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The Real Estate Game

By Jave27 in Culture
Wed Sep 08, 2004 at 08:51:45 AM EST
Tags: etc (all tags)

Some of you have purchased homes before, so you know a bit about how the process works: Mortgage Approval, Appraisals, Surveys, Title Searches, Purchase Agreements, Stipulation Sheets, Closing, Whining, Bickering, Signing 1,000,000 pages, Moving, blah blah blah...

Even though it's a scary thought when you first start, and you've probably heard enough horror stories to not want to go through the process, it's really not that bad. It's actually pretty easy if you take a little time and learn about it. It makes more sense than most college curricula, and it doesn't take a genius to figure it out. Literally anyone can play the game if they have a dedication to making things happen. This is an introduction to real estate investing using my 4 years of personal experience as a guide. While all of my experience has been on the U.S. side of the pond, I'm sure enough of this information will apply to everyone to make it worthwhile. (This was originally submitted as a diary at the other site)

My Experience

Just so you don't think I'm a hack, a troll, a clueless newbie, etc., I'll give you a little background. I purchased my first house when I was 20. I rented out 3 of the rooms to friends of mine, and all of us attended college. One of my roommates and I decided to start a business, but we just couldn't decide on what to do. I worked full-time for a property management company (company that manages apartment complexes), and I was the IT guy. My roommate worked for a mortgage brokerage (a company that gets wholesale rates on mortgages from larger mortgage companies and sells them to people, taking their cut each time). One of our other roommate's moms was a real estate agent. So, taking all of that information together, it seemed like real estate was a good field to get into.

We started an LLC (Limited Liability Company - like a Corporation as far as liability is concerned, but taxed like a Partnership) in 2001, and bought our first 3-unit house a few months later using a mortgage obtained from his company. Since then, we've bought 11 more houses and sold 3. We've focused on rehabbing and rental property, and would like to eventually move into commercial property and development.

Reasons for Investing

  • Investing is not for everyone. It takes dedication, a will to succeed, a little bit of time (compared to a normal 'job'), and the guts to just get out there and do it. I decided to do this because I don't like working that much. It's not that I don't enjoy my job; I just don't enjoy the idea of having to get up early for the next 40 years if I don't want to. Being able to set my own schedule is enough of a reason to make me focus on this now instead of wishing I had later in life. My roommate/business partner is 25 years old, and he no longer has a "real job". All he does is find houses, hire people to fix them up, rent them out, and sell them. He's not exactly retired yet, but it's a much better situation than a full time job.
  • If you are renting right now and you plan on being in the area for at least a year or two, you're throwing your money away. Yes, you have more responsibilities if you own a house, but you can hire people to come and fix things, mow lawns, trim shrubs, etc. In the end, if you do everything right, you'll make money during the time you live in your own home versus spending your hard earned money every month and getting nothing for it in the end.
  • The profit margin can be huge. If you're willing to do some research into your market, you can easily find homes selling $20,000 - $100,000 less than what they're worth. There are always motivated sellers, and if you are diligent in your research, you'll find them.
  • It's so easy. Compared to a normal 40+ hours per week job, real estate investing is a cakewalk. You'll put a lot of time into it in the beginning, but later, you can sit back for a few weeks, do nothing, and still make money.
  • Tax Advantages. There are all types of tax breaks for investors and homeowners that don't exist if you just work a normal full time job or rent. Check with your locale, but I've saved all kinds of money in taxes just because I can write off so many normal activities as business expenses. There are tons of books on this subject, too, so I'll leave it for another time.
Starting a Company

Technically, in the U.S., you don't need to start a company to be an investor, but it helps. It gives you better tax advantages, protects you from most forms of liability in case someone sues you for something, and makes you seem more professional. You can say, "Hi, I'm Jave27 from Housing Investors, Inc." instead of, "Hi, I'm Jave27, some random guy next door that wants to buy your house."

Types of companies differ from state to state, but you definitely want to start something that protects you from personal liability. An LLC, an S-Corporation, or a C-Corporation are accepted in most, if not all, states. If you want to take on partners, you should decide that early on. It's usually easier to start a company with everyone involved in the beginning than to add someone into the mix later.

Call around to different law offices in the area and try to find a good real estate attorney. While you can set up the paper on your own with a little research, it's highly suggested that you just go ahead and do it correctly in the beginning so you don't miss anything that hurts you in the future.

