My wife and I want a different life...where we are not accountable to anyone but ourselves...who doesn't right? If you click on my bio you will see our basic background and goals...short...I promise. We are not beholden to any REI discipline and do have some skills. We have a SFR in Las Vegas that is rented to a family member for cost...so no cash flow, but well kept and debt pay down and has approx $70k in equity and can be disposed of as necessary. We have a home in Silicon Valley with approx $200-250k in equity (depending on which RE Agent we speak with) and which we are willing to sell to help bankroll our business. In addition, we have approx. $250k in 401Ks we are willing to structure in a way that will allow us to get at...at least 50% or more (at least that is what we have read here). We would love to leave our jobs but are willing to stay to facilitate things. Our salaries are around $200k combined. Tammy and I are in our mid/late 40s and our goal is to be able to have enough freedom to travel and take care of our families while we still have our health and are young enough to enjoy those experiences...whether that takes 5 yrs or 25 yrs. We aren't strangers to hard work and are willing to do so to get started. So if you were starting over and had these resources and the willingness to use them...what would you do??

@Joel G. I am in my 40's and just started seriously getting into REI recently, but I had been planning for a long time. When I say planning, it was not just reading books and listening to pod-casts. I started with "house hacking" and building up cash for a very long time. I used the appreciation in my primary residence and dove deep once I had the financial strength to make a meaningful purchase. Replacing $200k of income is pretty large gap to fill. Not sure if you are considering NET or Gross income as the $200k target, but both are achievable. My intent is also to get to a point where I can travel and enjoy life. For me, that means not being active, but collecting passive income = buy and hold strategy. For others it might be a different strategy. Cash flow is the key to reaching a passive REI business... This then leads to the debate of cash flow vs appreciation. In principle I think real estate investors all seek cash flow, but how we each get to that cash flow is really core of debate. For many it is to go out of state and look for cash flow right away. Personally, I believe the limitation of that strategy is that ability to accumulate assets is limited by your access to cash. Meaning you either need to either work your W2 or go looking for investors to build up cash to buy additional properties. I feel that by investing in a strong market, you can take advantage of both cash flow and appreciation and accumulate assets at a faster rate. The barrier to entry is much higher, but once you get past that barrier, I believe that appreciation can give you the cash freedom needed to purchase more properties. Please note, I invest locally and trade my time for sweat equity in forcing appreciation. I don't do turn key purchases because I believe that the lost appreciation is too expensive. There are couple of threads on BP about the appreciation I have seen over the past 10 years along with my referencing strategy. This is an active strategy for me so I really cannot say what I would have done different yet. Perhaps the only thing I would have liked to have done was taken the leap at a younger age. But there are many things that I wish I had done when I was younger...hahaha! Good luck! -Arlen

@David Nolan, Great examples. Let’s take a look at two scenarios. Would you rather 1) own a $1MM building free and clear and net $70k/year of cash flow, or 2) have a $1MM loan on the building at 4.25% interest, 30-year fixed. You only net $11k/year in cash flow while your tenants are servicing the mortgage and paying down $17k principal annually. You still have your $1MM CASH sitting in your bank account. When you go and borrow money, who looks better to a lender? @J. Martin might be able to give us his 2 cents on this since that’s his day job. David, there are a million ways to make a million dollars. You just showed us a couple of ways. @Arlen Chou’s strategy is preserving capital while having the tenants buying him the building. That’s investing. In my opinion, your strategy is work, not investing. There is no right or wrong answer. One just has to pick a strategy that suits his situation best. I understand where you’re coming from with your interest rate argument because you don’t have 30-year fixed mortgages in Australia. Unfortunately, the argument is flawed. Please show us a time in our history where interest rates went up and property values fell? In fact, real estate tripled in value from 1970 – 1980 when interest rates went from 7% to 18%. Based on my limited experience, interest rate movements are typically an effect, not a cause. Here is another flaw in your argument about whether the equity is real or not. A free & clear building and a building with a $1MM mortgage go up or down in value REGARDLESS of their equity. If your property doubled in value, You have a building worth $2MM while Arlen has a building with $1MM in equity and $1MM in the bank totaling $2MM. If your property value got cut in half, you have a building worth $500k while Arlen still has $1MM sitting in his bank and an underwater building, which is still being pay down by his tenants. If desired, Arlen can use his money to buy two $500k buildings so his cash flow would more than double yours. Having liquidity gives you more options. Buying properties below fair market value give you options. Why would you want to limit your options by tying up your equity? It’s worth repeating that your building goes up or down in value regardless of its equity. Whether one wants to pay-off his building has more to do with his risk tolerance. I hope my rambling makes sense to the readers. :>) Best.

