All Forum Posts by: Tou V.

@Yinan Q

I agree.  Everyone would love to buy low and sell high.  It's just no one knows when it'll happen.  Usually by the time the average person finds out, it's already too late.  The market in Cali from 2002-2007, you could buy anything and next year it would be worth 20% more.  People literally offering tens and thousands of dollars over asking.  New housing had lines lined up through the street.  Looked and sounded like a rock party.  You go in one week to check on pricing of a new house, the next week you went in and it went up by $10,000, wait another week and $20,000.  It was just crazy.  Everyone who bought and sold between 2002-2007 made a killing.  It's the ones who were left holding the bag after 2007 that lost everything and there were many..... 

Bob, thanks for the info provided and good examples.  My only issue with this example of houses in Fremont, CA is the previous owner bought in 2010 which we all know was the bottom of the last housing crash.  During 2010 you could literally buy any home in Cali and 5 years later (today) it would be worth 2 times the amount.  It was perfect timing by the previous buyer, buying at the bottom of the recession and selling when the economy is on the rebound.  While I believe prices will continue to rise for the Bay Area in general, I just don't think it will appreciate as rapidly.  Just think of it, previous owner bought for $525k and sold it five years later for $825k.  It's appreciated 9.5% each year for 5 years straight.  If that continues the house will be worth $2,000,000 in another 10 years.  That would be a great scenario for the current owner, but rather unrealistic for the next 10 year.  I know Fremont has many high paying jobs, but if every single regular home in Fremont, CA is $2,000,000 ten years from now.  That would cripple the market for the normal family.  That's like a $12,000 mortgage payment. 

One could argue that if the previous owner had bought this same house in 2005, then 10 years later he made nothing.  As the same house was worth around $800k back in 2005.  This owner just got lucky by buying when there was a massive recession in the country. 

@Bob Bowling

Bob, I get what you're saying.  If I had massive amounts of money that I could just put down on properties and not needing anything in return for 30 years, then buying in the Bay area would be the way to go.  Plus, if you account for inflation that $115,000 in 1986 is probably worth about $1,000,000 in today's money.  I could buy a good amount of candy for 10 cents back then, today any candy bar costs $1 dollar.  I'd prefer to have a few thousand each month flowing in so I could spend it freely while I'm still able to. If I did purchase the $1,000,000 home in Fremont today, it would leave me with a $800k loan. The $800k @ 5%loan would cost $4294 + 1200 (taxes / ins) = $5494 each month in just PITI. If you add in all the other costs associated with renting, it'll be like over $6000 a month. Rents are high in Fremont, but getting $6500+ a month for a small house would be tough. I appreciate your comments and get where you're coming from. The barrier to entry is just too much for the average small time investor.

Oh, I'm pretty sure in 30 years when the price of an average small house in Fremont sells for $9,600,000 we'd all be making $1,000,000 in salary which would then justify the almost $10,000,000 home purchase.  The only way prices would ever rise that high is if the local economy can afford it. 

The 50% was just an expression, that I'd have to find properties for significantly discounted prices locally to cash flow.  Anything I buy probably will be close to market or market price, unless I somehow get lucky and find a deal that no-one else has seen.  All of the TK I've looked at no matter how it's advertised, I know is pretty close to market.  That's just the nature TK.  They're professionals, they wouldn't sell a decent house for significantly less then what it's worth.  I'm not looking for a screaming can't miss deal here.  Just something that's sustainable and within reason.  I guess my main question is if what the PRO TK camp are saying is true, then a $50k property rented at $825 or so should cash flow an average of $200+ monthly over the life of the purchase, which may be a decade or more.  This is after all expenses that can be associated with rental homes.  While the others are saying the cash flow in real life won't happen.  How do people make money on renting these $50k homes then?

@Jeff Pollack

Jeff, thanks for your comments.  The cash flow estimates are the main thing I'm trying to figure out here.  If you're saying a $50k property rented at $825 - 850 in Indy, KC, Ohio, Memphis or any of the hot TK markets won't even return $200 average cash flow throughout the life of the investment, then how do people buying TK even make any money?  Are they all just living a dream?  These TK, some of which have hundreds of clients must be making a decent return for their clients, somehow?  As for the triplex.  It's 3 separate triplex.  That would be 3 separate conventional loans for a total of 9 new rental units.  If it's local, I probably will self manage until I can't handle it anymore.  I really appreciate your thoughts and comments. 

 At this point, I'm probably more 49% managed risk / 51% gambler.  Before I took out the money I made up my mind that I'd try hard to find suitable cash flowing properties, but if my decisions went down the toilet, I'd sell the  rental to cover the loss.  Yes, it's a gamble, but hopefully worth it.  Doesn't mean I'm not doing my due diligence and trying to weed out the bad / good investments.  Just means, I'd take a chance if something came along.  Can't win if you're not in the game. 

Kevin, I'm feeling the same way you are.  Properties in this area costing too much and sometimes even going way over the asking price.  If you don't mind, please elaborate on a couple of your Houston deals.  Such as income, expenses, cash flow, etc...  I've seen properties from Houston also and just by the numbers, it looks fairly similar to other TK opportunities I've seen.  Thanks.

I thought about the HELOC and almost decided on it. The only issue with a HELOC is I don't think the bank would count a HELOC as cash reserves or proof of funds if I were to purchase something much more then $200k and needed a new loan. By refinancing, the money is in my account and I can show proof of it. This was my thinking before I took out the loan.

Anish, you're right that it is kind of risky, but any investment can be risky.  I thought about it a lot before borrowing the money and decided it was worth it to take out the equity and refinanced the rental home.  It's just taken longer then expected to reinvest it.  To me, it didn't really matter where the money came from.  There was still going to be a loan.  Now, instead of having rental income, all that money is being used to repay the loan I took out. 

Renea, that's a good way to look at it.  The plan was to always  to reinvest the money.  Didn't make sense to just leave all that equity sitting around doing nothing.  I understand what you're saying in I should look at each deal and consider if I would still do it if I had no money at all or couldn't afford to lose the money.  That's what I'm trying to do.  Thanks.