Ways to Obtain Financing

You somehow need to be able to come up with $50,000 - $200,000 to buy your first home. While this may sound like a lot of money, it's really not too bad. You'll find that getting most financing will be easiest if you have a job, have a decent credit history, and don't have a lot of outstanding consumer debt. However, even if you don't fit that profile, there are other ways to buy property. The credit score process is an entirely separate conversation, but you can learn almost all you need to know from these sites:

TransUnion, Experian, Equifax

Those are the three largest and most used credit reporting agencies in the world. They have tons of information for you to peruse. Now, on to types of financing (disclaimer: all of the details of these types differ state by state, so this is just a broad overview of what's available)

  • Conventional Mortgages. This is the process of walking to a brokerage or a bank and saying, "I'd like to buy a house. How can you help?" This is the most common method that people use to purchase homes. If you're doing this to become a serious investor, I recommend finding a mortgage broker that deals primarily with investment property. Let him or her know that you want to purchase a lot of property with little to no money down. You need your cash for other things, not to sink into that magical void we call "home equity". There are plenty of 100% financing programs available in the States, and I'm sure elsewhere, too. In fact, I recently found a local company that can provide financing for 100% of the after-repair value of a home so that you can do all of your rehab work with borrowed money, and only pay the interest on the loan while you have it. These things are out there, it just takes a bit of digging and networking to find them. If you fail to make your mortgage payment, the bank can foreclose on the house and if you fail to act within the legal amount of time (usually 6-9 months), the house gets sold to the bank and you lose your investment.
  • Land Contracts/Purchase Money Mortgages. This is when a seller is willing to let you purchase your home from them on a monthly instalment basis. They have decided that they don't need all of the cash on their home right away, so they'll allow you to pay them monthly just as you would a bank if you had a mortgage payment. Typically, they want some money up front as a down payment, and the interest rates are negotiable (usually with a state-mandated maximum percentage). In this situation, you get the title to the house, but they still have an interest in it, so if you fail to make a payment, they can foreclose on you just like a bank can. Then, they get the house back and you lose your investment.
  • Assumable Mortgages. These are much more rare to find nowadays. Most new mortgages have a clause that reads "You cannot transfer this mortgage to another party. If you do, we will hold you responsible for the full amount immediately, else you face foreclosure." FHA and VA loans from the 1970's and early 1980's didn't have this clause, so you can sometimes find a mortgage that can be transferred to you by the seller. You can negotiate with the seller for the remainder of the sales price, possibly by paying them monthly as well. Then, you'd have a mortgage and a monthly payment to the seller. Many investment "gurus" such as Carleton Sheets (who you've probably seen on late-night infomercials) advocate this method, even though it's so much tougher to do now than it was when they first started.
  • Land Trusts (newer concept, not available in all states). This is a very lengthy discussion, but here's a synopsis: The seller places their home into a revocable living trust (like a trust fund, but designed for real estate - check with lawyers in your state for details). Then, the seller assigns you 90% interest in the trust, plus gives the trustee the Power of Attorney to make decisions about that particular property for him or her. Then, you can make payments on the seller's existing mortgage, and you have full control over this property. Basically, it allows any mortgage to be assumable, regardless of the clause mentioned above. This can become tricky because not a whole lot of people know about it, so many people are afraid of trusts. However, it is 100% legal in the U.S., assuming you have all of your paperwork completed properly. Either way, it's a useful tool to have in your arsenal as you further your real estate career. We've bought one property using a trust, and sold two so far.
  • Cash. Obviously, if you have enough cash to purchase an entire property, you can do so. Unless you have enough to purchase multiple properties simultaneously, I would recommend against it. Cash is better used as down payments or to make improvements with. For example, if you have $50,000 cash, you could buy a cheap home. Or, you could use mortgages and put 10% down ($5,000) on 10 cheap homes. Or, you could put 10% down on 5 homes, and still have $25,000 to use for improvements that result in your homes being worth more money. If you plan on being a serious investor, equity in properties that isn't being used to buy more properties or otherwise make more money is useless.

The best advice I can give you in regards to financing is to make your payments on time and in full. To some people, this may sound like a no-brainer, but even a single late payment over 30 days can be a detriment to your credit score for years. This includes credit cards, lines of credit, mortgages, etc. Just make all of your payments on time, even if you have to borrow money from other sources to do so.

