Questions about buying RE with all cash
Investor · Indianapolis, IN · Member since 2023 · 6 posts · 6 votes
Questions about buying RE with all cash
Most Popular Reply
Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
3yQuote from @Zachary Bush:
Why are you employing an all-cash strategy?
Read a few books on real estate investing to learn the power of leverage. I like the Unofficial Guide to Real Estate Investing. Here's a very basic explanation to get your juices flowing:
Assume a house costs $200,000 and rents for $1,500. The market appreciates 3% per year.
Pay cash for one house and rent it for $1,500. After five years you'll have earned $90,000 in rent income and gained $34,000 in appreciation.
Buy four houses with $50,000 down on each. Mortgage payment is $1,000 on each house, so you're essentially earning $500 per house or $2,000 a month. After five years you'll have earned $120,000 in rent income and gained $136,000 in appreciation. You've earned $132,000 more by splitting your money and leveraging it.
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- 3yJoe VilleneuvePro MemberPlymouth, MI · Member since 2013 · 13k+ posts · 19k+ votesPaying all cash means you are paying full price. The tenant is paying the interest out of the rent, so the total cost to the REI is only the DP...and any other cash they put in.
Quote from @Basit Siddiqi:
There are little differences in regards to buying a property with cash or with a mortgage.
Properties purchased all cash do not have a mortgage and as such, no mortgage interest
Buyers can negotiate a potentially better purchase price because there are likely less contingencies and a faster close time.
Best of luck
If, and that's a big if, the purchase price is lower in an all cash deal, since the entire pur4chase price is being paid for by the REI, it doesn't make it a better deal. - 3yJoe VilleneuvePro MemberPlymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
This isn't a contest to see who can collect the most doors. More doors doesn't mean better in any way. More money does. If you need more doors, like 100, then you're buying poor deals since the CF must be in the porcelain bus.
If I needed 100 doors, or even 20, to make my required CF, I'd have to shoot myself for being such a bad REI. It means a lot of things, all bad, starting with being in the wrong market.
Let's do the math. If you needed $120k/year in CF to live off of, that means you would be averaging only $1200/yr/door. That's a terrible $100/door per month...and that's an average. That means you have "doors" that are even less than that.
Again, where are my bullets?
- Rental Property Investor · Douglas County, MO · Member since 2014 · 1k+ posts · 1k+ votes3y
Quote from @Joe Villeneuve:
Paying all cash means you are paying full price. The tenant is paying the interest out of the rent, so the total cost to the REI is only the DP...and any other cash they put in.Aw, come on Joe, "The tenant pays my mortgage" is a big fat lie and you know it!
Whose credit is affected by the payment history of that mortgage? Who signed the paperwork agreeing to repay the mortgage holder? Certainly not the tenant!
So imagine this: A pretty little mortgage fairy waves her wand over your rentals and poof! your mortgages are all paid. What do you do with that money you no longer pay the bank? Do you refund the tenants since they were the ones paying your mortgage? No, you put it back in your pocket, the pocket those mortgage payments have been coming from all along.
There are valid reasons to use leverage in the real estate business. Stick with those, and leave the lies to the ignorant.
- 3yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Quote from @Sylvia B.:
Quote from @Jack Martin:
Hi Sylvia, I may have over emphasised the importance of interest deductions, of course, my purchase was based on cap rate, not write off's; write off's are a nice bonus as there aren't many write offs left. Depreciation and every cost and expense also lowers my taxable income., what criterion do you use to evaluate investments?
Well, Jack, I shouldn't have jumped on you. People talking about spending money primarily to get a deduction is one of my pet peeves.
My primary criterion is, will it make me money. I also evaluate how much work is involved in ownership, and is it an asset I want to own.
Hubby and I are in our early 60s, so we aren't building an empire. Our real estate investments are all in the small town that we call home. We buy distressed properties and make them into nice rental houses. Upfront that is a lot of work, but once it's done and a very well-screened tenant is in place, there is very little to do.
Do I want to own it? In regards to real estate, there are a few questions we ask ourselves. Location, of course, is first. Is it where we want to own? Will it make a good rental? Is it too big/small? Is there too much/little land with it? Is it too old? Will we be happy or ashamed to say we own this?
And will it make us money? How much will we have in it once rehab is done? How much rent can we charge? What is the outlook for appreciation?