Hi Joel, I'm glad I read this post. You love your posts with all the sense of humors. You're spot on about kids. I'm still enjoying mine at 5. Arlen's avatar was either 20 years old or he photo-shopped it. Arlen *gained* his wrinkles from all of that sweat equity. LOL!!! That's the price you have to pay. Kidding aside. Solid advice from @Arlen Chou. Forget the 70% rule. Come up with rules that would work for your situation be it 75%, 80% or 85%. If you could consistently find deals that fit those 70% to 80% rules, you would be able to build your real estate empire faster. Your example above was perfect. Find a property or $120k + $30k in rehab, and it has an ARV of $200k. You then do a cash-out refinance for a new loan of $150k (75% LTV). Forced appreciation would give you the highest ROI and would speed your goal to financial freedom the quickest IMO. Rinse and repeat until you hit your goal. Arlen and I love our BA housing market because of its high growth in rents and appreciation. Once that property goes up to $300k, you can refinance, pull out a $225k loan, use the extra $75k buy a second property. Things will start to snowball fast after that. You'd be going from owning 2 to 4, 4 to 8, 8 to 16, etc. If you can achieve this in the next 10 years, not only you would be set for life, your kids would be too. They would thank you long after you kicked the can. A word of cautious, don't over-leverage. Make sure every property can service its own debt when you do cash-out refi. Best to leave each property with at least $200/month of positive cash-flow. Recognize which phase you are in the real estate cycle so you know when to go all in and when to scale back. By the way, a $3MM net worth is comfortable. It's not rich by any means. At $30MM net worth, I might consider getting myself a Lamborghini Aventador, but more than likely I would settle for a Lamborghini Huracan and a Tesla P85D. Sigh......I will have to wait for that day to come.