Finding Homes

This is where you should find a knowledgeable, experienced real estate agent who has been in the area for a while. He or she should be able to spot good deals for you as they come onto the market. It's good if you find someone who deals with investors, too. Most agents just try to match what their one-time client is looking for to what their little database of properties says is available. You want someone that has a good listing record for when you sell and also knows how to search the database quickly and efficiently (commonly called an MLS - Multiple Listing Service).

There are tons of avenues to travel when making money in real estate, but some of the most profitable are in development and rehabbing. For rehabbing, you want to find run-down properties in nice neighborhoods. A lot of times, these properties are bank repos, and you can get them at a steep discount. Many localities have Internet-accessible assessors' pages so you can look up information on any property in the area. These will include square footage, recent sales information, pictures, tax information, who the owner is, and all types of historical data about the house. Your real estate agent will know how to access this information if you don't. Or, you can go down to the county courthouse and look it all up in their filing cabinets. This is one way to determine what the going rates are for homes in a given neighborhood. Just look up all recent sales within a quarter mile of that home and compare those homes to the one you're looking at.

Look at a LOT of property before you purchase anything. After looking at ten or more homes, you'll start to get a feel for how much things cost and be able to see different neighborhoods in your area. Once you find something, and you're ready to go, write an offer. Unless the asking price is unbelievably cheap, don't be afraid to place an offer much less than that. I've offered $80,000 on a $105,000 property and got it. I've heard of people making even larger spreads than that, so anything is possible. Also, don't be afraid to make a bunch of low-ball offers at the same time. It's kind of like fishing, you never know when you'll get a bite.

"Ok, I've got a property, now what?"

Do you want to rent it out, rehab it, or just try to resell it quickly (called flipping) for a profit? Like I said earlier, there are lots of avenues, you just need to pick one (or more). If you think you can make enough money renting, go for it. Here are few rental tips:

  • Don't accept late payments. I don't care what their situation is, don't do it. I've been burned EVERY SINGLE TIME I've let people slide on rent. If their rent is due on the 1st and you don't get it, send them an eviction notice on the 2nd. That doesn't mean that you have to evict them, it just shows them that you're serious, and just in case you do have to evict, you're one step closer in the court system. Most states give them 3-10 days to pay up after you send the notice, otherwise you can file in court and remove them within a reasonable amount of time.
  • Don't bend to their every whim. If they want a new fridge or stove because theirs is ugly, say no. Tell them they get charged every time you send out a maintenance person to fix something they broke. You can be nice, but still be firm that you are the landlord, not them.
  • Don't let anything sit vacant long. Vacancy is the #1 killer of profit. If you can't fill the unit for 2 months, you still have to pay the mortgage, but you have no income to support it. That just hurts.
  • SCREEN YOUR APPLICANTS. Do a credit report and possibly a criminal report before renting to anyone. Get a copy of their state IDs, as well as their social security number (or equivalent for non-USians). Make sure they aren't moving because they just got evicted from their last home.
  • Check with local low-income government agencies. There are lots of programs that provide subsidies for families with low income. They may have a list of qualified tenants waiting for a place to live, and your rent will be guaranteed by the government. Depending on your area and what type of home you have, you may be able to keep it fully occupied and always have money coming in. Take advantage of that if you can.
If you're going to rehab, I recommend being there a lot during the first one so you know what to expect from contractors. You'll probably go through a ton of contractors before you find a few that you really like and want to work with. Don't do anything yourself. If you do, you limit yourself as to how many of these projects you can take on at once. Plus, unless you're a professional, it probably won't be as good of a job. It's good to be there and learn how hard or how easy everything is, but don't attempt to fully rehab a house by yourself. It's not as easy as the TV shows make it out to be.

Get permits for any major structural changes, plumbing, electrical, or gas pipes. If you don't do it legally and something bad happens, you're in a lot of trouble. Better safe than sorry in this instance.

To find money for rehab work, try to get lines of credit tied to the home's equity. Those usually have lower interest rates than using credit cards or personal lines of credit. I've put very little of my own out-of-pocket cash into my investing, and I should be getting all of it back as soon as our next property sells. Companies really like to hand out money as long as you have shown that you can make payments.