All that is, of course, evaluation of potential new investments. There is a very different way we evaluate investments that we already own. But this post is already over-longA Socal developer I worked for many many moons ago ( was the broker on one of his developments in Northern CA) And he we a mentor of sorts he was a pioneer in the Jet boat drive industry back in the day sold that company for many millions and then went into RE development etc etc. But when talking about debt write offs etc.. his mantra was " I want write on's " Not write offs !!! that kind of always stuck with me. Not to mention ( as I have earlier in the thread) Most of the very wealthy I personally know retire debt . BP being generally a group of ascending investors debt is very important or necessary to scale etc. its hard to get paid off homes if your only doing it with rentals and not with income from other sources. And for sure if thats the case its a long journey. Unless you live in a market where your picking up 20 to 30k C D class rentals putting minimum into them and renting them.. this was reality 10 years ago in many markets.. And still can be found in rural markets in many areas today. Buy a few a year and keep stacking them up.. Or snow ball your mortgages and take nothing out until you start to get them paid off. I think we minimize the effects of sleeping well with no liabilities and those of us that have lived and owned real estate through multiple crash's are more aware of this than the legions of new investors on BP that came into the game Post 2008 crash.. Kind of like for me my grandparents living through the great depression borrowing money and paying interest was against their religion.
- 3yJoe VilleneuvePro MemberPlymouth, MI · Member since 2013 · 13k+ posts · 19k+ votesThe source of the funds to pay the mortgage comes from the tenant's rent. It's not that hard to understand.
Quote from @Sylvia B.:
Quote from @Joe Villeneuve:
Paying all cash means you are paying full price. The tenant is paying the interest out of the rent, so the total cost to the REI is only the DP...and any other cash they put in.Aw, come on Joe, "The tenant pays my mortgage" is a big fat lie and you know it!
Whose credit is affected by the payment history of that mortgage? Who signed the paperwork agreeing to repay the mortgage holder? Certainly not the tenant!
So imagine this: A pretty little mortgage fairy waves her wand over your rentals and poof! your mortgages are all paid. What do you do with that money you no longer pay the bank? Do you refund the tenants since they were the ones paying your mortgage? No, you put it back in your pocket, the pocket those mortgage payments have been coming from all along.
There are valid reasons to use leverage in the real estate business. Stick with those, and leave the lies to the ignorant.
- 3yJohn MorganPro MemberRental Property Investor · Grand Prairie, TX · Member since 2018 · 2k+ posts · 2k+ votes
I've bought 7 SFH with all cash. You can find sellers wanting a guaranteed fast cash closing with cash. I refinance later on to use the power of leverage and scale up. But some people like to make cash offers to get really good deals.
- Rental Property Investor · Douglas County, MO · Member since 2014 · 1k+ posts · 1k+ votes3yHmmm . . . . yeah. So if I say, "My boss pays for my health insurance" you would naturally conclude that the premiums come out of my pocket, and I'm only indicating that the source of funds is my job. Right.
Quote from @Joe Villeneuve:
The source of the funds to pay the mortgage comes from the tenant's rent. It's not that hard to understand. - 3yJoe VilleneuvePro MemberPlymouth, MI · Member since 2013 · 13k+ posts · 19k+ votesYou really don't get it do you. Your job is your source of money to pay bills. You are the one working for it. The tenant pays the mortgage, insurance, etc...because the business that is your rental property makes the money to pay for it. When you have negative CF, the part that is negative comes from your pocket because the source of the funds to pay for it comes from your job, which means you are doing the work to earn that money.
Quote from @Sylvia B.:
Hmmm . . . . yeah. So if I say, "My boss pays for my health insurance" you would naturally conclude that the premiums come out of my pocket, and I'm only indicating that the source of funds is my job. Right.Quote from @Joe Villeneuve:
The source of the funds to pay the mortgage comes from the tenant's rent. It's not that hard to understand.
The reason why you have a rental, and positive CF, is so your income from your work/job doesn't have to make those payments. That CF coming from your rental reduces/substitutes, or maybe if you have enough CF, can even eliminate the need for your job.
Your rental property is like any other business. The income from a business covers all the expenses, which means in the case of a business, the customers are the ones providing the money to pay for all the business expenses. What's left is profit to you. Applying the same economics to a rental property (which operates just like any other business), the tenant is the customer, the mortgage/insurance/taxes/etc...are the expenses, and the CF after expenses is the profit. Which means, just like the customers in a business are the ones paying the business expenses, the tenant in a rental are the ones that are paying the property expenses. Quote from @Zachary Bush:
Hello everyone. I am looking to connect with another member (preferably in the midwest) who is buying SFH or MFH with all cash. I am looking to get involved with investing as a second career when I retire from my W2 in 5-10 years. I am in the position to be able to buy a few properties with all cash and I was wanting to connect with someone who uses this "all cash" strategy. I realize most people here do not buy their RE properties with all cash, but I am wanting to ask some general questions and learn from anyone here who follows this method of investing. Thank you.
