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Answers (19)
- John Valdez, "John Valdez"
- Contributions:419
Invest and use leverage to control a piece of property to Flip or generate cash flow. We work with several investors with different goals. Determine which strategy you want to take and enlist the help of an "Investor" Realtor that knows investment real estate and not just residential. We can help.
- R. E. Investor
- Contributions:11
Every agent here wants you to buy something. When everything is said and done, most investors do not make a profit. Owning investment property is NOT for everyone. Join a local not for profit Real Estate Investment group. Talk with actual investors that do what you are thinking of doing in your area. Try to find mentors who do not have anything to sell you. Dave Ramsey said if you pay off your mortgage it is a 100% guaranteed return with no time intvestment at all. Good luck and do what feels right for you.
- InfoRealtor
- Contributions:5
[content removed by moderator due to self-promotion]
- Sky Minor, "Mr. East Side"
- Contributions:21
I like Titan10s answer.
If it were me, I would go pick up one or two multi-unit properties in Los Angeles that will rent quickly. I am particularly fond of Section 8 Properties in the ghetto areas of the city. Before you wince and disregard this answer, let me explain why. The ghetto is feared by many thus the prices are lower and the Cap rates are higher. (Cap rate is annual rent/purchase price-usually I advise to go for 8 or higher but most multifamily properties on the west side or Pasadena are 5 or less). Section 8 is an LA county program that subsidizes rent to people, so you have the government paying most of your tenant's rent. They always pay on the 1st of every month. The downside is that your unit has to pass a Section 8 inspection once a year, but that's best practices anyway to keep your rental property in good condition. With larger units (3 or more bedrooms) you tend to get families with lots of stuff. We all know that moving is a pain when you have alot of kids and stuff so they tend to stay put. A multiunit building with section 8 tenants is a cash machine. The tenants will never give you any problems because if they do, you just contact their section 8 advisor and they lose their benefits.
I would advise putting 50% down and getting a 30 year fixed mortgage so that you can leverage your funds a bit and also take advantage of the very low interest rates at the moment. When the rates rise, and they will, your 5% mortgage will be just peachy. I know of several buildings right now that are above a 10 percent cap rate and are under $300,000. All you would have to do is sign the loan docs and you would make about $3000 a month income from each. That's a no-brainer IF you have the stomach for the ghetto.
If not, rental properties in nicer areas are also a solid investment, but they won't spit off the tremendous income that you can get in less desirable areas. For more on this concept, please contact me.
-Sky Minor, Not-afraid-of-the-slums broker.
If it were me, I would go pick up one or two multi-unit properties in Los Angeles that will rent quickly. I am particularly fond of Section 8 Properties in the ghetto areas of the city. Before you wince and disregard this answer, let me explain why. The ghetto is feared by many thus the prices are lower and the Cap rates are higher. (Cap rate is annual rent/purchase price-usually I advise to go for 8 or higher but most multifamily properties on the west side or Pasadena are 5 or less). Section 8 is an LA county program that subsidizes rent to people, so you have the government paying most of your tenant's rent. They always pay on the 1st of every month. The downside is that your unit has to pass a Section 8 inspection once a year, but that's best practices anyway to keep your rental property in good condition. With larger units (3 or more bedrooms) you tend to get families with lots of stuff. We all know that moving is a pain when you have alot of kids and stuff so they tend to stay put. A multiunit building with section 8 tenants is a cash machine. The tenants will never give you any problems because if they do, you just contact their section 8 advisor and they lose their benefits.
I would advise putting 50% down and getting a 30 year fixed mortgage so that you can leverage your funds a bit and also take advantage of the very low interest rates at the moment. When the rates rise, and they will, your 5% mortgage will be just peachy. I know of several buildings right now that are above a 10 percent cap rate and are under $300,000. All you would have to do is sign the loan docs and you would make about $3000 a month income from each. That's a no-brainer IF you have the stomach for the ghetto.
If not, rental properties in nicer areas are also a solid investment, but they won't spit off the tremendous income that you can get in less desirable areas. For more on this concept, please contact me.
-Sky Minor, Not-afraid-of-the-slums broker.
- titan10
- Contributions:826
MASSIVE INFLATION is heading our way. In times of massive inflation, low interest loans are great, because you are paying your principle with a devalued dollar, and will become easier to repay as time goes on.
