Buying property-All Cash
Member since 2021 · 38 posts · 20 votes
Buying property-All Cash
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Melanie P.Pro Member
Rental Property Investor · Member since 2023 · 1k+ posts · 922 votesFor most people starting out all-cash is not an option. Another way of looking at this is how much appreciation did you give up while saving to do the transaction all-cash. In economics this is called an "opportunity cost."
116 Replies
- 2yDan H.Pro MemberInvestor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
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I understood what you posted. I claim that was never a good rental choice compared to other RE options. That is the case today as well as 15 years ago.Quote from @K S.:
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This is really sounding like a circular argument now and not that interesting. What is this "expert range" you dictate we all should adhere to? lol. I already explained to you that the appreciation people use in their pro formas come from the fastest growing major cities in America which coincidently also crashes the hardest during downturns. If "experts" use this greater than 3-4% historical average in their argument, then I will use those same major locations when describing the magnitude of their losses during recessions as they do with the stock market. And I already mentioned that you can't average down in real estate. It's called foreclosure. Those 2005-2007 properties in SoCal have just recently and finally hit there previous peaks, meanwhile, the broad market crushed anybody who was leveraged during this time yet I still hear you and others espouse the virtue of real estate during the great recession that saw millions of foreclosures lol. The art of argumentum deserve better than this.Quote from @Dan H.:
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Here's one youtube link of many showing that renting is better. Buying cash can only be worse considering that cash can be invested at way higher than the average rate of appreciation of 3%. But this question continues to be asked over and over again when it's a pretty simple answer. If you have the money and don't care that you'll lose 900k in a decade from not investing that cash into the market instead. Then buy cash. It's your money. I'm not saying to buy with a mortgage either as the video states, this is bad investment advice as well for the average american at this moment in time (unless you're starting a family and can afford it). Leveraging yourself could also take a lot of properties like 10? just to beat the market according to another video breakdown so I also don't trust the leverage guys. If you're the type of person that has to ask this question, then just put your money in the market and wipe your hands and be done with it. Try VOO (S&P 500) or similar dividend fund which doesn't make sense but some people like the psychological feeling of monthly "rent" like checks. And remember, you can average down during a 50% crash. But when real estate crashed 50% during the great recession, nobody averaged down, it's called foreclosure. And don't forget to max your 401k matching. I've already earned about 100k in just a few years of maxing with my employers 5% match. Don't fall for the RE hype.
Why are you here K S.? I mean, other than to Troll? I don't see anything but Trolling here and hilarious levels of misinformation.
How about a Reality Check, shall we....
Real world scenario, one I just looked at. Brand new build, so no maint or cap-x for years making #'s simpler to flesh out. $340k on buy, market rent's $2,700mnth. I know this is market rent because I already lease others at this in this community of this exact floor plan.
I have $32,400 annual revenue. Minus HOA, P.tax, insurance and all operational expenses I have $26,950 OR in % I have a 7.9% COC.... Already, without anything else, I just beat most everything in "the market"......
BUT, I ALSO get appreciation which assuming really long hold is 2.9% as shown as median as averaged out over many decades. That's another $9,860 in my pocket putting us now at 10.8% ROI.
But wait, it get's BETTER.... because rents are not static, rents go up at about 4.5% annual.....
It's laughable, LAUGHABLE, to try and compare index funds too REI.
And what does one do in an '08' style "collapse", duh, ya DON'T sell, ya RENT IT OUT! Because guess what happened in '08' when OVER-LEVERAGED fools were suffering there accountability of dumb financial actions? Yeah, they became TENANTS! Rents shot through the roof as the demand exploded! So hummm let's see, what to do what to do, rent's going up 20%+ annual OR I can sell at huge discount, what to do, what to do...... ya RENT it out! And within a few years, like magic all equity is back and then some.
And now biggest problem is the property is such a cash-cow that ya don't ever want to let it go.
Ah the classic troll accusation to bring more credence to your own argument so you don't have to bring as much substance to your own. Your excessive use of ALL CAPS shows your overly emotional investment to a very low stakes situation. I'm surprised you haven't been banned yet with your condescending attitude towards other peoples experiences which only derails the integrity of the subject matter and exposes your own maturity level.
And to answer your question, I'm here responding because I have purchased 7 properties in all cash over the years making my personal experience a perfect fit to answer this particular subject as I have first hand experience and can provide actual value to the subject. What's laughable, I mean LAUGHABLE, is your theoretical example from the interweb when I brought receipts using my actual tax statements and 1099s.
Secondly, the OP or other questioner has expressed gratitude for my wisdom on this subject.