ZachAll 500 of my flips/sales have been to cash buyers from around the world. All my purchases have been cash as well, You get the best deals and higher returns. In just in the last month I picked up 10 more doors, all with 20% net caps
All the best.
- Member since 2023 · 2 posts · 0 votes3y
Quote from @Bob S.:
Quote from @Zachary Bush:
Hello everyone. I am looking to connect with another member (preferably in the midwest) who is buying SFH or MFH with all cash. I am looking to get involved with investing as a second career when I retire from my W2 in 5-10 years. I am in the position to be able to buy a few properties with all cash and I was wanting to connect with someone who uses this "all cash" strategy. I realize most people here do not buy their RE properties with all cash, but I am wanting to ask some general questions and learn from anyone here who follows this method of investing. Thank you.
ZachAll 500 of my flips/sales have been to cash buyers from around the world. All my purchases have been cash as well, You get the best deals and higher returns. In just in the last month I picked up 10 more doors, all with 20% net caps
All the best.
Wow, Thats nice, How did you get 20 percent cap? Where you physically located?
- Rental Property Investor · Douglas County, MO · Member since 2014 · 1k+ posts · 1k+ votes3y
Quote from @Joe Villeneuve:
You really don't get it do you. Your job is your source of money to pay bills. You are the one working for it. The tenant pays the mortgage, insurance, etc...because the business that is your rental property makes the money to pay for it. When you have negative CF, the part that is negative comes from your pocket because the source of the funds to pay for it comes from your job, which means you are doing the work to earn that money.Quote from @Sylvia B.:
Hmmm . . . . yeah. So if I say, "My boss pays for my health insurance" you would naturally conclude that the premiums come out of my pocket, and I'm only indicating that the source of funds is my job. Right.Quote from @Joe Villeneuve:
The source of the funds to pay the mortgage comes from the tenant's rent. It's not that hard to understand.
The reason why you have a rental, and positive CF, is so your income from your work/job doesn't have to make those payments. That CF coming from your rental reduces/substitutes, or maybe if you have enough CF, can even eliminate the need for your job.
Your rental property is like any other business. The income from a business covers all the expenses, which means in the case of a business, the customers are the ones providing the money to pay for all the business expenses. What's left is profit to you. Applying the same economics to a rental property (which operates just like any other business), the tenant is the customer, the mortgage/insurance/taxes/etc...are the expenses, and the CF after expenses is the profit. Which means, just like the customers in a business are the ones paying the business expenses, the tenant in a rental are the ones that are paying the property expenses.You are the one who doesn't get it.
The customer pays what the market will bear regardless of your expenses. He will not pay more for your product/service simply because your expenses are higher.
Increased expenses decrease your profit, costing you money. As the owner, you may decide that an expense is necessary to increase your profit in the long term, but it still costs you money, because if you could get the same results without the expense you would make more.
Quote from @Alexey Ilyushov:
Quote from @Bob S.:
Quote from @Zachary Bush:
Hello everyone. I am looking to connect with another member (preferably in the midwest) who is buying SFH or MFH with all cash. I am looking to get involved with investing as a second career when I retire from my W2 in 5-10 years. I am in the position to be able to buy a few properties with all cash and I was wanting to connect with someone who uses this "all cash" strategy. I realize most people here do not buy their RE properties with all cash, but I am wanting to ask some general questions and learn from anyone here who follows this method of investing. Thank you.
ZachAll 500 of my flips/sales have been to cash buyers from around the world. All my purchases have been cash as well, You get the best deals and higher returns. In just in the last month I picked up 10 more doors, all with 20% net caps
All the best.
Wow, Thats nice, How did you get 20 percent cap? Where you physically located?
How?? I get very good deals in my market having been doing business there for about 10 years I have a large network. All my business is in the Cleveland markets
All the best
- 3yJoe VilleneuvePro MemberPlymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
Quote from @Sylvia B.:
Quote from @Joe Villeneuve:
You really don't get it do you. Your job is your source of money to pay bills. You are the one working for it. The tenant pays the mortgage, insurance, etc...because the business that is your rental property makes the money to pay for it. When you have negative CF, the part that is negative comes from your pocket because the source of the funds to pay for it comes from your job, which means you are doing the work to earn that money.Quote from @Sylvia B.:
Hmmm . . . . yeah. So if I say, "My boss pays for my health insurance" you would naturally conclude that the premiums come out of my pocket, and I'm only indicating that the source of funds is my job. Right.Quote from @Joe Villeneuve:
The source of the funds to pay the mortgage comes from the tenant's rent. It's not that hard to understand.