@Michael Delpier WRT your perspectives on the SF/Bay Area vs. TX markets, you nailed it! You asked for advise: as @Bob Bowling is apt to say, don't kill the golden goose! The Bay Area property that you own is your current leverage potential and your retirement and financial legacy. The Bay Area is a very challenging market to enter- nowadays you often need a couple hundred G's saved up to buy anything. And that's if you're lucky and can get a loan, as you're competing with the all cash buyers! Plus you have your cash flow, low tax base locked in, and you know the ins and outs of your specific property and tenant base. As for your Texas home, I dunno, if it's in a class A neighborhood....maybe worth keeping as a rental?? If you can sell/cash out of it, maybe that's safer. Take the money! As for San Mateo, you were able to get in, so don't do anything dumb and trade it in for TX rentals, for gods sake :) (don't take the tough love personally ;) ---------- Couple of other comments germane to this thread. WRT the Arlen and Nolan show, I don't want to get into it, but just want to clarify fact on the 30 year loans available in the USA. 30 year loans, where the interest rate is fixed, hence your payment amount each month is fixed for the entire 30 years, are commonly available. Of course, no bank in their right mind would offer such product, but here it's backed by the federal government. So it's the USA government that is making the guarantee. Banks pass those loans on to government agencies like Fannie and Freddie Mac to back up. I'm pretty sure that only America offers these, as I haven't heard of these terms being available in any other county (but I could be wrong. Chime in if you know differently.) Radhika may have less experience in RE investing, but apparently she has been getting good advise. She nailed it wrt long term buy and hold here. With prop 13 holding down taxes, and 30 year fixed rate notes, as well as land scarcity, investing here has been one of the greatest wealth creation vehicles in history! Couple that with what @Minh Le talked about wrt inflation (how it catches up to RE values), and the returns have been outsized. My main concern going forward is that there is a sh!t storm brewing between the haves and have nots in CA. Being in San Francisco, where we have had some of the most outsized RE returns, coupled with rent control/tenant displacement and social and sharing economy tech firm's stronghold here, we are at the vanguard of this social phenomena. So far it's all manageable IMO and the economic climate has been mostly ho hum, plus/minus. Oil is down, stocks up/down, rates low, slow growth, dry weather, money chasing returns...blah, blah, blah. The real issue is when we will have to eventually print more money to offset the huge fed deficit. That will lead to inflation. And maybe housing prices will go down temporarily as rates increase, but they will follow inflation. And those with low 30 year loans, equity, and a low tax base will be set, and others will be screwed royally. Think 20 years from now. With that potential inflation run, a million dollar house may be a joke around here. And that could push politicians over the edge wrt prop 13, rent control, and serious housing subsidies for the have nots. If this scenario, or one similar plays out, we could be in for some interesting times in CA. Of course those of us getting in now will be set. But the advantages we have may not be there in the future. Inspite of the current wealth disparity now, things are still manageable. But all you need is a black swan event like inflation and the sh!t will hit the fan wrt the inherent advantages that exist today for CA investors. Food for thought.

@Arlen Chou thanks for your great reply! @David Nolan I think your strategy and ideas work better in a Texas market than a SF Bay Area market. The SF area is very unique. It has geographic features that drive some of the local prices due to microclimates and location. It also has Prop 13 which limits the property tax to 1.1% of the purchase price. It also limits the ability to have that value re-evaluated and can only be done on either the sale or a significant addition to the property. With this in mind, it is a market that rewards the long term hold. If you look at the historical appreciation, it is very favorable and significantly rewards buyers. In this market you buy as big as possible and hold it as long as possable. The Texas market is quite different. The taxes are 2.5%-4.5% of the sale price and is re-evaluated every year based on that years comps. It does not reward buy&ahold investors. You need to play the market cycles here. There are no real geographic features that make one area better. There are no zoning laws, so your neghbirhiod can change significantly. This can be good or bad, but usually bad because of the next point. Most people want a new house and older homes are undesirable. The build quality is very low. Appreciateion is very low. So it does not make sense to remodel. Just fix what breaks. House values are based on school quality. These are my in educated observations so please dispute if they are wrong. Just trying to add some perspective as to why there may be different approaches to investing in these markets.

Hi Joel, To answer your question "what percentage of our net worth would be considered safe to invest. In other words...If we have $400k available to invest...what amount could we invest that would give us the greatest chance to succeed, yet still be considered not over leveraged?" Warren Buffett is indisputable the greatest investor of all time. This is what he has to say about diversification. "Diversification is protection against ignorance. It makes little sense if you know what you are doing." I’m heavily weighted in real estate. Does that mean I know what I am doing? Not really. To give yourself a chance to succeed, learn as much as you can. Network with other investors and see which strategy fits your circumstance and helps meet your goals. As they say...your network = your net worth. Also, take action is much more important than learn continually without putting it into practice. How do you know you’re over-leveraged? When you can’t sleep like a baby at night. My strategy has been buying properties at 70% to 80% FMV. Rehab them nicely and rent them for top dollars. After the properties have been seasoned, I’d refinance, pull out the equity and move onto the next deals. Does it sound like I leverage to the hilt? Maybe, I’m currently at 43% LTV and looking for ways to deleverage to 25%. How am I able to consistently get deals? I’d say reputation. Keep your promise. Don’t be a pain in the rear to deal with. Do what you say you will do, and you’re the first one, who agents will call when they have a deal. Of course, this takes time. By the way, don’t be greedy and stretch yourself too thin. There have been times when I got more deals than money. I have passed them to family members, friends or take on a partner. There is nothing wrong with taking on a partner. 50% of something is apparently better than 100% of nothing. Syndication is also an option to make some high yields, but that’s another topic. Feel free to use me as your sounding board whenever you need a second opinion.