I notice in every thread you respond to, you brag about your own personal success in order to lift your fragile ego so I'll mention that I also recently purchased a condo with a 7.6% COC return in San Diego last year. But even at 10% with appreciation as you stated, that doesn't beat the 13% the S&P 500 did over the last decade. Sorry but 13% beats 10% even with the perks. What most don't realize is that 13% is compounding. Your cash on cash return does not compound. You realize that correct? It's always 7.9% on your principal no matter how much appreciation you gain, but the S&P 500 compounds. As you make an additional $25/year in rent appreciation, your HOA + Property taxes + maintenance + these new insurance premiums + lawsuit risks, will consume your $25/year increase. I know because I've owned a house for 20 years. I know macro economics is important so anyone can search the internet and come up with their own theories on the subject or a more favorable example and that's great, but this is just my personal experience. Your mileage may vary. But to call someone a troll is a cheap shot exposing your own inability to acknowledge others experiences and exposes your emotional maturity level. Reported!Your experience is relevant to the OP’s posts about all cash purchase but your responses do not cover other options or discounts them and in some instances your response has some incorrect stats
I will address some directly:
- RE fell between 20% and 33% during the Great Recession (GR) not the 50% you claim. Look it up.
- when stocks fell during the Great Recession so did the dividends. In most RE markets rents did not decline (there are definitely exceptions such as Detroit, Las Vegas, etc., but most markets rents did not fall significantly). This implies the cash flow in most markets did not take a hit. We had units in San Diego at the GR. We did not lower any rents.
- RE in last decade has appreciated more than 2.9%. So 13% S&P over last decade should be compared with RE over last decade and not longer term historical that would include the GR in S&P number but include it in the RE number. Deceiving comparison.
- the op is talking unleveraged and unleveraged RE does not significantly outperform broad based stock markets often (meaning it occurs rarely). But at 80% LTV the return from RE appreciation is 5x the RE appreciation rate. This virtually always whoops the broader stock market.
- you discuss no compounding and I can see this argument for unleveraged purchases but if I use fixed financing leverage, I fix a large portion of my expense and in effect I get some compounding effect. In Ca this is further magnified due to prop 13 resulting in virtually fixed property tax. If rent goes up, but the majority of my expense is fixed I do compound the rent increase at the same percentage that my expenses are fixed.- RE has option of value add. I suspect a fairly large percentage of RE investors are using value adds to magnify returns.
- in RE I can pulled out appreciation gain without paying taxes at that time. I can do similar via margin with stocks but margin has more risk.
- in RE I can use 1031 to not pay gains tax upon sale. I with I could do that with stocks.
- in RE I can depreciate the holding and if desired I can accelerate my depreciation. This makes it possible to virtually eliminate taxes for sophisticated investors. I pay virtually no taxes on my RE earnings. Good luck doing this with stocks without RE.I do think your experience is relevant to this thread. It makes the same argument for not purchasing unleveraged as I advocate. Your example of poor returns from unleveraged RE (with no value add) might be similar return to other RE investors that do not use leverage and do not have a value add. I suspect s&p will often out produce the return of RE that is purchased unleveraged and without a value add.
However, I wanted to present the leveraged side of purchasing RE and other potential benefits of investing in RE.
I also advocate against unleverage RE investing in most RE markets (possible exception for high cash flow, low appreciating, local markets).
Best wishes
1) True, real estate fell 33% on average, but the average is made up of both the lows and highs meaning some major cities like in SoCal and Austin for example saw a much higher decline than 33%. Also, if BP members are going to use the best appreciating locations in their pro RE examples, then you must use those same locations when drawing the opposite conclusion.
2) According to chatgpt whether true or not, rent decreased by up to 10% and dividend payouts decreased by 20%. Insignificant enough to not sway me in any direction. But what makes this less of a great example you used, is the fact that you lost hundreds of thousands of dollars in equity/net worth and possibly forclosed on some properties like most Americans did at that time. However, no mainstream index fund like the VOO or some dividend index, got forclosed on. In fact, you just average down in the market causing a much better recovery than continuing to keep those San Diego homes you had. And I'm pretty sure you didn't keep them assuming you purchased pre 2009. You can't average down on foreclosures.
3) True that RE also averaged higher than 3-4% in the last decade from our artificially created boom and corrupt politicians and government, but thats where the market shines, VOO or whatever index, is the same for everyone. But the majority of people purchase "average" real estate properties and does not reflect the an increase in HOA, insurance, gas, electric, taxes, management and maintenance. So while the top 15% of investors strike the location jackpot, most are not and that appreciation has also been eaten up by the afforementioned. Not entirely, but it's not all gravy.