The reason why you have a rental, and positive CF, is so your income from your work/job doesn't have to make those payments. That CF coming from your rental reduces/substitutes, or maybe if you have enough CF, can even eliminate the need for your job.
Your rental property is like any other business. The income from a business covers all the expenses, which means in the case of a business, the customers are the ones providing the money to pay for all the business expenses. What's left is profit to you. Applying the same economics to a rental property (which operates just like any other business), the tenant is the customer, the mortgage/insurance/taxes/etc...are the expenses, and the CF after expenses is the profit. Which means, just like the customers in a business are the ones paying the business expenses, the tenant in a rental are the ones that are paying the property expenses.You are the one who doesn't get it.
The customer pays what the market will bear regardless of your expenses. He will not pay more for your product/service simply because your expenses are higher.
Increased expenses decrease your profit, costing you money. As the owner, you may decide that an expense is necessary to increase your profit in the long term, but it still costs you money, because if you could get the same results without the expense you would make more.
WOW!! Now I'm just laughing. A lot of things cross my mind of what to say, but my father raised me to be a gentleman, so I'll keep it as "soft" as I can. You must have failed Geometry, or if you didn't it was really hard for you to pass.
- Troy, MI · Member since 2019 · 61 posts · 20 votes3y
@James Hamling. It is the process where all cash can win a great deal. Recently we purchased a duplex with two 3/1 units with a split basement, tenants pay all utilities. The owner had owned it for 4 years, had put work into it, but never managed it properly.
The city had done their 3 year inspection and found a moderate number of violations, including some safety violations which needed to be corrected in 10 days. The inspector came back in 10 days and couldn't even get in. The owner was ticketed.
He put it up for sale for $150K.
My analysis said it was worth $147K to me. I made 2 offers. A. Seller finance a $145K price for 5 years with 25% down. We would assume all repairs and take over management. B. $130K cash, 48 hours to do inspection.
My agent tried to get us to come up on the cash offer, I said no. The seller accepted a full price offer contingent on financing. When they asked the buyer to show them the 25%, he couldn't.
They came back to us. We bought it, had it re-inspected by the city, got a more reasonable inspection, and finished the work we wanted to do forn$22K.
Now rented for $1200 per unit, appraised for $205K, and refied for $150. Cash can work.
- 3yRose JonesPro MemberMember since 2019 · 57 posts · 18 votes
You are always buying with all cash - except the beauty of real estate investing is that it is rare to have to come out of pocket with most of the cash.
Quote from @Pam Brown:
Cash is King right now in Indy with the current market conditions. Two of my sellers took lesser offers because they didn't want to deal with buyer financing. Cash and a quick close got the deal done in these instances. I realize what people are saying about leverage---but just saying---sometimes cash is where it's at to get an offer accepted first.
You pay cash to close the deal and get the lowest price then you finance it to obtain the leverage. If you are using BRRRR, you purchase all cash, rehab it, rent it, refinance it, and repeat.
My point is just because it was purchased all cash does not imply that it will not be financed. I will purchase all cash if the terms of the purchase justify the additional effort. I always finance it and use leverage. I never am at 0% LTV for very long.
- Member since 2019 · 7k+ posts · 4k+ votes3y
Quote from @Judy Parker:
I paid all cash for quite a few of my properties. I like being able to sleep at night, knowing I have no debt hanging over my head.
Haha , my brain works in reverse ; I can't sleep if I have ton of 100% paid-off property. All the risk is mine.
When 30Y FRM is lower than inflation, why in the world people (in US) is buying cash is beyond me. Like in UK they may have only 5YARM. If this country only offer 5Y ARM then I would buy cash. Buying cash just mathematically doesn't make sense when 30Y *fixed* rate available. - 3yJoe VilleneuvePro MemberPlymouth, MI · Member since 2013 · 13k+ posts · 19k+ votesBrilliantly stated!!
Quote from @Carlos Ptriawan:
Quote from @Judy Parker:
I paid all cash for quite a few of my properties. I like being able to sleep at night, knowing I have no debt hanging over my head.
Haha , my brain works in reverse ; I can't sleep if I have ton of 100% paid-off property. All the risk is mine.
When 30Y FRM is lower than inflation, why in the world people (in US) is buying cash is beyond me. Like in UK they may have only 5YARM. If this country only offer 5Y ARM then I would buy cash. Buying cash just mathematically doesn't make sense when 30Y *fixed* rate available. - Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes3ySteve, I appreciate your presenting this and I cite it as a GREAT example, although not in how your maybe thinking.
Quote from @Steve Ehrman:
@James Hamling. It is the process where all cash can win a great deal. Recently we purchased a duplex with two 3/1 units with a split basement, tenants pay all utilities. The owner had owned it for 4 years, had put work into it, but never managed it properly.