If you were to go to riverside county, the market has been HAMMERED, and I have seen many properties near 70% off their highs. While forclosure rates are still high, inventory is way down in many areas. Corona, for example, had over 3000 listings a year ago, and is down to around 1440. There are arond 400 sales a month which puts inventory about 3.5 months worth. In menifee, I have seen 2000 ft houses for under 150k and will rent for around 1500/mo.
If you were to leverage your money with 80%ltv, and purchase one of these homes at 150k, your loan would be around $550 interest, $50 insurance, and about $175 for taxes. Principle reduction is part of your profit, so while it would be another $140 or so, it wouldnt be counted toward costs. That is $775 a month in cost, and $1,500 in rent, which would be $725 a month in profit. You would also have to factor in repairs and vacancy, which say it is one month a year and 1k in repairs, thats $2500 more in costs.
Thats $6200 a year return on a 30k investment-20% the first year.
your rent will also inflation adjust, bringing you more return following years.
thats before tax advantages of depreciation of your asset, and future appreciation of the house.(which might take a while, but ten years later, with the massive inflation coming, should be pretty good)
Keep in mind, from 1970-1980, median house prices more than tripled because of inflation.(according to census.gov)
If you were to go to riverside county, the market has been HAMMERED, and I have seen many properties near 70% off their highs. While forclosure rates are still high, inventory is way down in many areas. Corona, for example, had over 3000 listings a year ago, and is down to around 1440. There are arond 400 sales a month which puts inventory about 3.5 months worth. In menifee, I have seen 2000 ft houses for under 150k and will rent for around 1500/mo.
If you were to leverage your money with 80%ltv, and purchase one of these homes at 150k, your loan would be around $550 interest, $50 insurance, and about $175 for taxes. Principle reduction is part of your profit, so while it would be another $140 or so, it wouldnt be counted toward costs. That is $775 a month in cost, and $1,500 in rent, which would be $725 a month in profit. You would also have to factor in repairs and vacancy, which say it is one month a year and 1k in repairs, thats $2500 more in costs.
Thats $6200 a year return on a 30k investment-20% the first year.
your rent will also inflation adjust, bringing you more return following years.
thats before tax advantages of depreciation of your asset, and future appreciation of the house.(which might take a while, but ten years later, with the massive inflation coming, should be pretty good)
Keep in mind, from 1970-1980, median house prices more than tripled because of inflation.(according to census.gov)
- Larisa Pevtsova, "asklarissa"
- Contributions:42
With the Real Estate prices as they are it's a great time to start buying and renting the purchased properties. (Only buy if you feel you are getting enough rent for normal return on your investment - 8%) So if you want to be a landlord or get someone to manage the properties it's a great time to buy!
But since interest rates are low, I wouldn't suggest you pay full purchase price in cash for it. Take advantage of low interest rates and put some money aside to pay your current residence sooner.
You can also take your income from rents and put it toward paying off your current mortgage on the investment properties. If your credit is great and you're putting sizable down payment your interest rate should be below 5%
I hope it helps!
[content removed by moderator for being self promotional]
- Michael Lindekugel, MBA CDPE, "mlindekugel"
- Contributions:150
The insurance is a de facto lender. It is unlikely insurance companies would design a product with a cost of funds (your cash value) higher than the interest rate on low-risk mortgages.
It is based on some grandiose assumptions
You borrow at a low and stable interest rate.
The interest you pay is tax-deductible because it exceeds the standard deduction. One third of homeowners itemize their deductions.
You are in a relatively high tax bracket. Few of us are.
Sales commissions are not destructively high.
Life insurance costs that are subtracted from your return aren't too high.
Equity index performs better than the past.
- Michael Lindekugel, MBA CDPE, "mlindekugel"
- Contributions:150
From 1991 through 2000, capital appreciation of the S&P 500 index was 12.2 percent a year, compounded. Most index policies are burdened with an annual cap or limited to a percentage of the gain 8.6 percent looks very likely. From 1926 through 2003 index appreciation ran at a compound annual growth rate of 5.9 percent. Equity index products don't provide full stock market returns and doesn’t include dividends.