4) 1031: I think there's a misconception here. First off, in some brokerage accounts, you can move money around index funds without incurring a taxable event i.e VTSAX to VTI or something or withint a 401k or Roth and completely change your funds much like a 1031 Exchange.
Second, 1031 exchange is just shifting money around not avoiding taxes on usable cash. I sold a house last year and needed the money to build another house so I have to take the tax hit. And the government will recapture 25% of those tax deductions I took over 18 years which is way more than if I cash out my stocks or accept dividens. In fact, I could be taxed at 0% if accepting less than 45k/year or similiar.
I bet most people didn't know that probably not even you. You can't take 45k/year out in real estate via a cash out or HELOC or home sale. NOT gona happen. In fact, if you sell like I did, you'll end up paying 65k in taxes for a 325k home sale which is I think what I came up with. This does not include the 25k rehab in order to sell at full price, the agent fees and whatever else I forgot. And everyone will need to sell their house at some point like in my case, not 1031 exchange forever. Lastly, you can get a loan using your 401k funds to purchase a house. So you can go from stock to house, but you can't go from house to stock without taking a huge tax hit.
So the market for the win here as far as liquid cash and the ability to reduce your taxes to $0 in some cases as well as some shifting of funds around and getting a home loan against your accounts without a tax hit.
>True, real estate fell 33% on average, but the average is made up of both the lows and highs meaning some major cities like in SoCal and Austin for example saw a much higher decline than 33%. Also, if BP members are going to use the best appreciating locations in their pro RE examples, then you must use those same locations when drawing the opposite conclusion.
Or you site the range of expert averages (I can find legit references that indicate as low as 20% and as high as 33%). What I would not do it state a number outside the expert range such as a 50% decline (that you used) and attempt to pass that off as the normal decline. I think most people understand that there will be those that experience both better and worse than the average.
>2) According to chatgpt whether true or not, rent decreased by up to 10% and dividend payouts decreased by 20%. Insignificant enough to not sway me in any direction. But what makes this less of a great example you used, is the fact that you lost hundreds of thousands of dollars in equity/net worth and possibly forclosed on some properties like most Americans did at that time. However, no mainstream index fund like the VOO or some dividend index, got forclosed on. In fact, you just average down in the market causing a much better recovery than continuing to keep those San Diego homes you had. And I'm pretty sure you didn't keep them assuming you purchased pre 2009. You can't average down on foreclosures.
There are so many things in this one post
When a source states up to, they are talking worse case. Not average or usual case. My experience in our 10 rentals (3 areas) was no decline in rental income.
The only way you get foreclosed on RE is missing payments which usually implies leveraged purchase. If I buy stocks levered (I.e. margin) they foreclose even if I have not missed payment. They will sell your holdings if they fall in value below a certain value. Is there a difference? Yes, because if my house looses value but is still generating cash as would be the case if rents have not fallen (which was the case on our 10 units in 3 different markets) I get to keep them without needing to infuse additional capital. Note that under same conditions as margin purchase, I would have been required to sell these cash positive units.
If rents do not go down then the only reason for foreclosure would be if over leveraged. We had no foreclosures and still own 7 of those 10 units. We sold 2 in gulf shores because they got hit back to back years by hurricanes (sometimes wish we kept them) and the other because it was our lone property in that market and was not doing as well as locaL properties.
Note if I was in the s&p500 at GR (which I was), it lost 48% between aug 2008 and mar 2009. Note this is far greater loss than the total average RE decline from the GR.
Seeing I had no foreclosures, I did equivalent to dollar cost average as we were coming out of the GR. I pretty much purchased a property per year starting at the depreciated price after GR and stopping in Dec 2021 (purchased $4m that month). I have made some offers since Dec 2021, but have not purchased as the rates do not have underwriting that shows my high expectations on return.
>True that RE also averaged higher than 3-4% in the last decade from our artificially created boom and corrupt politicians and government, but thats where the market shines, VOO or whatever index, is the same for everyone. But the majority of people purchase "average" real estate properties and does not reflect the an increase in HOA, insurance, gas, electric, taxes, management and maintenance. So while the top 15% of investors strike the location jackpot, most are not and that appreciation has also been eaten up by the afforementioned. Not entirely, but it's not all gravy.
I am not sure why it matters the cause of the price increase or why you think the increase in RE prices derives from different economics than the rise in stock Prices. I suspect we can agree both benefitted from low rates.
I used the average appreciation recognizing the average will have some above and below the average. The average does not only represent the top 15%. If your point is some markets have done much worse than others (including worse than mine), I think that is understood.
>1031: I think there's a misconception here. First off, in some brokerage accounts, you can move money around index funds without incurring a taxable event i.e VTSAX to VTI or something or withint a 401k or Roth and completely change your funds much like a 1031 Exchange.
