BiggerPockets

what does this government bail out mean to us? Should I put a hold on looking at property? Should I stop trying to pay down my house? Should I consider pulling out the 25k+ equity i have in it already? What do you all think???

I am:

Owning my house free and clear since day one ( ie paid cash for it)

Two months ago I withdrew all my cash from banks ( I guess I was ahead of time :D )

I never ever borrowed a penny from anyone and I never ever will.period.

My avatar is showing a run on Polish Central Bank in one of the major cities in Poland . But that particular run was for a commemorative coin minted back in 2007. And the speculators who bought it in a bank sold it in the street for a profit :lol:

I'm a premonitional personality

Thank you and have a big fat day

Buy physical precious metals. Buy guns and bullets. Cash is king (though subject to debasement by our elected officials and central bank). Long term food storage is always a good idea along with a good water purifier. Avoid debt. Buy real estate for investment purposes only if it makes abundant sense without factoring in any appreciation. Assess what is truly important in your life, what you need not what you want. Standard of living in the US may very well be in line for an adjustment downward, be prepared.

Am I a pessimist? I'd say realist given our present circumstances. The **** has only begun to hit the fan, we've got a long way to go. And here is a little nugget of insight often attributed to Alexander Tytler but unsubstantiated:

A democracy is always temporary in nature; it simply cannot exist as a permanent form of government. A democracy will continue to exist up until the time that voters discover that they can vote themselves generous gifts from the public treasury. From that moment on, the majority always votes for the candidates who promise the most benefits from the public treasury, with the result that every democracy will finally collapse due to loose fiscal policy, which is always followed by a dictatorship.

The average age of the world's greatest civilizations from the beginning of history has been about 200 years. During those 200 years, these nations always progressed through the following sequence:

* From bondage to spiritual faith;
* From spiritual faith to great courage;
* From courage to liberty;
* From liberty to abundance;
* From abundance to complacency;
* From complacency to apathy;
* From apathy to dependence;
* From dependence back into bondage.

I'm borrowing as much as I can, not making any pre-payments on my mortgages, buying as much RE as possible. When this inflation really kicks in I want to have as much mortgage debt as possible. :mrgreen:

As to is is scaring me? Absolutely not, it's getting me excited!!! I'm thinking in the near future I'm going to be completely swamped with work to do because the opportunities are going to be so outlandish it'll make your head spin!

-Michael

I've read the arguments for and against owning a place outright/paying down the mortgage/carrying for the long term. The points are valid for some, but I don't think I fit into those situations.

I'm pretty small time still. When the numbers aren't that big, I don't think it always makes sense to carry it for the long term. But the mortgage is still my largest payment each month, so it's actually more of a nuisance since I know I can get it out of the way. When I do that, I'm not paying interest on the principal that I'm no longer paying, and saving much quicker for the next place.

So to get back on topic, that's my plan right now: pay this place off, start saving for the next venture. When things began to unravel, I felt kind of rushed, like I had to get into the game before I missed it! The, I realized that this one isn't going away anytime soon.

Because a house you live in is a liability, not an asset. An asset is something that earns you money. I'll buy adjusting nominal rates of return for inflation to get to a real rate of return.

But I don't buy adjusting interest you pay by the inflation rate. The proper adjustment is to reduce the value of the dollars you're paying. When paying back a loan, you're paying back the more valuable dollars you borrowed with less valuable dollars. Think of it from the lenders perspective. They're getting a 5.6% return and inflation is eating 5% of that. Leaving them with a 0.6% real return. As the borrower, you are STILL paying out all that interest, its just less of a hit than without inflation.

The tax deduction for interest doesn't offset the cash used to pay it. The highest current rate is 35%, IIRC. So, the post-tax hit is only 65% of what it would be without the deduction. But its still a hit.

If you can borrow money at one rate, and use it to generate a higher rate of return, then you're really making money off the debt. That's why cap rate is so commonly used for commercial real estate. If you can borrow at 7% and buy a property with a honest-to-goodness cap rate of 10%, you're making 3% on that money. That's how banks work, although they're learning (to all of our pain), leverage is a tool that cuts both ways.

Personally, I want my residence paid off. That allows me to greatly reduce my personal operating expenses.

Both parties make money off the same stash all the time, it's called partnerships. I'm doing it right now. My tenants are covering all my expenses and putting money in my pocket (read: I am making money off of the property). I in turn pay the bank the mortgage payments to the bank and they make money from the interest. I am in a partnership with my bank and every single day (including weekends and holidays) both of us are making money off of the property that I own. It's called arbitrage, the bank is loaning me money and making 6% APR on it and I am using that money along with my cash (20% of the purchase price) to earn 45% ROI on the property.

I don't care if I'm renting the money from my bank for the first 12 years, the people that are renting my apartments from me are paying that rent and paying for the up keep of the building, and paying the utility expenses, and paying the taxes, and paying the insurance, and paying me money for my time to work on it, and leaving cash in the bank called profit that I can use to grow the business.

-Michael

Yes my income is higher while in the partnership with my bank. I didn't have enough cash to buy the property outright so I needed help from the bank. And the real number we're trying to get to the bottom here is ROI. So the goal is to put the least amount of money into your investment and get the most back out.

Since I bought the properties at the right price then after I fixed all the management and maintenance issues they had I had them re-appraised and did a cash out refi and got all of my cash back in less than 6 months. I got 100% of my invested capital back, my ROI went to infinity and my properties still have positive cash flow. None of this would have been possible with out the bank.

Every person you work with in your REI business (be it flipping, rentals, wholesaling, etc) is your partner and they need to be treated that way. If you don't view them that way then you won't have near the growth you could have if you helped those that are helping you to create money for themselves also.

-Michael

I agree with Michaels strategy because I've seen investors make it work for themselves over and over again. It works, but it can also get very complex to keep all your ducks in line and I've seen many of the best entrepreneurs lose control due to their own success. I also understand Daniels frustrations at seeing some of the biggest speculators on credit get bailed out. Best of both worlds, take advantage of the rules of the game, (and take a risk occasionally with your money or the banks), and you will succeed. But let the market work properly and thin the herd a bit, all the irrational exuberience of the ineffecient investors using other peoples money is killing my investment chances.

We agree and utilize Michael's strategy as well. We believe if a person(s) become efficient at intelligently using OPM and OPR the rewards will be greater and faster than most people can fund using only their individual "employee income".

We have learned to get our "OPM" $$ back within a short period of purchasing RE so our returns are also infinite...

If a house costs $0 out of YOUR pocket to purchase/ rehab/ rent and this same house earns a cashflow of $200/ month (utilizing tenant's funds), shouldn't that be a deal we all want to be part of? Leverage, leverage, leverage!

Using OPM (i.e. the bank's) is a great deal if used properly.....