Anyone stating that your home equity earns nothing needs to go back to business school. If you own a house mortgage-free, it has a return that is negative from inflation, but there is also the positive return from the opportunity cost. The return on your equity is equal to the nontaxable value of the shelter it provides (remember, without it you would have to rent) plus the asset capital growth or appreciation of the asset.
- Michael Lindekugel, MBA CDPE, "mlindekugel"
- Contributions:150
He suggests unlikely returns on policy cash values. With mortgage rates approaching 6 percent, it is difficult to find insurance yields over 4 percent. Very few insurance companies are crediting more than 6 percent to policy cash values. Insurance companies are nothing more than large investment funds. They invest insurance premiums. Most of income of an insurance company comes from investment.
He offers zero consideration of the downside. We sign a contract for a mortgage to pay interest for up to 30 years, at whatever the rate. When we invest in an insurance contract, the insurance company guarantees a return of only 2 percent or 3 percent (read the fine print). The policy illustration may show a higher rate, but the guaranteed rate is 2 percent or 3 percent.
His rates of returns are off. Equity index returns (the return on large common stocks excluding dividends) is about 8.6 percent index return and looks pretty good.
- Michael Lindekugel, MBA CDPE, "mlindekugel"
- Contributions:150
Missed Fortune wouldn't pass the sniff test with a room full of MBA students. Some of the ideas would fail a finance 101 or an economics 101 class.
He sometimes ignores the time value of money. Mr. Andrew says on Page 43 that you will pay out more in taxes when you retire than you ever deferred using qualified plans while working. You can't compare dollars of taxes saved in 1970 with dollars of taxes paid in 2010. There is a fundamental financial concept every finance 101 and economics 101 students learns called the Time Value of Money. A dollar today is worth more than a dollar a year from now because of inflation. At 3% a dollar is worth $.97 one year from now.
He overstates tax benefits. Examples in the book are based on a 33 percent state and federal tax rate. The fact is few people will face such tax rates according to IRS statistics. The smaller the tax rate, the smaller the benefit of moving your investment to a tax-free investment.
- Chuck Chrobak, "Chuck Chrobak"
- Contributions:40
I would recommend reading Doug Andrew's book Missed Fortune. Great book for this topic.
- Michael Lindekugel, MBA CDPE, "mlindekugel"
- Contributions:150
PeteMC1
The payoff or invest question is best answered with you and your CPA and your financial planner. You have a lot of things to take into account such as age, assets, years to retirement, children, tax situation, etc.
If the decision is to invest, then the question should be what asset class? Real estate is not automatic answer. Your portfolio likely needs to be rounded out with assets from several classes. Stocks, bonds, mutual funds, real estate, etc.
- PeteMC1
- Contributions:2
Hello All,
Thanks so much for all your advice here. I'm not quite sure with current economy vs the tax benefits is a good time to buy yet.
I agree with "azrob" that "highest supply of homes ever, high rental vacany rates,increasing foreclosures, mounting job losses, and state/city/county budget crisis that will be solved causing job losses, the smart money will wait as prices continue dropping." But at the same time, I maybe wrong. I think that since the increase foreclosures and mounting job losses, people will go renting.Â
I appreciate if anyone can recommend us to any real estate investment agent/expert in LA, CA who can represent us and walk us through all the processes/benifits/risks.Â
Thanks again,
Pete
Thanks so much for all your advice here. I'm not quite sure with current economy vs the tax benefits is a good time to buy yet.
I agree with "azrob" that "highest supply of homes ever, high rental vacany rates,increasing foreclosures, mounting job losses, and state/city/county budget crisis that will be solved causing job losses, the smart money will wait as prices continue dropping." But at the same time, I maybe wrong. I think that since the increase foreclosures and mounting job losses, people will go renting.Â
I appreciate if anyone can recommend us to any real estate investment agent/expert in LA, CA who can represent us and walk us through all the processes/benifits/risks.Â
Thanks again,
Pete
danny kim is only half right:
with some of the highest supply of homes ever, high rental vacany rates,increasing foreclosures, mounting job losses, and state/city/county budget crisis that will be solved causing job losses, the smart money will wait as prices continue dropping.
The part is right about, is the generational buying opportunity. It isn't here yet!