Are you sure you are in a taxable account? I will need to ask my investment advisors. Definitely you cannot do this in a taxable account purchasing individual stocks.
Certainly Roth accounts have no gains tax regardless if used to purchase stocks or RE.
> I bet most people didn't know that probably not even you. You can't take 45k/year out in real estate via a cash out or HELOC or home sale. NOT gona happen.
I am not sure what you are saying but assure you I have extracted a lot more than $45k/year from my properties (but $0 in last 2 years). I suspect near 10x that amount (likely have averaged near $450k). Why do you think you cannot do it? What is preventing one from doing it other than they need to have at least $60k equity gain (At 75% LTV)? This equity gain can be from value add, appreciation and/or equity paydown. For me to do 10x that amount I need $600k of equity gain per year which I have done for at least the last 6 years.
>everyone will need to sell their house at some point like in my case, not 1031 exchange forever.
Definitely not true that everyone has to sell. People die all the time holding RE and when they do, the value of the RE gets re-based at current value and the gains are never taxed. Wouldn’t that be sweet for stocks in a taxable account? This is almost too good to be true. So the plan is keep and/or 1031 until I die, then have all gains and depreciation magically ripped away via the current tax laws. Good luck accomplishing that with stocks that are not in a Roth.
Best wishes.
I don't know why you or others keep comparing margins or options to leverage as if that was anybodies argument to prove that you can leverage stocks. It's called a straw man logical fallacy because you bring up an argument that you litteraly have with yourself and then tear it down.
Passively investing in the broad stock market has definately retired more Americans than Real Estate for no effort at all because of the power of compounding. The alure of real estate feeds off the idea that you own an asset (actually the bank does), that it pays you every month (like dividends) and provides security (that's not liquid) which I described earlier as an "illusion". You don't need any of these when you're a young working professional. I owned multiple properties in my 20s and didn't utilze any of these 3 things, neither security, didn't need the monthly payments because I'm not retired and would never live in them.
The entire argument of leveraged real estate vs the broad market is this. If it takes actively investing in 4-10 properties to beat the returns of the gold standard S&P 500 for instance, is that worth it to you? That's a fat no!. I would never want to manage 27 properties. My 1 house had trees that would come crashing down every year almost killing someone or smashing a car. The $2,000 fence constantly needed replacement, spending a year trying to get the insurance check for my roof and come tax time? It's dreadfull. Now times that by 10 or 20? No thank you.By now you should recognize if you make up data on my market 1) I will call you out and provide correct info 2) that if you need to make up info to make your case, then you do not really present a good arguments.
>Those 2005-2007 properties in SoCal have just recently and finally hit there previous peaks,
This is so wrong. Here are some real years that markets surpassed previous high
- Los Angeles: 2018
- Orange County: 2016
- Ventura county: 2020
- San Bernardino: 2020
- riverside: 2020
- San Diego: 2020
- Santa Barbara: 2018
Each of these markets are far higher today than their high from prior to Great Recession. Many (I suspect all) of these counties including my San Diego market are over 50% higher than the high prior to GR. your made up stats demonstrate a weak argument because why make up stats if you do not need to make them up to try to make your case? https://www.laalmanac.com/economy/ec37.php
>If it takes actively investing in 4-10 properties to beat the returns of the gold standard S&P 500 for instance, is that worth it to you? That's a fat no!.
I agree it would not be worth it. Good thing that virtually all my RE has produced infinite return and every one of my current holdings has done far better than the return of the S&P 500. I personally would not choose to purchase residential RE unless my underwriting shows far greater than double the historical return of the S&p500. Good thing virtually all my purchases have infinite return and have been worth the effort of residential RE (that I have never claimed is passive).
The more you post, the more I understand why an index fund that requires no thought is the best choice for you. RE investing is not for everyone. Invest in your index funds; it appears to be the right choice for you.
Best wishes
To keep saying real estate is better than the broad market is not an argument. To say that I must not understand the concept of real estate simply because I prefer the broad market in most situations and have talked about the benefits, is an ad hominem attack. Attacking me instead of the argument. You have not shown data on your actual investments going back but I have and I have compared them both leveraged and unleveraged.
I have to address this infinite returns talk. So my index fund doubles and I cash out my original investment and my new position continues to return dividends or gains. That's infinite returns. Infinite returns is not some RE only thing. And infinite returns does not mean your return is beating the broad stock market either.
Lets compare infinite returns in RE to the broad stock market. In RE, it's not infinite returns if you're pulling a 10% investment loan out. You better make sure your're investing those gains in something else that returns more than the amount you're borrowing. In stocks, I can just cash out and pay whatever capital gains tax is. So they have their pros and cons I guess but they're both infinite and is not unique to RE. But once you're in RE, that money is trapped forever. I still have a cash out at a 6% interest rate only because I got lucky with the timing. Say good buy to those days.
