All Forum Posts by: Ben Zimmerman

So which is it, a gold bar doesn't generate cashflow so according to your first statement it should be a liability, but then you call it an asset?

If the fact that it will ultimately be traded for a gain is the new definition of asset that you wish to use, then the house that I live in will also be ultimately traded for a gain.   Neither the gold bar, nor the house that I live in generate me any cash flow on a monthly basis.  The only time money is made is when the asset is sold.  If the gold bar is an asset because it will eventually be sold for profit, then my home is also an asset because I will also ultimately sell it for a profit, or if I die prior to selling then my children will at some point sell it for a profit.

There is no difference between the two, by YOUR original definition the gold bar shouldn't be an asset because it doesn't generate any cashflow, or by your new definition the house should be an asset because it will eventually be sold for profit.  Do you see what kinds of problems you run into when you start magically changing the definition of terms?

You said.... "Once you sell the home, rid your self of the asset, you realize cash flow."

...But wait, you keep telling me my home isn't an asset, so how can I rid myself of the asset if it isn't an asset in the first place?  Using your logic shouldn't I be ridding myself of a liability when I sell my home? 

...But wait, You also said when I sell I will realize cash flow.  If my home is a liability as you originally claimed, and it then provides me cash flow when its sold, shouldn't it be an asset?  By the definition of words, it can't be both an asset and a liability at the same time, so which is it then?

This is what happens when you invent your own terminology for what an "asset" means.  By your own logic nothing makes sense any more since you claim it isn't an asset because it doesn't provide cashflow, but then again neither does a gold bar.  Then you say the gold will provide cash flow when you sell and is therefor an asset but the house can do the same thing.  This fictitious definition of words leads to circular logic that no longer makes any sense and is mental drivel.  

You said, "The asset itself is a liability because it does not cash flow"

Wait what?!  What kind of mental gymnastics is this that it is both an asset and a liability at the same time.  The correct logic is that the house is an asset, the debt on the house is a liability.  By the definition of terms an item can not be both an asset and a liability at the same time.  Just like something can't be both hot and cold, or a coin can't be heads and tails at the same time.  If an item is an asset and a liability at the same time, the net worth equation changes from being..

Net worth = Assets - Liabilities, into..

Net worth = whatever you want - whatever you want.  It's like a game of "Whose line is it anyway with Drew Carrey, Where the words are made up and the calculations don't matter."

There is nothing magical about monthly cashflow, as opposed to daily cashflow, or yearly cashflow, or any other time interval of money coming in.  Regardless if a home generates 200/month of cashflow, or generates 250k in appreciation when it is sold in 3 years it still generated money for you.  The fact that I need to sell my home to realize that cashflow means nothing, as you also need to sell your gold bar to realize it's cash value.

If I buy at 950, as opposed to rent at 1600, then in 30 years I will have paid 342k towards my mortgage.  We'll say that I remodel the house at some point, replace the roof, hvac, etc, so maybe we spend 100k in expenses for a total of 442k, and at the end of 30 yrs my home is worth 500k.

Being extremely generous, and for simplicity sake we will omit annual rent increases due to inflation and say that you just pay a flat rate of 1600 per month for renting.  That total then comes to 576k over the same 30 year time frame.  

When it's all said and done, you've lost 576k, and I've made 58k in terms of net worth.  Thats a 634k spread in net worth between you and I when I decide to sell my home, and if I never sell my home and simply die then its still net worth for my children.  You can call that 634k a '30yr cashflow', or you can call it whatever you want, the only thing that matters is it made me a significant amount of money as opposed to your prefered method of renting.

You can call it an asset, you can call it a liability, you can call it a whatsamacallit for all I care, but at the end of the day it makes me a ton of money.  

-A rose by any other name would smell as sweet.

@Steven Aguirre  Words have meanings, you are somehow attempting to change the meaning of the word "asset" itself, such that an asset is only an item that generates cashflow.  However that is not what the word means. You can't just alter the fundamental meaning of a word and expect others to somehow magically agree with you.