The city had done their 3 year inspection and found a moderate number of violations, including some safety violations which needed to be corrected in 10 days. The inspector came back in 10 days and couldn't even get in. The owner was ticketed.
He put it up for sale for $150K.
My analysis said it was worth $147K to me. I made 2 offers. A. Seller finance a $145K price for 5 years with 25% down. We would assume all repairs and take over management. B. $130K cash, 48 hours to do inspection.
My agent tried to get us to come up on the cash offer, I said no. The seller accepted a full price offer contingent on financing. When they asked the buyer to show them the 25%, he couldn't.
They came back to us. We bought it, had it re-inspected by the city, got a more reasonable inspection, and finished the work we wanted to do forn$22K.
Now rented for $1200 per unit, appraised for $205K, and refied for $150. Cash can work.
This is a GREAT example of TERMS.
I know, you think it's about "cash-offer", yet read your example here, everything is in discussing a situation of TERMS, offers structured on TERMS< seller consideration on TERMS, how you landed it was based on TERMS, and how your profited was, yet again, TERMS.
Every example anyone ever gives where they "think" it was won from muttering the words "cash-offer" then goes into a description of TERMS significance.
TERMS are what does it, why, because ALL OFFERS ARE CASH AT CLOSING.
So a person who's property has issues, won't pass an inspection, won't appraise, is NOT taking a "cash-offer" because it's a "cash-offer", there taking it because knowledge/fear it won't pass inspection/appraise. That's a TERM issue. - Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes3y
Quote from @Joe Villeneuve:
Quote from @Sylvia B.:
Quote from @Joe Villeneuve:
You really don't get it do you. Your job is your source of money to pay bills. You are the one working for it. The tenant pays the mortgage, insurance, etc...because the business that is your rental property makes the money to pay for it. When you have negative CF, the part that is negative comes from your pocket because the source of the funds to pay for it comes from your job, which means you are doing the work to earn that money.Quote from @Sylvia B.:
Hmmm . . . . yeah. So if I say, "My boss pays for my health insurance" you would naturally conclude that the premiums come out of my pocket, and I'm only indicating that the source of funds is my job. Right.Quote from @Joe Villeneuve:
The source of the funds to pay the mortgage comes from the tenant's rent. It's not that hard to understand.
The reason why you have a rental, and positive CF, is so your income from your work/job doesn't have to make those payments. That CF coming from your rental reduces/substitutes, or maybe if you have enough CF, can even eliminate the need for your job.
Your rental property is like any other business. The income from a business covers all the expenses, which means in the case of a business, the customers are the ones providing the money to pay for all the business expenses. What's left is profit to you. Applying the same economics to a rental property (which operates just like any other business), the tenant is the customer, the mortgage/insurance/taxes/etc...are the expenses, and the CF after expenses is the profit. Which means, just like the customers in a business are the ones paying the business expenses, the tenant in a rental are the ones that are paying the property expenses.You are the one who doesn't get it.
The customer pays what the market will bear regardless of your expenses. He will not pay more for your product/service simply because your expenses are higher.
Increased expenses decrease your profit, costing you money. As the owner, you may decide that an expense is necessary to increase your profit in the long term, but it still costs you money, because if you could get the same results without the expense you would make more.
WOW!! Now I'm just laughing. A lot of things cross my mind of what to say, but my father raised me to be a gentleman, so I'll keep it as "soft" as I can. You must have failed Geometry, or if you didn't it was really hard for you to pass.
Well.... it just makes me wonder how big that rock is one must be living under to say "expenses going up doesn't effect price of consumer" because literally EVERYTHING has had this happen the last few years of price shooting up with the explanation expenses went up.
So is Real Estate some special vortex in the economy where none of the laws of economics apply?
Only someone with extensively limited experience in rentals could say expenses have no effect on market pricing. Which is a polite way of saying "a person with no clue what there yapping about". Rents don't go up for funsies. I raise rents to keep in-line with expense increases. It's not complicated.
Those who think rent increases is just a dash-for-the-cash cause were all just swimming in our vault's-o-money..... Ya-gotta put down the guru-BS and get into this place I call reality.
- 3yJoe VilleneuvePro MemberPlymouth, MI · Member since 2013 · 13k+ posts · 19k+ votesNot sure who this was directed to since what you wrote here is what I've been saying all along. My last comment in the thread above was made because the comment before was supposed to be a reply to what I said before that,...and it was from out in left field, and had no real connection to my previous comment...which is where the laughing came from.