For those that are watching and just want something they can retire from in 20 years, please type 250,000 in the S&P History calculator from 2012 to 2024 and see that 250k invested 10 years ago is worth $1,200,000 today. Sorry but no 250k condo or house paid in cash 10 years ago is worth $1.2M today and even if you leveraged yourself, it would take a lot of these homes to make up that difference. . Edit: My rental below has trippled since my last purchase over 15 years ago but after all expenses after the sale including taxes, recapture, renovations, agent fees etc, I believe I would need to leverage 6 of these homes to beat the market. 6 of these below. Actively investing in 6 of these homes just to beat the passive broad stock market? And this was the good times, the 1% rule times. Now, you guys are f-ucked. Enjoy!
Real estate is better for none of the reasons that were mentioned. Some do apply, but that's not why it'll be superior.
Real estate will be superior because the opportunity knocking on the door is the ongoing devaluation of the USD relative to any real asset class with limited supply. In regards to that impact on society, it's going to be imperative to function. The convergence of that will make REI more sound than when a fat ****ing monkey could buy a cash flowing LTR 10 years ago, and claim it's sound cause of the meager cash flow.
Then add the fact it's devaluation of almost any fiat/monetary currency. And realize how sound real assets are to the structure of society. You get an exponentially better opportunity & reason to invest.
Now, there will be headwinds-- climate change, physical capex to maintain physical structures,human beings, etc. But if you're looking at it properly, the backward dated views are almost irrelevant to the future of what real estate will be forced to do. That's opportunity--sure it's speculation too but so is any investing.
Go into detail about what happened with the tree picture.
Regarding the tree picture, the same thing happened last year. You can see all the neighbors trees in the distance are also cracked and falling. The trees freeze over when it's cold then the wind breaks them off. The new investor bought it for. $325k. Rents for $1800 rents or 21,600/year. Here are the typical expenses, plus or minus.
This does not include capital expenses for the 15 years I had it like roof, $25k in renovations, HVAC x3, fence x4, unrooting trees x4. Regardless, the rule is around 1% of the value of the home so subtract $7,200/year inlcuding general maintenance. I'm not going to pull the exact numbers I have but the new owner is looking at this.
Here it was, listed on Redfin
Monthly payment = ~$2,600. Rent is only $1800. You can see it's negative cashflow before adding the aforementioned expenses.
So for everyone ever on BP that says "do you know anything about leverage bruh, just buy 10 with 10% down and cashflow bruh. Well this is what you refer to experts calling the "average" home. It falls within this average middle class familiy orientated home that saw average appreciation. You would need 55% down payment to cover this mortgage. You'll need an additional $300/month in expenses or $600/month if you include capital gains expenses. This ~35% expense to rent ratio is considered average efficiency so nothing unusual there. More if you include the sale costs assuming you don't 1031 exchange like I had to and everyone will end up doing so one day. One should keep all this in mind when leveraging themselves and do the proper math. Of course I was cashflowing because I paid cash a long time ago (to the OPs credit) but what BP members fail to understand is that I demonstrated what a good 1% rule home back then, looks like today. Not 15 years ago. You can't leverage with this property. When people just pull 5-10% down payment out of their butt, then they must be talking about very few zip codes left in the US where you can do that but it's a hustle, takes renovation skills, cold calling etc. That's why for the OP, I say just invest in the broad stock market and retire with millions in 20 years. That's good enough for monst people. The example above will keep you poor in 20 years.
Your example is a terrible rental. If that comes into my inbox it gets 1 second look before going on to the next option. It is such a poor rental option that it does not warrant thinking 1 second about the numbers.
I expect that property to be purchased by an owner occupant who could be happy there and is not paying rent to a LL.
If you purchased that property as an investment property (versus a home to Live in), i am confident you did not do a thorough underwriting. There is no way a thorough underwriting ever shows that property as a good investment opportunity compared to other RE purchase options.
Best wishes
You must not be paying attention. I litterally made it clear that I purchased this over 15 years ago following the 1% rule. The example I'm giving you now is for the new owner who I also mentioned is an investor. I know because the new owner listed it for rent as soon as he closed on it.
You should write a book. The property marked all the check boxes of that time so your opinion on what makes a good investment back then was not the standard 15-20 years ago. So you're wrong. When speaking to average investors like me or the OP, speak from the perspective that most of us don't get deals in their inbox like you mentioned. Must be nice.
