I was just listening to Elizabeth Colegrove on podcast 103. She is obviously a very bright investor who is currently doing what I call the W.E.B. Griffin RE investing strategy. Basically, buying a house at every duty station and then renting it out when you PCS (move). She is doing more than that too.

Anyway, her plan is to buy new or newer properties that she rehabs then hold on to those properties for 5-7 years. At that point she will sell and 1031 into a new property. This is an outstanding plan provided that there is appreciation in her houses.

I had a very similar plan back in 2004. I started buying properties with zero or little down and usually negative cash flow (that was tax advantageous for me). With the tax advantages it came fairly close to breaking even or maybe I was putting in $100 per month. I was counting on 3-5% appreciation per year. After five years a house I paid $160K for all-in would presumably be worth about $200K. I'd also would have paid off $10k on the mortgage. (That assumes I got a 100% mortgage like Elizabeth, instead I got an 80-20 mortgage which is worse, but I'm trying to keep this simple).

The numbers were expected to look something like this. $200K less 10% selling costs (I didn't realize I'd need to rehab before selling so that cost wasn't factored in), netting me $180K, less the $100 net negative cash flow after taxes or $6K, plus the $10K I paid towards the mortgage equating to $24K in gains. That sure seemed like a fairly simple plan for me a newbie investor at the time.

But then the recession hit. Fast forward ten years, the house I paid $160K for is now worth a grand total of $130K on a good day. My mortgage is down to about $137K, so after 10 years my house is underwater by $7K.

Also that $100 I was losing every month became something like $200 because rents fell right along with house prices. And as my property has begun to age and need new paint and carpet, I'm losing at least another $100 a month due to capex. So instead of $25K gained in five years, I'm down something well over $20K in ten years.

I sincerely hope that her plans works out for her, much better than mine did! This is not meant to be a post aimed at anyway towards knocking Elizabeth, it is meant to be a warning to investors not to count on appreciation. GOD I hope this thread doesn't turn into another J and Bob show.

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