Yup, that's what happened during 2008-2011, investors who already took money out before the credit crunch were able to pick up additional properties at fire sale price. Deals were chasing money, now money is chasing deals :)

@Joel G. Hi Joel to answer your question regarding a system to identify Opportunities and Threats in order to write a business plan the Opportunities are based on the drivers in your selected area that drive prices upwards. For example properties that present as bargains based on local market metrics, proposed changes to local planning laws, land re zoning, changes to market confidence, changes to access to capital, proposed population increases, shifting demographics, the falling cost of money etc. These and other drivers can create opportunities. Likewise the negative effects of those same drivers can create threats, In order to do the business plan effectively you would be wise to understand the key drivers in the markets you propose to operate in. Unfortunately there are no short cuts to understanding these factors. You would be wise to learn from local operators who enjoy success in the markets you wish to trade in and seek their guidance as to what drivers they monitor the most. To give you some guide, I am at present, after more than 30 years in this business in Australia, looking to enter the market in the USA. Hence joining BP and I am having to do the same level of research and homework that you would have to do. My vast knowledge base and experience will count for very little if I do not understand the local drivers of any market I propose to enter. All markets are unique in some regard, but have common factors in many others. Making money in real estate is about understanding what it is that improves a property's value and they are not all necessarily to do with the individual property but more so to do with economies, international, national, statewide and local. The more you understand these things the better your business plan will be. Furthermore, you started out asking what you should do with your assets and there are some good pieces of advice here about different ways to make money, however, they only apply if the method suggested fits within your business plan. I would suggest that once you have a detailed written business plan the types of deals you should do will become very self apparent. Once you have this clarity of vision you will see only those deals that will make financial sense to you and the confusion that many new investors find existing because of the vast majority of investment alternatives that exist will subside. The clearer your vision the easier it is to hit the target. The target being your financial goals. A sound, well thought out and researched business plan is one of the the keys to creating good vision in investment decision making. If you have limited experience in writing a business plan I would strongly suggest hiring an accountant or business adviser with the experience you lack to help. The money invested will be repaid many times over by having a clear path to follow and one that shows very clear financial objectives and strategies. Hope this helps. Enjoy the journey!

@Joel G. thanks, but that picture was taken WAY after 29...hahaha. I don't actually look for such high LTV on my refinancing. I only pull out what I need to reach my goals. With that being said, my 2013 purchases basically doubled in appraised value, so I did not need to go to 80% LTV to get my cash back out. There are 2 reasons that I don't push for the max value out: to keep my monthly payments down so I can cash flow, and secondly I don't really have a good place to park my money until I find another deal. If I had too much cash sitting around I would probably do something stupid like buy a new car or go on some expensive vacations...hahaha. I have a pretty tight criteria on the type and max price for my target properties. In my plan, once I have acquired a certain number of my current property type, I will go up a step and target a higher/larger asset class. The logic behind my financial strategy, generally speaking, is to have a balance between cash flow/equity/cash on hand. Once my cash flow and equity have reached a target point I plan to shift to higher cash on hand to re-balance. My belief is that this should then allow me to reach that next asset class. From a personal growth strategy stand point, buying into MFR right now allows me to test my skills and learn about renovations and property management. I strongly believe that having a basis of hands on knowledge will allow me to better manage from a distance. Once I get to a target number of doors, I plan to off load all PM and maintenance/renovation duties to others and get fat laying on beach while sipping on fruity drinks. I hope that is enough for you to open up a beer for dinner tonight ;-) -Arlen