Edit: Telling me that my property was a bad investment 15-20 years ago is like me telling you that you failed as a stock investor because you didn't beat the S&P 500.First I was purchasing RE since 1993 and 13 years ago (not quite 15 but I suspect similar buy criteria) I started purchasing regularly. 13 years ago 1% properties were a dime a dozen. 2% was the goal (the rule used to be called the 2% rule) and was challenging in coastal southern Ca, but 1.5% was not that hard to find.
The 2% rule changed to the 1% rule starting maybe 5 or 6 years ago. So you are applying today’s buy criteria to a different time; 15 years ago 2% was the go to buy criteria. Anyone on this site more than 6 years could attest to this. Your example was not a good RE investment for there were other better options (in 2012 and 2013 I purchase 3 San Diego properties with market rent above 1.5% ratio).
You seem to ignore where I indicated I have purchased some average purchases on my path to where I am today. I recognize today that experienced or more knowledgeable investors would not have purchased those properties (I know I would not consider them today). I now know that there were better RE investment options. In fact every one of my purchases after my first has done better in virtually all benchmarks. I have made at least 2 poor RE investment purchases. I call them poor RE purchase but I learned a lot from the first one, the 2nd I live in.
I am sorry you took the remark about not being a good RE investment purchase, as a personal criticism. If you learned from it, including learning that index funds are a better fit for you, then it was a fine purchase (and how I chose to look at my 2 poor RE investment purchases, I learned from them and they were part of the path to where I am today). Similarly if you live in it, it is more important to be a good fit for you and your family than a great RE investment (it is a rare home purchased to meet your desires that is also an outstanding investment RE compared to other options).
good luck
- 2yJoe VilleneuvePro MemberPlymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes...and, you're getting appreciation on top of that. I don't think a lot of people realize that the main reason for cash flow, in the beginning, is to recover your cost. Your cost in nothing more than the cash you put in (if you have positive CF). However, appreciation is applied to the entire value of the property.
Quote from @James Hamling:
Quote from @Eric Justice:
@Mark Cruse using a loan will just prolong your return on investment.
Let's check what math says about this:
A property at $100k, with $1k rents. That would be 100 months or 8.33 years.
OR, $25k down (the investment made) $1k rents minus $544 debt service = $456. $25k/$456 = 54.82 or 4.56years.......
4.56 years seems a LOT faster an investment return than 8.33.......
I am getting an ever stronger sense that you chose the conclusion Eric, and are just pressing that assumed conclusion regardless of facts presented that prove different.
The math is clear, use of leveraged funds significantly amplifies returns.
- Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes2y
Quote from @Joe Villeneuve:
...and, you're getting appreciation on top of that. I don't think a lot of people realize that the main reason for cash flow, in the beginning, is to recover your cost. Your cost in nothing more than the cash you put in (if you have positive CF). However, appreciation is applied to the entire value of the property.Quote from @James Hamling:
Quote from @Eric Justice:
@Mark Cruse using a loan will just prolong your return on investment.
Let's check what math says about this:
A property at $100k, with $1k rents. That would be 100 months or 8.33 years.
OR, $25k down (the investment made) $1k rents minus $544 debt service = $456. $25k/$456 = 54.82 or 4.56years.......
4.56 years seems a LOT faster an investment return than 8.33.......
I am getting an ever stronger sense that you chose the conclusion Eric, and are just pressing that assumed conclusion regardless of facts presented that prove different.
The math is clear, use of leveraged funds significantly amplifies returns.
And on that note, I really think they don't get it vs dividend paying stocks.
In my example above, if re-defined that as a "dividend" it would be at 21.88% dividend.
And, don't forget on WS there is a fee removed from that dividend so one giving say 7% dividend rate may take 1.2% of that, making what one actually get's <6%.
But, in real estate, this "dividend" has a consistent track record for GENERATIONS of annual increase.
On Wall Street, almost uniformly those with a "high" dividend such as most anything 7%+ would be considered, of stock price DECLINING over time, not appreciating. In BOTH dividend but certainly in stock $.
So in real estate we get certainty of dividend INCREASES and of asset value.
There is all this talk that if put the $ into Wall Street and the average increase over ___ year son that..... Ok, is that with BOTH dividend AND asset price?
SPY, yup good appreciation but oh, 1.28% div....
O, "THE" dividend KING is at 5.93% div.
There simply is nothing on Wall Street that matches the Investment ROI of real estate, only if one "cooks the books" and does a whole bunch of "what-if" gymnastics can we get there.
Real Estate is by nature inflation adjusted. Rents are by nature inflation adjusted.
The stock market, by nature, DECLINES from inflation. Why? Because the stock market is buying a % of a company. What happens in harder and harder economic times? people can afford LESS, operations cost MORE, profits decline be it from volume loss or what not.