An asset is an economic resource that a) can be owned, and b) is expected to provide future economic benefits.

Is a brick of gold an asset?  It doesn't provide any cashflow.

Is cash an asset?  It doesn't provide any cashflow.

Is a good contractor, property manager, and agent an asset?  You have to pay each of these people so according to you they are all liabilities.

Is a home in rural america an asset if it cashflows 100/month, even if it is located in a dying small town and is constantly going down in value?

Is a home in California an asset if it had negative 200/month cashflow, but was resold after owning it for two years at a $250,000 profit?

Is a duplex an asset if you live in one side, and the rent from the other side pays your entire living expense?  Since you're just breaking even it doesn't provide any cashflow and is not an asset according to you.

Is a trademark or patent an asset?

Is a stock an asset?  -trick question since we didn't specify if it payed a dividend or not, since if it doesn't pay a dividend then it doesn't provide you any cashflow.

When you need to show proof of assets for qualifying as an accredited investor, what items do you list?  Surely you don't count your cash reserves and other such items since we have already established that you don't even count those as assets in the first place.

People need to stop inventing their own words and changing the fundamental meaning of words.  If you own a home then the home itself is an asset, and the mortgage on that home is a liability.  The debt is the liability, not the entire house.  

Have you ever once calculated your net worth?  Net worth = Assets - Liabilities.  If you have, then you will have agreed with me that the home is an asset, and the debt on that home is the liability.  

Furthermore I doubt that very many people would argue that renting a home for 30 years is economically superior to owning a home for 30 years.  So it's going to be real hard to magically argue that the economically superior option that is contributing massive amounts towards your net worth is somehow a liability.  How do you own something that is nothing but a liability, and end up profiting massively from it?  -Answer:  You made up your own definitions of assets/liabilities that are not based on reality.

I applied on 3/31 and have not received any funds as of yet.  I did get an email however from Experian stating that my credit was ran by: US SM BUS ADMIN ODA on 4/20, so maybe there's hope yet.

@michael king You can shop around for insurance rates with an escrow.

Having an escrow account is convenient, one bill and no need to remember to properly budget because next month is the month that taxes are due etc.  Also I can't confirm but have been told that if you are doing less than 20% down payment you are required to have an escrow.

Other than the convenience factor, not having an escrow account is the better route from a strictly financial standpoint.  Initially setting up your escrow account can add significantly to the amount due at closing since you need to prepay many months worth of bills in advance.  I think the most they can charge is 14 months worth of taxes/insurance so depending on your rates, especially if you are in a high tax area, this could be a pretty big chunk of change.  Besides adding to the upfront closing costs, it also means you aren't able to invest this money and generate some sort of revenue from it.  

And while relatively trivial, by separating the bills, you can usually pay at least the insurance portion by using your credit card and auto pay, which helps rack up points or cashback.  Counties usually charge a fee to pay your taxes by credit so it isn't worthwhile, but if insurance is 1k/year, then you can get 20 bucks per property worth of cashback and doesn't require any extra work assuming you actually put your credit card payments on autopay for the full balance like you should.

You could probably get a relatively safe 9% ROI on your entire escrow balance in an index fund of Utilities, as well as an additional 2% cashback on your insurance amount. So if you forgo a $4000 escrow, 3k in property taxes and 1k insurance, then at 9% ROI of the total amount, and an extra 2% cashback on insurance that would be about $380/year on average that you could generate/save per property.

At roughly $380/year per property, I'll gladly remember to take 5 minutes to go online and pay my taxes once/year.  

Consult a lawyer.

While it's probable that the tenant could shut off utilities to the home, I doubt that you could legally recommend to the tenant to do this.  Of course the squatter could theoretically just have the utilities turned back on in their name and not pay the bill.  Most utility companies aren't shutting off utilities for non payment during this time.  