@Joel G. sorry for my typo error, it should have said refinancing strategy. Basically, I build up cash and then make cash offers. It seems like the only way to win in this market right now. If I win, I then start the renovations and increase rents and then refinance my money out and get ready for the next property. As the property appreciates, I refinance again to get more cash out. I am paying interest, but rates are low. The best part of this strategy for me is that money I am getting out is tax free! Getting the snowball rolling is the hard part, but once you do get it going it starts to pick up speed... at least that is my thought on the subject. As for the picture, it is smalls so it hides the battle scars of age! I am closer to 50 than 40, but luckily I don't feel any different...hahaha! Good hunting to you! -Arlen

If you had these resources...what would you do??

Michael Delpier

Investor · Houston, TX · Member since 2015 · 176 posts · 121 votes

11y

@Amit M. Thanks for the good advice. I never take it personally but do take it seriously. This is my future. I cant screw it up.

The one point I forgot, the high average price of San Mateo v.s the relatively low price of Texas has serious implications on your tax over the years. Running some very quick and rough numbers shows that around 10 years into the hold, the San Mateo house starts performing better than the Texas house.

I wont sell. Maybe refinance, but not sell.

Morbid story; When we were living in the San Mateo condo, every time the ambulance arrived at our complex, several potential buyers would follow the medics to see which property it was. Then if the person had died, they would quickly move to buy. This complex has extremely low turn over.

0 Reply

David Schach

San Francisco, CA · Member since 2010 · 65 posts · 39 votes

11y

Originally posted by @Arlen Chou:

@David Nolan Discussions of would have, could have, should have are of no material value because they have no tangible impact. Its kind of like asking a person where would their wealth be if they had invested in Apple when it was a dollar per share. It is totally irrelevant to any meaningful discussion because it only exists in the imagination.

The only thing that matters is true action and the specific results of those actions. You are correct in that investing is not ONLY market specific. However, I would argue that SPECIFIC market knowledge is what differentiates winners and and those who do not...

Regarding your point about debt, on a balance sheet i show debt. There is no question about this. However, to only focus on that is myopic. The cash that is pulled out of a property is in fact debt on a balance sheet, but it arrives into my bank account free of any tax. However, you over simplify your comments when you don't consider who is servicing that debt. The tenants pay the debt, not me. I have all of my money back out.

The bases of your argument on "what if" the market were to crash and I lost all of my value and my property would be underwater or "what if" I had timed the market to buy at the lows and sell at the highs. Generally speaking, that is a valid point. But frankly speaking, I have yet to meet anybody who has been able to do this on a regular basis in the SF Bay Area or anywhere else. My effort in posting real transactions over nearly 20 years, covering REI cycles, was to add to fact based credibility to a long term buy and hold strategy specific to the SF Bay Area. All investment is inherently dangerous and each investor should do the best they can to become knowledgeable so they can make educated decisions.

Speaking of being educated, I am still waiting for your response to my question about your view on fixed rate mortgages, changing over time. I truly don't understand how that could happen and very much want to have a better understanding of your view on this point.

I do thank you for agreeing with me that you are not in the market in question and that you have no specific details to share. I wish you the very best in investing in the US and when you do make the move, please share your experiences so that we may all follow your journey. If that journey should bring you to the SF Bay Area, please reach out so we can share a pint and trade REI stories.

You make a very interesting and compelling argument for tax free gains. Lets say for sake of argument, you knew you planned to sell a property in a short time that had $500K in profit coming. Since you can take $250K in profit tax free if you have held for 2 years?...Lets assume thats correct. Could you cash out 250K in equity, then have 250K left in the property, sell it and take the remaining 250K tax free. Essentially bringing the entire 500K into your bank tax free? Assuming of course that the LTV ratios remain inline with lending guidelines etc.

