned back on, reo prices could quickly tumble down again.

You can also use this formula to show that your rent is a deal in a good part of town.

SF Ace,

Just because some one can afford to pay the inflated Cupertino prices does not mean it makes financial sense. Patrick's advice makes good sense to me.

It is certainly your option to put income into any non-liquid asset that you choose. Have you considered California Municipal bonds? They need to cover the Bell City Manager's $600,000 pension.

infection. buying is about value and how much it cost to attain that incremental value. If it is just about price, wouldn't everyone be living in Antioch instead?

I would consider Bell's muni bonds if the value (yield/risk) is there.

SF ace says

That’s the thing, your assumption is too open ended. Of course you didn’t mention Ghetto, but we know that the higher the % the worst property, there’s a correlation. So if i am comfortable buying in the Ghetto at 6%, when it should be 20%, that sounds like a wrong decision to me. At the same time, if there is a nice Cupertino Property at 4.5% and my ITI are less than 4.5%, net of tax, that rule of thumb says no when it may be in fact not overpriced at all. For all I know, if I can get the property at less than 4.5% ITI, there are many others like me that can as well.

...and what happens when you rent in these areas? You rent to ghetto people who dont have pride in ownership, especially when they are renting. Stay the heck out the ghetto when renting, less you want problem tenants and are capable of financing continuous repairs when one family leaves your place in shambles.