patrick.net

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.

SKIBUM,
One saying about Market (it can be stock or Real Estate) is nobody can predit absolute top or bottom. It's called timing the market. You can hedge agaiinst that by investing in a longer time frame.

I am giving you a classic example.

I have 30k. If I invest that in CD at today's rate it's 5% return. If it's stocks it's around 8% for next 20 years. (I am taking historical S&P average). Calculate return on that.

Now, take the example I cited above....300k property appreciating 5% per year for next 20 year on an average with a 30k down payment minus $48000 loss (I lose $200 a month for 20 years, I am ruling out the tax deduction from my W2).

Now tell me SKIBUM which one will be more in 20 years?????

If you tell there is RISK, I agree....there is always risks associated with any kind of investment.

predit=predict

Astrid, how was Finland?

Peter P, are you bored? we can talk about food instead :)

[i]No offense to Mo-Town, but the place is an armpit.[/i]

Can't imagine anyone taking offense to a comment like that. lol. Seriously though, nobody living in the Central Valley pretends the scenery's nicer than it is in the Bay Area or along the Central Coast. The Valley's got a few advantages though, and for those who can live with the summer heat, the cost of living is significantly less than the Bay Area. For example, you can buy a 2000 sq/ft home on 5+ acreas bordering a river or stream in Stanislaus or San Joaquin Counties for the price of an average sized tract home in Alameda County.

[i]The only reason Stockton and Modesto saw major increases in value were due to their proximity to the BA and the fact that people with lower incomes were able to leverage their way (temporarily) into homes there.[/i]

I suspect leverage played a bigger role for Stockton and Modesto. Most of the Bay Area people trading commute time for affordability tended to buy in Tracy/Manteca or Los Banos. Still, I agree with you that both of these factors are now a thing of the past. The newer lending standards significantly limit home prices in Central Valley communities where the average household income is in the $50K range, and as prices begin to decline in the less desireable parts of the Bay Area, people will have less and less of an incentive to seek housing so far away.

astrid :

I agree. Else real estate investing wouldn't have been possible. It CAN be a good investment. HiThere is presenting a very simplistic scenario and a very optimistic model. But I have no energy and patience to deal with trolls now. Unlike POS, who ran away when challenged for hard numbers, he is sticking around and defending his case. So good luck to him.

There is a big truth in what he is saying though. There were many opportunities in the "good old days of easy credit" to take full advantage of it. Forget creative mortgage structures. Even 30yr FRM had great rates. But the problem is, this opportunity was smartly used in extremely rare cases. I know EXACTLY ONE person who locked in a low low 30yr fixed rate. Everyone else went for howmuchamonth low amount ARM and maxed out the payment.

Do you have energy to talk about food StuckInBA? Do you like Sneha Indian Buffet?

HiThere,

I have two friends plus my little brother who immediately make money with 10% down on investment properties in upstate NY. No bubble there. They aren't betting on appreciation, they just invest in properties (one has lots of section 8 properties and makes a very good income from them after expenses) that provide them with an income after all expenses/taxes/maintenance, etc.. I would consider those investment, rather than speculative, properties. They own apartment complexes, not one off houses or condos here and there, because there is also an efficiency with economies of scale.

Pheonix, Scottsdale, Las Vegas and other bubble areas will have such a glut of rentals in about, oh, 10 minutes, that I wouldn't be sure of being able to keep a place rented. An empty rental unit is even more of a money pit and decays faster than having good tenants. Perhaps the people who are forclosed upon will fill these spec houses?

What is resale like on a new unit that has been rented for several years? Does it seriously diminish the value of a property at resale (seriously, I suspect it does but have no clue)?

SFWoman, you are right about Upstate New York but I wouldn't invest there as I don't believe in the long term prospects of those areas.

In terms of future of Vegas and Phoenix we have to agree to disagree.....time will tell....one thing I can tell that I never had vacancy in last 3 years....I bought in good areas.....we can talk about food now :)