Quote from @James Hamling:
Quote from @Joe Villeneuve:
Quote from @Sylvia B.:
Quote from @Joe Villeneuve:
You really don't get it do you. Your job is your source of money to pay bills. You are the one working for it. The tenant pays the mortgage, insurance, etc...because the business that is your rental property makes the money to pay for it. When you have negative CF, the part that is negative comes from your pocket because the source of the funds to pay for it comes from your job, which means you are doing the work to earn that money.Quote from @Sylvia B.:
Hmmm . . . . yeah. So if I say, "My boss pays for my health insurance" you would naturally conclude that the premiums come out of my pocket, and I'm only indicating that the source of funds is my job. Right.Quote from @Joe Villeneuve:
The source of the funds to pay the mortgage comes from the tenant's rent. It's not that hard to understand.
The reason why you have a rental, and positive CF, is so your income from your work/job doesn't have to make those payments. That CF coming from your rental reduces/substitutes, or maybe if you have enough CF, can even eliminate the need for your job.
Your rental property is like any other business. The income from a business covers all the expenses, which means in the case of a business, the customers are the ones providing the money to pay for all the business expenses. What's left is profit to you. Applying the same economics to a rental property (which operates just like any other business), the tenant is the customer, the mortgage/insurance/taxes/etc...are the expenses, and the CF after expenses is the profit. Which means, just like the customers in a business are the ones paying the business expenses, the tenant in a rental are the ones that are paying the property expenses.You are the one who doesn't get it.
The customer pays what the market will bear regardless of your expenses. He will not pay more for your product/service simply because your expenses are higher.
Increased expenses decrease your profit, costing you money. As the owner, you may decide that an expense is necessary to increase your profit in the long term, but it still costs you money, because if you could get the same results without the expense you would make more.
WOW!! Now I'm just laughing. A lot of things cross my mind of what to say, but my father raised me to be a gentleman, so I'll keep it as "soft" as I can. You must have failed Geometry, or if you didn't it was really hard for you to pass.
Well.... it just makes me wonder how big that rock is one must be living under to say "expenses going up doesn't effect price of consumer" because literally EVERYTHING has had this happen the last few years of price shooting up with the explanation expenses went up.
So is Real Estate some special vortex in the economy where none of the laws of economics apply?
Only someone with extensively limited experience in rentals could say expenses have no effect on market pricing. Which is a polite way of saying "a person with no clue what there yapping about". Rents don't go up for funsies. I raise rents to keep in-line with expense increases. It's not complicated.
Those who think rent increases is just a dash-for-the-cash cause were all just swimming in our vault's-o-money..... Ya-gotta put down the guru-BS and get into this place I call reality.
- Member since 2019 · 7k+ posts · 4k+ votes3y
Quote from @Joe Villeneuve:
Brilliantly stated!!Quote from @Carlos Ptriawan:
Quote from @Judy Parker:
I paid all cash for quite a few of my properties. I like being able to sleep at night, knowing I have no debt hanging over my head.
Haha , my brain works in reverse ; I can't sleep if I have ton of 100% paid-off property. All the risk is mine.
When 30Y FRM is lower than inflation, why in the world people (in US) is buying cash is beyond me. Like in UK they may have only 5YARM. If this country only offer 5Y ARM then I would buy cash. Buying cash just mathematically doesn't make sense when 30Y *fixed* rate available.Think about it.
When they bought $300K house in 2010, the down is only $40k. Mortgage is only $1400 with 4% rate, inflation is 3%
Fast forward to 2023, same house is $1 mil ; principal paid is about $150-$80k, remaning mortgage is $120-$140k with 40-55% LTV.When I paid $1400 in 2023, it is not inflation adjusted, if it's inflation adjusted, I shall pay $2,000 instead.
In US of A , with current mortgage process, the advantage is with the borrower, the disadvantage is with lender (precisely reason why BAC/SVB is falling because they are the holder of our notes).
Now the following is still true in US of A:
1. home price is still rising albeit slowing down
2. fixed mortgage rate is still available and sometimes we could get the rate BELOW inflation rate
3. actual Fed real rate compare to inflation is still zero.
Now when people do leverage in mortgage, after 8-10 years, you could pay off one of the property, with the equity from other house.
With cash you can't do that.