0 Reply

Account Closed

Investor · San Jose, CA · Member since 2012 · 2k+ posts · 3k+ votes

11y

@Joel G.,

Apology for hijacking your thread. Hope you enjoy the show. :>)

@David Nolan,

Wow, I don't know where to start addressing your points. Let's discuss just three points before we get to others.

"1) What if I had $1 Million of Berkshire Hathaway shares for which I borrowed $1 Million and I still had my $1 Million in cash. Would the bank like me or you better? The answer is dependent on what your bank manager sees as lees risky, your property or my Berkshire shares. Your point is moot."

- Who would lend you $1 Million on Berkshire Hathaway shares? Please give me the name of the lender other than the bank of mom and dad? You're comparing apples to oranges.

"2) Your assertion about Australian mortgages is incorrect. We do have 30 year term mortgages in Australia. If you mean 30 year fixed interest rate mortgages then I would suggest that interest rates change in fixed rate mortgages."

- Unfortunately, I'm correct because I stated 30-year fixed mortgages. Our mortgage will stay fixed for 30-years so there is no change in interest rate for the life of the loan. You're taking things out of context and trying hard to make an invalid point.

"3 ) The period you mention of property prices increasing when there were very high interest rates of up to 18% and rising prices is caused by the very high level of inflation, not just interest rates, coupled to limited supply necessary to meet demand. You might want to study economics a little more to grasp this concept. Interest rates are one part of a much bigger picture that affects investment decisions."

- I asked you to show us a time in our history where interest rates went up and property fell in value, and that's your response? Please give us some facts, not theories. If you can't, there's no point of debating because readers would be more confused by our ramblings.

0 Reply

David Nolan

Professional Property Investor · Brisbane, Queensland · Member since 2015 · 165 posts · 160 votes

11y

@David Schach Hi David

If your tax laws allow for a 50% tax credit after 2 years then the answer is yes you could take out the $250 K in a cash out equity situation and realise the balance later on as you suggest. The challenges you have are the increased exposure to risk that increasing your debt carries and the risk of property values falling during your holding period> As a result you may not realise the same amount as you planned. It would be dependent on where you were in the property cycle when you bought and improved your property. If you bought at or near the top of the cycle this strategy would carry more relative risk than if you bought near the bottom of the cycle.

There is no one right or wrong way to make these decisions. It is up to the individual investor to make these decisions based on their own risk profile, knowledge, investment objectives and the availability of funds.

I prefer to operate in markets that are about to go into recovery and turn my money over. That does not mean I do not hold property. I just hold until I believe, based on my research, that the property is nearing the top of its cycle. Sometimes turning my money over, even after tax is paid, can yield more return over a period of time than holding onto the asset. By turning my money over and amassing more cash I can operate in better markets. Especially if your cash capital is limited. Increasing your cash capital can allow you to invest in better deals where the same amount of personal effort yields more revenue due to the higher value of the assets you are investing in.

One other benefit to me is that, assuming my research is correct, I avoid having my money tied up in falling markets. Falling markets mean negative growth, even if it is not turned into cash. The lost opportunity is real.

0 Reply

David Nolan

Professional Property Investor · Brisbane, Queensland · Member since 2015 · 165 posts · 160 votes

11y

@Account Closed Hi Minh

In regards to borrowing to buy shares I don't think mom and pop do margin lending but I am quite sure nearly every bank in America and many more overseas, not to mention stock broking firms, lend to investors to buy shares. Now before you reply that they will not lend 100% you are right. But they do lend and most property lenders will not lend 100% either!

In regards to the effect of interest rate rises on property values I have no inclination to do research for you to demonstrate basic economic theory. However, a simple internet search showed this quote...

"Asset prices: When interest rates go up, the price of financial assets falls. Thus, bondholders realize capital losses when interest rates are expected to increase because that will cause the prices of their holdings to fall. Similarly for housing prices: As interest rates go up, home prices go down. For the economy as a whole, this results in a negative "wealth effect" that can reduce household consumption."

Here is the link...

http://www.cbsnews.com/news/heres-what-fed-interes...