There is no realistic scenario where stock market soars for enduring time period as real estate declines.
Any argument for "leverage down" in stock market during decline, ok that's doing MORE new investing, yeah, do the same in real estate. If you bought in '07' all you had to do is rent NOT sell in '09', right. AND, BUY in '09'/'10' etc.....
So the "average down" argument is a wash, one can do the same in either. If over leveraged in R.E. yup, gonna get zingged, exact same as if were playing with leverage on stocks as one WOULD get a margin call exactly the same. Honestly as those of us in-the-know know, margin call with stocks is about 10,000X easier to get than in real estate. In Real Estate, bank will never care if on paper your $700k under-water on equity, long as that mortgage payment keeps happening bank won't care. Schwab, you get $700k down, LOL, oh there selling off your positions and all you're left with is a nice big bill to figure out how gonna pay em the remainder owed.
So "average down" in stocks if a crazy 30% decline happens.... yeah, if you have any $ left after margin call and forced liquidation.
With real estate, down 30%, ya shrug, the bank shrugs, ya all say "well, I guess I'm not gonna sell anytime soon" and life continues on.... No forced liquidation, if anything your rents probably shot up as renter demand increases, so you're cash-flow probably INCREASES.
- Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes2y
Quote from @V.G Jason:
Real estate is inflation adjusted, but I'd argue it's now going to be valued with a scarcity premium going forward. That alone is such an amazing extrinsic value to have.
1,000%.
And builders are in no rush to slash profit margins. Builders are throttling with no plans to ever change that, EVER.
So not only do we have this opportunity, we have the opportunity all-but protected from those empowered to most impact this dynamic.
Now people may say "well what-IF this or that big economic bad-day happens".... yeah, what-if. Let's look back, and see exactly how many created a rush of housing inventory, 1....
"uhm, aaah, yeah, but see, this youtuber told me the magic housing-crash-ferry is gonna come back and sprinkle her Oprah dust so everyone will get a house, maybe I should just wait for that"...... Ugh, just ugh....
- Member since 2021 · 38 posts · 20 votes2yShelter is a “human need” according to NASA, along with water air and food.
Quote from @V.G Jason:
Real estate is inflation adjusted, but I'd argue it's now going to be valued with a scarcity premium going forward. That alone is such an amazing extrinsic value to have.
- Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes2y
Fear (not financing) is one of the biggest danger with REI. Fear of a market crash, fear of negative cash flow, fear of humiliation by one's family "we told you it was a bad idea"
The reality is, you'll hit some bumps in the road, but it is very hard to really screw up BIG with REI as long as you buy quality assets and don't completely fail at managing the property i.e. too lazy to fill vacancies..
Ironically it is that fear that will make you buy a cheap property instead of a good one, because you "feel" that a lower price will curb your risk.
And fear will make you accept a marginally qualified tenant because you are worried there won't be a better one next week.
- 2yJoe VilleneuvePro MemberPlymouth, MI · Member since 2013 · 13k+ posts · 19k+ votesI had to read this more than once. Each time I read it, the smile on my face got bigger and bigger. The greatest counter to fear, are risk controls, which comes from education. the REI will be able to place risk controls by knowing how to analyze markets (not properties), understand how money works so they can develop and use multiple strategies instead of relying on just one, and understanding what a plan is, and how to design one for them,...and stick to it.
Quote from @Marcus Auerbach:
Fear (not financing) is one of the biggest danger with REI. Fear of a market crash, fear of negative cash flow, fear of humiliation by one's family "we told you it was a bad idea"
The reality is, you'll hit some bumps in the road, but it is very hard to really screw up BIG with REI as long as you buy quality assets and don't completely fail at managing the property i.e. too lazy to fill vacancies..
Ironically it is that fear that will make you buy a cheap property instead of a good one, because you "feel" that a lower price will curb your risk.
And fear will make you accept a marginally qualified tenant because you are worried there won't be a better one next week.
- Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes2y
Quote from @Joe Villeneuve:
I had to read this more than once. Each time I read it, the smile on my face got bigger and bigger. The greatest counter to fear, are risk controls, which comes from education. the REI will be able to place risk controls by knowing how to analyze markets (not properties), understand how money works so they can develop and use multiple strategies instead of relying on just one, and understanding what a plan is, and how to design one for them,...and stick to it.Quote from @Marcus Auerbach:
Fear (not financing) is one of the biggest danger with REI. Fear of a market crash, fear of negative cash flow, fear of humiliation by one's family "we told you it was a bad idea"
The reality is, you'll hit some bumps in the road, but it is very hard to really screw up BIG with REI as long as you buy quality assets and don't completely fail at managing the property i.e. too lazy to fill vacancies..