This is why I'm saying, If I live in Manchester i would buy with cash, If I live in New Jersey, I would buy with 15 or 30YFRM. This is just no brainer. - Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes3y
Quote from @Joe Villeneuve:
Not sure who this was directed to since what you wrote here is what I've been saying all along. My last comment in the thread above was made because the comment before was supposed to be a reply to what I said before that,...and it was from out in left field, and had no real connection to my previous comment...which is where the laughing came from.Quote from @James Hamling:
Quote from @Joe Villeneuve:
Quote from @Sylvia B.:
Quote from @Joe Villeneuve:
You really don't get it do you. Your job is your source of money to pay bills. You are the one working for it. The tenant pays the mortgage, insurance, etc...because the business that is your rental property makes the money to pay for it. When you have negative CF, the part that is negative comes from your pocket because the source of the funds to pay for it comes from your job, which means you are doing the work to earn that money.Quote from @Sylvia B.:
Hmmm . . . . yeah. So if I say, "My boss pays for my health insurance" you would naturally conclude that the premiums come out of my pocket, and I'm only indicating that the source of funds is my job. Right.Quote from @Joe Villeneuve:
The source of the funds to pay the mortgage comes from the tenant's rent. It's not that hard to understand.
The reason why you have a rental, and positive CF, is so your income from your work/job doesn't have to make those payments. That CF coming from your rental reduces/substitutes, or maybe if you have enough CF, can even eliminate the need for your job.
Your rental property is like any other business. The income from a business covers all the expenses, which means in the case of a business, the customers are the ones providing the money to pay for all the business expenses. What's left is profit to you. Applying the same economics to a rental property (which operates just like any other business), the tenant is the customer, the mortgage/insurance/taxes/etc...are the expenses, and the CF after expenses is the profit. Which means, just like the customers in a business are the ones paying the business expenses, the tenant in a rental are the ones that are paying the property expenses.You are the one who doesn't get it.
The customer pays what the market will bear regardless of your expenses. He will not pay more for your product/service simply because your expenses are higher.
Increased expenses decrease your profit, costing you money. As the owner, you may decide that an expense is necessary to increase your profit in the long term, but it still costs you money, because if you could get the same results without the expense you would make more.
WOW!! Now I'm just laughing. A lot of things cross my mind of what to say, but my father raised me to be a gentleman, so I'll keep it as "soft" as I can. You must have failed Geometry, or if you didn't it was really hard for you to pass.
Well.... it just makes me wonder how big that rock is one must be living under to say "expenses going up doesn't effect price of consumer" because literally EVERYTHING has had this happen the last few years of price shooting up with the explanation expenses went up.
So is Real Estate some special vortex in the economy where none of the laws of economics apply?
Only someone with extensively limited experience in rentals could say expenses have no effect on market pricing. Which is a polite way of saying "a person with no clue what there yapping about". Rents don't go up for funsies. I raise rents to keep in-line with expense increases. It's not complicated.
Those who think rent increases is just a dash-for-the-cash cause were all just swimming in our vault's-o-money..... Ya-gotta put down the guru-BS and get into this place I call reality.
- 3yJoe VilleneuvePro MemberPlymouth, MI · Member since 2013 · 13k+ posts · 19k+ votesHave to agree, but here's one of my main reason I feel this way. Let's take your example of the $300k house bought in 2010. The DP (cash spent = cost to REI) was $60k (20% of $300k), and the Cash flow should be around $850/month ($k/yr). That means the REI would recover all of their cash/cost in about 10 years...and would be pure profit from that point forward.
Quote from @Carlos Ptriawan:
Quote from @Joe Villeneuve:
Brilliantly stated!!Quote from @Carlos Ptriawan:
Quote from @Judy Parker:
I paid all cash for quite a few of my properties. I like being able to sleep at night, knowing I have no debt hanging over my head.
Haha , my brain works in reverse ; I can't sleep if I have ton of 100% paid-off property. All the risk is mine.
When 30Y FRM is lower than inflation, why in the world people (in US) is buying cash is beyond me. Like in UK they may have only 5YARM. If this country only offer 5Y ARM then I would buy cash. Buying cash just mathematically doesn't make sense when 30Y *fixed* rate available.Think about it.
When they bought $300K house in 2010, the down is only $40k. Mortgage is only $1400 with 4% rate, inflation is 3%
Fast forward to 2023, same house is $1 mil ; principal paid is about $150-$80k, remaning mortgage is $120-$140k with 40-55% LTV.When I paid $1400 in 2023, it is not inflation adjusted, if it's inflation adjusted, I shall pay $2,000 instead.
In US of A , with current mortgage process, the advantage is with the borrower, the disadvantage is with lender (precisely reason why BAC/SVB is falling because they are the holder of our notes).
Now the following is still true in US of A:
1. home price is still rising albeit slowing down
2. fixed mortgage rate is still available and sometimes we could get the rate BELOW inflation rate
3. actual Fed real rate compare to inflation is still zero.
Now when people do leverage in mortgage, after 8-10 years, you could pay off one of the property, with the equity from other house.
With cash you can't do that.
This is why I'm saying, If I live in Manchester i would buy with cash, If I live in New Jersey, I would buy with 15 or 30YFRM. This is just no brainer.