Until the home is cleared, the original tenant is still ultimately responsible for payments.  It may be a long shot but I would try to put the onus on the tenant to offer a cash for keys scenario to the squatter.  Let them know that this is their mistake and you are holding them accountable for letting this person in without your permission.  Let them know that if the eviction happens in their name it will effect their credit score, and their ability to even rent a place for several years, as well as whatever options are available to landlords to pursue past rent payments once covid 19 subsides.  So instead of taking an eviction, credit score plunge, and owe back rent for many months, it may be better for the tenant to offer cash for keys and simply end the madness.

Inflation only hurts those with significant amounts of cash, or cash equivalents like most bonds etc.  Those who own commodities of some sort are not hurt by inflation as the price of their commodity generally increases with the rate of inflation.

With real estate since most people are leveraged by obtaining loans, inflation tends to help us significantly.  

Eg:  If you have 20k in cash, then 3% inflation means you essentially lost $600 worth of purchasing power.

If instead you used that 20k to purchase a 100k home, then a 3% inflation rate will generally mean your home is now worth 103k.  So you gained 3k in equity.  This is a 15% return on your initial investment of 20k.  

As for cash that we keep set aside to run our business, up until recently you could easily get 2% return in a high yield savings account which basically at least kept pace with inflation.  I don't typically keep a ton of money in a savings account, only enough to cover most situations.  

Instead of keeping multiple tens of thousands in cash in a savings account, I keep much less in savings and instead have a more robust stock portfolio that I use as a sort of extended reserves that I can liquidate in case of emergency.  The key is to have enough in this extended reserve such that even if a significant market drop did occur, this fund would still be large enough to cover your expenses and get you through until the economy recovers.  While it's possible that you may at some point be forced to dip into this reserves while the market is down, statistically speaking as long as you stay consistent then you will come out way ahead.

I also have a guaranteed military job, so my paycheck is always coming in which allows me to take more risks than others would potentially feel comfortable with.  

I quickly skimmed through the proposal, (not wasting my time reading something until it's passed into law), but I didn't see anything about a 10% equity to tenants or anything similar.

Biggest things I noticed during my quick glance was a 5 year rent freeze, mandatory to open up to section 8 if the current tenant leaves creating a vacancy, and no discrimination based on prior law enforcement convictions.  

Owners of multifamily units will be required to notify and get approval from HUD to sell or transfer the property.

Sounds like a sh*t show.  Assistance shouldn't be conditional on adhering to their agenda.  I'm not interested in having a nationwide rent control moratorium.

Best advice at the moment is to take advantage of the next four months to read and learn everything you can about your prefered investment method.  

In the meantime, this is a prime time to buy stocks.  While the market has already rebounded a fair amount from the recent crash, the 1-2 year outlook for the stock market looks very promising in my opinion.

As soon as you turn 18, get a secured credit card.  I recommend the Discover IT secured card.  As far as secured cards go it's easily the best and if you want to invest in real estate it's imperative that you start working on your credit score as quickly as possible.  If your parents are financially responsible, you can ask them to add you as an authorized user on one of their cards.  This will let you start building your credit score even though you aren't yet 18.  While Experian won't start building a credit profile for you until you actually turn 18, other credit bureaus such as TransUnion will create a credit profile for you as long as you're over 16.

If you join the military, look into the VA loan, as well as any grants or subsidies offered by whatever state you are buying in both for first time home buyers, and for military veterans. I know Arizona had like a grant for military that you could apply for, and they would pay 5-6% of the purchase price towards closing costs.

If you plan on going to school to work on your bachelors while you're in the military using Tuition Assistance, then be sure to also file the FAFSA every year.  Even though you are working full time, most of your income isn't taxable income and so in the governments eyes you look extremely poor, so it's fairly easy to qualify for financial assistance on top of your already free schooling from the military.  I have a friend who gets 5-6k every year in financial aid on top of his free schooling.