- Bentley Advisors
- Contributions:294
Today's cost of mortgage debt is very low. In a perfect world, price never deviates from "fair value". In the real world, we know better. When irrational fear leads to major market declines such as that of the housing sector, opportunity begins to appear. Herd mentality and greed prevent most people from following the age old adage: Buy low, sell high. Everyone knows the phrase but very few follow it. Although we may not have "bottomed", I believe we've stumbled our way into a once or twice in a lifetime opportunity to create great generational wealth. NOW is the time to buy real estate for cashflow. As long as you have a property in a strong rental market producing positive cashflow after all operating expenses including property mgmt fees, vacancy factor (10%) and debt service (PITI), you can likely weather any add'l storms until the market turns. Positive cashflow effectively mitigates any risk of a more protracted recovery period.
In this day and age, ensure you have stable employment/income and 12 mos cash reserves set aside. Then, buy cashflowing properties. Between any positive cashflow, tax benefits and future appreciation, I believe it to be one of the best investment vehicles for you to hop into at the moment. Go get 'em!
In this day and age, ensure you have stable employment/income and 12 mos cash reserves set aside. Then, buy cashflowing properties. Between any positive cashflow, tax benefits and future appreciation, I believe it to be one of the best investment vehicles for you to hop into at the moment. Go get 'em!
normally, I advise paying off debt... but maybe not in your case.
5% is a very good rate, you could get near that return in cd's now. With all of the governments activity pouring money into the economy, there is a real risk of high inflation in just a few years. Then, you could make much more interest on your money than 5%! Only a few years ago, I was getting 6% on online checking accounts.
Furthermore, there is a very real chance of an overshoot in this housing correction. I used to buy rental properties over 10 years ago, that made an effective return of 15% on my investment. With your warchest of cash, you like me would be in an ideal situation to take advantage of a beaten up market.
5% is a very good rate, you could get near that return in cd's now. With all of the governments activity pouring money into the economy, there is a real risk of high inflation in just a few years. Then, you could make much more interest on your money than 5%! Only a few years ago, I was getting 6% on online checking accounts.
Furthermore, there is a very real chance of an overshoot in this housing correction. I used to buy rental properties over 10 years ago, that made an effective return of 15% on my investment. With your warchest of cash, you like me would be in an ideal situation to take advantage of a beaten up market.
- Peggy Banks, "Peggy Banks"
- Contributions:522
dfors2- you are correct you do need to be very carefull when buying now. you need to make sure you will have cash flow. Never find something and buy it just because you like it. It is very different than buying a home, and never never put all your money into it.
- dfors2
- Contributions:175
Pete,
Congrats on your savings. My wife and I are thinking of similar options. I do not have your amount of savings but still.. My wife is very conservative financially as most women are. She has been talking sense to me. Before we plan on investing in either real estate or stocks we plan on owning our primary home outright or at least having say 50% LTV at a great rate.
Too much leverage scares me. What if I lose my job? How would I manage a real estate empire when I can't pay my primary home? Prepaying my mortgage is a no risk investment. Stocks and RE are going to be very risky IMO for years to come.
Congrats on your savings. My wife and I are thinking of similar options. I do not have your amount of savings but still.. My wife is very conservative financially as most women are. She has been talking sense to me. Before we plan on investing in either real estate or stocks we plan on owning our primary home outright or at least having say 50% LTV at a great rate.
Too much leverage scares me. What if I lose my job? How would I manage a real estate empire when I can't pay my primary home? Prepaying my mortgage is a no risk investment. Stocks and RE are going to be very risky IMO for years to come.
- Peggy Banks, "Peggy Banks"
- Contributions:522
both are good options, You have to decided what are your long term goals. I would love to sit down with you and go over the tax benifits&other things involved with income property. alot of people don't realize all the benifits there really are.
Should we pay off or invest?
My wife and I combine income from our full time jobs is $200k/year. We just bought our house two months ago with 30% down at 5% interest rate (the current mortgage now is about 1/4 of our paycheck). Also, we just sold our business a month ago. Now we have $500k cash in hand sitting in our bank account.
We have the following questions:
1. Should we pay the current house off?
2. Or should we invest in real estate. We want to generate another source of income. We seriousely considering using the money to invest in a multifamily home. But we are not sure if this a wise thing to do.
However, we are not sure about this whether we should pay off the current mortgage or investing in the new property. We appreciate your advice.
Thanks so much,
Pete
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