My way of thinking is for the CF to recover my cash/cost, and for my equity build up (from appreciation, not paydown) to be my free cash to move forward and buy more properties. My trigger to sell this property is when my CF has recovered all my cash/cost, and my appreciated equity equals my paid for equity (DP). Then I sell, because I start losing money from that point forward. Why? If I now have $120k in equity (plus the paydown), my equity is only buying me a $360k property. If I sell the property and take out the $160k, the equity as a 20% DP should be buying me a property worth $800k...and the added CF that would come along with it.
The mistake many REI make is thinking the equity build up is profit, when in fact if it is left in the property it is growing in, it is actually the cost of the property. - Member since 2019 · 7k+ posts · 4k+ votes3y
Quote from @Joe Villeneuve:
Have to agree, but here's one of my main reason I feel this way. Let's take your example of the $300k house bought in 2010. The DP (cash spent = cost to REI) was $60k (20% of $300k), and the Cash flow should be around $850/month ($k/yr). That means the REI would recover all of their cash/cost in about 10 years...and would be pure profit from that point forward.Quote from @Carlos Ptriawan:
Quote from @Joe Villeneuve:
Brilliantly stated!!Quote from @Carlos Ptriawan:
Quote from @Judy Parker:
I paid all cash for quite a few of my properties. I like being able to sleep at night, knowing I have no debt hanging over my head.
Haha , my brain works in reverse ; I can't sleep if I have ton of 100% paid-off property. All the risk is mine.
When 30Y FRM is lower than inflation, why in the world people (in US) is buying cash is beyond me. Like in UK they may have only 5YARM. If this country only offer 5Y ARM then I would buy cash. Buying cash just mathematically doesn't make sense when 30Y *fixed* rate available.Think about it.
When they bought $300K house in 2010, the down is only $40k. Mortgage is only $1400 with 4% rate, inflation is 3%
Fast forward to 2023, same house is $1 mil ; principal paid is about $150-$80k, remaning mortgage is $120-$140k with 40-55% LTV.When I paid $1400 in 2023, it is not inflation adjusted, if it's inflation adjusted, I shall pay $2,000 instead.
In US of A , with current mortgage process, the advantage is with the borrower, the disadvantage is with lender (precisely reason why BAC/SVB is falling because they are the holder of our notes).
Now the following is still true in US of A:
1. home price is still rising albeit slowing down
2. fixed mortgage rate is still available and sometimes we could get the rate BELOW inflation rate
3. actual Fed real rate compare to inflation is still zero.
Now when people do leverage in mortgage, after 8-10 years, you could pay off one of the property, with the equity from other house.
With cash you can't do that.
This is why I'm saying, If I live in Manchester i would buy with cash, If I live in New Jersey, I would buy with 15 or 30YFRM. This is just no brainer.
My way of thinking is for the CF to recover my cash/cost, and for my equity build up (from appreciation, not paydown) to be my free cash to move forward and buy more properties. My trigger to sell this property is when my CF has recovered all my cash/cost, and my appreciated equity equals my paid for equity (DP). Then I sell, because I start losing money from that point forward. Why? If I now have $120k in equity (plus the paydown), my equity is only buying me a $360k property. If I sell the property and take out the $160k, the equity as a 20% DP should be buying me a property worth $800k...and the added CF that would come along with it.
The mistake many REI make is thinking the equity build up is profit, when in fact if it is left in the property it is growing in, it is actually the cost of the property.That's good approach as well, for me I would sell when it reach 50% LTV or after 8-10 year. By doing this I could pay my principal of my primary/rental from other primary/rental. People may ask why not pay it off fully, couple reason:
1. when we buy/sell rental in the same neighborhood as primary, we still have the same future's appreciation trajectory so the actual cash position actually doesn't differ too much if we decide to move to one house or not.
2. The cashflow would be there still avaiable paid by the renter.
The bottom line is this, for strategy that works for me.
1. If I have 200k cash at the beginning, investing in multiple home on the same neighborhood with 30YFRM, do not buy only one, there's more advantage when buying 2 or more properties. You would never lose money if you buy direct real estate, even without cash.
2. Sell later at the peak or year 8th-10th
3. Get the mortgage rate where the rate is lower than inflation.
4. Invest in the place where the appreciation rate is > inflation and > mortgage rate and do leverage in mortgage
So in our are with the last 12 years track record:
1. appreciation rate = 5.875% annually
2. Inflation = 3%
3. mortgage rate = 3%
Now in 2023, story is bit different because the formula is different
1. appreciation rate forecast=4%
2. Inflation=5%
3. mortgage rate = 6%
In 2023 fresh new formula is required LOL
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