You might want to contact the author and ask him if he can show you exact occasions in your market where interest rate rises have caused property prices to fall as he will have a better understanding of your market than I do. Alternatively, there may be someone on BP that can provide you with the specifics you are looking for. As I mentioned in other posts I am in the process of learning your market, but I do have an understand of economic theory and those theories hold true in your economy as they do in mine.

In regards to the 30 year fixed mortgages. I would suggest that you are right in as much as you do have them, albeit a government backed scheme, rather than a bank product. However, in Australia we can borrow on fixed rates for 30 years but the rate is reset after 15 years. not quite the same in reality, but effective as a borrowing tool none the less.

I hope this has been of as much benefit to you as it has to me. I leaned about your 30 year fixed rate mortgage products and for that I can say thank you. Have you learned anything?

0 Reply

Jesse T.

Herndon, VA · Member since 2014 · 1k+ posts · 324 votes

11y

For your market "live-in flips" might be the best option. It sounds like you are currently doing that with some success. If you do it every 2 years, you can take advantage of the capital gains exclusion.

If your retirements are in 401Ks with your currently employer you are a bit limited in using those for real estate investment. The 401k loan can provide some quick cheap cash but you would probably be better off keeping those in a non-RE investment vs. something correlated with the real estate market. I would max out your 401k contributions even if those aren't available for investing. This will lower your target income to replace and give you a little more cushion.

If you can get funds into an IRA - something like note investing or hard money lending that is taxed at a normal income rate could be a good use of the funds. Holding rentals doesn't make a lot of sense since you lose the tax-advantages.

You probably will need to find a "cash-flow" market to build a rental portfolio. Your income will make it easier to finance the properties. At your income level you probably want to show a slight amount of income on paper since you likely can only deduct passive losses from passive gains vs. income.

You probably want to do a "tapering" into retirement vs. both quitting at the same time. One option might be contract work vs. part-time hours.

1 Reply

Account Closed

Investor · San Jose, CA · Member since 2012 · 2k+ posts · 3k+ votes

11y

@David Nolan

1) In regards to borrowing to buy shares I don't think mom and pop do margin lending but I am quite sure nearly every bank in America and many more overseas, not to mention stock broking firms, lend to investors to buy shares. Now before you reply that they will not lend 100% you are right. But they do lend and most property lenders will not lend 100% either!

- Fair enough, you borrow and buy BRK stock on margin. There are a couple of differences here: 1) the moment you touch that $1MM cash, you get a margin call because the cash itself is the collateral. 2) when your stock tanks, you get a margin call. 3) the stock goes up, you sell and you have to pay capital gains. With real estate, you can 1) do whatever with the $1MM cash-out refinance money. 2) you don't get margin call when real estate prices tank. 3) when rents go up, you can tap the money tax-free or arguably tax-deferred depending on your estate planning, and your tenants will service the additional debt.

2) "Asset prices: As interest rates go up, home prices go down. For the economy as a whole, this results in a negative "wealth effect" that can reduce household consumption."

Common sense suggests that should be the case. Unfortunately, that hasn't been the case in our history till recently. This is what our history has shown. As the economy heats up and real estate prices escalate, the Fed tends to increase interest rates to cool down the heated economy. As the economy gets soft and real estate prices fall, the Fed cuts interest rates to stimulate the economy. That was the recent why I stated earlier that interest rate is a lagging indicator. This is one of those rare times where interest rates have steadily been declining from 2011 till now where home prices have gone up.

Happy researching and hunting in our U.S. market. There are quite a few shysters that have been taking advantage of California real estate investors as well as investors from Aussie and New Zealand. These shysters don't discriminate the color of money.

Best of luck with your endeavors.

0 Reply

Lisa Henrich

Investor · Columbia, PA · Member since 2015 · 59 posts · 8 votes

11y

I was going to suggest this, as well! I think this might be the most straight forward, "how to" podcast avaialble. Good luck!