Ironically it is that fear that will make you buy a cheap property instead of a good one, because you "feel" that a lower price will curb your risk.
And fear will make you accept a marginally qualified tenant because you are worried there won't be a better one next week.
Yes, but unfortunately mostly from education not from a book, but through personal experience. You can tell someone in a classroom how to swim and not to fear the water, but they won't loose their fear until they learn to swim in a pool and have that personal positive experience.
I look back at my own believes and fears when I got started and it gives me a good laugh to think about what I was worried about. I'd love to go back and tell myself not to worry so much and act more boldly! My first purchase was totally driven by my fears, but it was wonderful to see it work out (despite me not exactly doing everything right LOL)
- 2yJoe VilleneuvePro MemberPlymouth, MI · Member since 2013 · 13k+ posts · 19k+ votesI'd say it's 50/50.
Quote from @Marcus Auerbach:
Quote from @Joe Villeneuve:
I had to read this more than once. Each time I read it, the smile on my face got bigger and bigger. The greatest counter to fear, are risk controls, which comes from education. the REI will be able to place risk controls by knowing how to analyze markets (not properties), understand how money works so they can develop and use multiple strategies instead of relying on just one, and understanding what a plan is, and how to design one for them,...and stick to it.Quote from @Marcus Auerbach:
Fear (not financing) is one of the biggest danger with REI. Fear of a market crash, fear of negative cash flow, fear of humiliation by one's family "we told you it was a bad idea"
The reality is, you'll hit some bumps in the road, but it is very hard to really screw up BIG with REI as long as you buy quality assets and don't completely fail at managing the property i.e. too lazy to fill vacancies..
Ironically it is that fear that will make you buy a cheap property instead of a good one, because you "feel" that a lower price will curb your risk.
And fear will make you accept a marginally qualified tenant because you are worried there won't be a better one next week.
Yes, but unfortunately mostly from education not from a book, but through personal experience. You can tell someone in a classroom how to swim and not to fear the water, but they won't loose their fear until they learn to swim in a pool and have that personal positive experience.
I look back at my own believes and fears when I got started and it gives me a good laugh to think about what I was worried about. I'd love to go back and tell myself not to worry so much and act more boldly! My first purchase was totally driven by my fears, but it was wonderful to see it work out (despite me not exactly doing everything right LOL)
- 2yNicholas L.Pro MemberFlipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
totally agree with you. I think especially in desirable areas, even if values don't go up the way they have, they will hold firm - the 'scarcity premium.'
and I think household formation in the US is going to continue along briskly for the next 15-25 years even if population growth slows.
with that said I'm buying stocks too. i think there will be a scarcity premium on high quality stocks as well.
- Real Estate Consultant · Cleveland · Member since 2020 · 6k+ posts · 3k+ votes2yIs there a question ? 99.9999% cannot pay cash,
Quote from @Eric Justice:
It seems that purchasing property in all cash would have the best outcome for investments. The owner would not have a mortgage. The owner would have to pay property taxes. Buying with all cash gives the owner the option to lease or live in the property. Buying assets in all cash can increase savings over time. Overall, this is the most secure and reliable form of real estate investing. 🏠👍
- 2yV.G JasonPro MemberInvestor · Member since 2022 · 3k+ posts · 3k+ votes
Quote from @Eric Justice:
Shelter is a “human need” according to NASA, along with water air and food.Quote from @V.G Jason:
Real estate is inflation adjusted, but I'd argue it's now going to be valued with a scarcity premium going forward. That alone is such an amazing extrinsic value to have.
Ok, and how does that deviate from what I said?
- Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes2y
Quote from @V.G Jason:
Quote from @Eric Justice:
Shelter is a “human need” according to NASA, along with water air and food.Quote from @V.G Jason:
Real estate is inflation adjusted, but I'd argue it's now going to be valued with a scarcity premium going forward. That alone is such an amazing extrinsic value to have.
Ok, and how does that deviate from what I said?
It's very possible/probable he is too busy at a University encampment to get a reply to this anytime soon....
- 2yJoe VilleneuvePro MemberPlymouth, MI · Member since 2013 · 13k+ posts · 19k+ votesJames, if you ever do a comedy act, based on REI, I'd pay money to attend.
Quote from @James Hamling:
Quote from @V.G Jason:
Quote from @Eric Justice:
Shelter is a “human need” according to NASA, along with water air and food.Quote from @V.G Jason:
Real estate is inflation adjusted, but I'd argue it's now going to be valued with a scarcity premium going forward. That alone is such an amazing extrinsic value to have.
Ok, and how does that deviate from what I said?
It's very possible/probable he is too busy at a University encampment to get a reply to this anytime soon....
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