Look into possibly changing your state of legal residency once you join the military.  Even though you likely won't be living in missouri anymore, you will still pay state taxes to missouri every year.  If you get stationed in a state that offers a lower tax percentage, or better yet no taxes on military pay, then change your state of legal residency.  The best part is this legal residency doesn't need to be updated every time you move so once you find a very tax friendly state then keep it.  I've been a resident of Arizona for the last 10 years since Arizona doesn't charge tax on military income, even though I haven't lived in arizona in many years I am legally able to keep my residency in Arizona as long as I'm in the military.  Plus their drivers licenses are valid for like 50 years which is super convenient.

Also, credit cards for military members are stupidly powerful.  Look into the SCRA and MLA benefits.  I get thousands of dollars worth of free stuff every year from my credit cards, and I don't have to spend a dime on any of these cards to get that free stuff.  Chase Sapphire reserve, AMEX Platinum, Citi Prestige, AMEX Hilton Aspire, AMEX Marriott Bonvoy Brilliant, and several other cards should be in the wallet of every single military member.

Its not a matter of the economic cycle, so much as it is finding the right potential clients.  

It doesn't matter if the economy is doing good, or the economy is doing bad, you simply aren't likely to convince a non motivated seller to sell using atypical methodologies.  The key is to find people who desperately need to sell, or people who need to sell that don't have enough equity to easily pay realtor fees.  

If the economy is doing poorly, then more individual households will be struggling financially and looking for ways to sell before going into foreclosure. Therefore in a poor economy there will be more potential clients which makes your life 10x easier, but it's still a matter of finding those people instead of making blanket offers on the MLS for owner financing.

Threads like these bring out people who are so ingrained in their beliefs that nothing you say will sway their opinion.

My mortgage is 950/month, 0 down payment, if I didn't own the house and instead rented, my rent would be 1600/mo.

Of that 950, 200+ of it is equity which is really just paying myself in terms of overall net worth.  So essentially I am paying 750, in order to save 1600 since I get no equity while renting.  Average appreciation rate in my area is a tad over 4% so as long as I don't buy and sell every 2-3 years to continually pay closing costs I come out way ahead.  You seem to believe that something isn't an asset if it doesn't make you money every month and cover its costs, but my home DOES make me money, it makes me 1600-750=$850 every month in terms of overall net worth, or 650 in terms of raw dollars per month flowing in/out of my checking account.  It all depends if you want to count your equity gain immediately or not.  Either way its a significant win.

Your personal home is your BEST rental property you will ever own assuming you don't buy some overpriced McMansion.  You are simply renting it to yourself.  It comes with the lowest interest rates possible, a perfect tenant with 0% vacancy rates, a near 0 yearly maintenance cost since you take good care of your home and can easily repair most simple items yourself, and no property management team necessary.  

Opportunity cost is a legitimate cost.  If I wasn't paying this 950, I would instead be paying 1600 and not getting any equity either.  But hey, if you want to keep thinking that your home is not an asset then by all means you are entitled to your opinion, I have several properties that you can rent from me if you are so excited about renting instead of owning.

- Original Cost to buy (A homes price isn't predicated on it's use, if I buy it as a rental or for my own use it still costs the same amount)

- Down Payment (owner occupied homes require significantly less down payment)

- Loan interest rate and term in years (owner occupied homes have a much lower interest rate)

- Rent (will always be higher than your mortgage amount unless you live in a stupidly overpriced area like NYC, SF, ect.  The overwhelming majority of the population their mortgage is significantly less than a comparable rental would cost)

- Monthly expenses: Utilities, taxes, insurance, cable/www, any REHAB you did, Landscape, Lawn/snow per month, misc expenses. (I pay utilities, cable, internet etc regardless if i'm renting or buying, taxes and insurance are already factored into the mortgage payments, however if you are renting then your renters insurance will be in addition to your monthly rent.)

- Appreciation rate per year (You don't get any appreciation if you rent, so unless you live in a dying town with negative appreciation rates then owning wins)

It looks like you struck out Joe, each of the items you listed favors owning instead of renting.  30 years from now I will own my home outright and will have saved hundreds per month while experiencing nice appreciation.  After 30 years of renting all you have is an empty box of kleenex after wiping away all of your financial tears.