0 Reply

Joel G.

OP

Real Estate Investor · Sunnyvale, CA · Member since 2014 · 65 posts · 20 votes

11y

0 Reply

Arlen Chou

Investor · Los Altos, CA · Member since 2014 · 942 posts · 1k+ votes

11y

@David Schach I am not a tax specialist, but I think you are seeing my point. I believe that REI should be about a combination of cash flow, appreciation and tax strategy. Sometimes you get more benefit from one of the above, depending on the market or economy, but it is important to keep all three in play.

1 Reply

Joel G.

OP

Real Estate Investor · Sunnyvale, CA · Member since 2014 · 65 posts · 20 votes

11y

Originally posted by @Jesse T.:

For your market "live-in flips" might be the best option. It sounds like you are currently doing that with some success. If you do it every 2 years, you can take advantage of the capital gains exclusion.

If your retirements are in 401Ks with your currently employer you are a bit limited in using those for real estate investment. The 401k loan can provide some quick cheap cash but you would probably be better off keeping those in a non-RE investment vs. something correlated with the real estate market. I would max out your 401k contributions even if those aren't available for investing. This will lower your target income to replace and give you a little more cushion.

If you can get funds into an IRA - something like note investing or hard money lending that is taxed at a normal income rate could be a good use of the funds. Holding rentals doesn't make a lot of sense since you lose the tax-advantages.

You probably will need to find a "cash-flow" market to build a rental portfolio. Your income will make it easier to finance the properties. At your income level you probably want to show a slight amount of income on paper since you likely can only deduct passive losses from passive gains vs. income.

You probably want to do a "tapering" into retirement vs. both quitting at the same time. One option might be contract work vs. part-time hours.

Super suggestions Jesse!!

We do currently max out our 401Ks...and that we are still with those employees is definitely something to consider. I thought no they will loan against for our personal properties but not for an investment property until we leave those employers and the roll over into a Self Directed IRA....I'll have to check on that.

The live in flip thing has worked...and I guess we'll keep on doing it if we stay in the Bay Area...we do not have as deep-o'pockets as some here...and renovating....I LOVE IT...I really enjoy going from bad to great...don't know that the Mrs is going to keep loving it forever though....but if we get to retire 10 years early...she may be ok with it!

The hard money through the IRA...do you mean it gets taxed at normal income date when we finally withdraw that money...or does that happen as we go??

And how can you tell if a market is a "cash-flow" market...any suggestions on where those might be...or how to track them in the future?

Tammy will be completely into "tapering" our retirement....with her retiring and me continuing to work...and if I say anything about she will likely be "tapering" my mouth shut...lol.

Thanks again for your wonderful suggestions and any follow ups you care to add!!

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Joel G.

OP

Real Estate Investor · Sunnyvale, CA · Member since 2014 · 65 posts · 20 votes

11y

Originally posted by @Lisa Henrich:

I was going to suggest this, as well! I think this might be the most straight forward, "how to" podcast avaialble. Good luck!

Hi Lisa!

Thanks for your well wishes!

Do you have a particular strategy or do you find any here that appeal to you?

Tammy and I have several appealing ideas here and are trying to integrate them all...come up with a "somewhat-flexible" business plan...and then get to gettin to it.

Love to hear your ideas as well!

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J. MartinPro Member

Rental Property Investor · Oakland, CA · Member since 2011 · 3k+ posts · 2k+ votes

11y

"If cash is king, then leverage is god!" lol

@Account Closed,

I'm with you that cash gets deals done, especially during the crisis. And liquidity is definitely an important aspect of risk management, and banks care about it too..

Is it riskier to be free and clear, with little liquidity? Or have leverage you can service with lots of cash on hand to weather storms, or make more purchases?

To each their own - and whatever meets the needs of your circumstances and helps you sleep well at night.. For me, I don't mind a bit of leverage..

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If you had these resources...what would you do??

If you had these resources...what would you do??

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