You have to be very creative to make some deals happen. It's good if you have a creative mortgage broker who can structure programs to suit your situation. It's also good to have "flexible" appraisers who don't mind stretching values a bit to make deals happen. Don't break any laws, but find people that are willing to work with you for everyone's benefit. When dealing with people, make sure they know that if everything goes smoothly, you'll be utilizing their services again very soon.

Remember, when you buy someone's home, you're trying to get a deal yourself, but you're also trying to solve their problem. They want to sell for a reason. Find out what that reason is, and see if you can structure a plan with them to make everyone happy. Land Trusts are good options if you can explain them correctly. They don't show up on your personal credit report, plus they protect the seller in the event that you don't make the payments more than a Land Contract would. Just be flexible, and a lot of deals will come your way. The "Deal of the Century" comes around about once a week if you keep your eyes open.

"Ok, decent overview, how do I really get started?"

  • Find a local investors group. You may have to drive into a larger nearby town, but do it. Find some people you can network with to get the ball rolling.
  • Read a book or two. Go to your local bookstore and pick out something that seems up your alley and fits your interest level. Even if you decide against doing it, it will give you a better understanding of the process and the game.
  • Check out investor sites online. My favorite is CRE Online (Creative Real Estate Online). Check out their forums. You could spend a month reading the HOWTO and Success Story articles, and then you could spend years reading the forums. They are very active forums and very experienced investors participate in the discussions. A lot of them are trying to peddle their "Patented Money Making Systems(TM)", but those aren't all bad, either. But, there's enough free information to overload you pretty quickly.

Everything Else

Obviously, there's a lot more to this that what I've written here, but most of what we've learned has been along the way. You're not going to know everything when you start, and ten years from now, you still won't know it all. But, it's better to regret doing something than nothing at all. If you really want to attempt to start your own business and retire early, real estate is a game that everyone can play. The rewards greatly outweigh the risks, in my opinion, and many people I know can attest to that. If you decide to venture into this field, good luck, and let us all know about it!


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Ownership Status
o Too young to invest yet 16%
o Always Rented 40%
o Have owned before, not now 1%
o Own 1 house currently 30%
o Own 2 houses 4%
o Own 3 or more houses 4%
o I'm Donald Trump 2%

Votes: 72
Results | Other Polls

Related Links
o at the other site
o TransUnion
o Experian
o Equifax
o Carleton Sheets
o CRE Online (Creative Real Estate Online)
o Also by Jave27

Display: Sort:
The Real Estate Game | 198 comments (174 topical, 24 editorial, 1 hidden)
Gay. (1.00 / 38) (#2)
by wireless orc on Tue Sep 07, 2004 at 03:02:41 PM EST

Go anally molest yourself with an ascii goatse printout.

How many companies? (3.00 / 5) (#4)
by NoBeardPete on Tue Sep 07, 2004 at 03:37:58 PM EST

So I understand that in this sort of business, it's not uncommon to have multiple companies, perhaps one for each business, all owned by a larger holding company. I guess the upside to this is that if something should go wrong with one property, it doesn't have to sink the whole enterprise. Presumably the downside is that your financing won't be available at rates that are as favorable. What's your opinion on this sort of scheme?

Arrr, it be the infamous pirate, No Beard Pete!

Number of companies (3.00 / 3) (#8)
by Jave27 on Tue Sep 07, 2004 at 03:56:42 PM EST

We asked our lawyer about this technique when we first started, and he said that it makes sense to do something like that eventually, but to not worry about it yet. Re-organizing everything later isn't incredibly difficult to do. A benefit of the land trust technique is that if you control a property through a trust, it shields the rest of the company from liability as well. The plaintiff would have to sue the trust instead of your LLC/Corp, etc. and would only be able to get assets held inside of the trust. Granted, a good lawyer could probably pierce the corporation as well, but it's an extra layer. There are ways to structure everything so that you never have to pay income taxes on profit generated by your company as well, but it can get complicated. In a nutshell, you start a company that is owned by your self-directed Roth IRA account, so any profit generated by the company flows to your Roth. You pay no taxes on income generated in the Roth, but you can't withdraw from that account penalty-free until you're 59 1/2 years old. I haven't done this yet, but I'm sure at some point, we'll restructure everything to fit this model. I know plenty of people who have it set up this way, and it's 100% legal (granted, my description is lacking a lot of details, but that's the gist of it). Larger apartment complexes are typically each owned as a seperate legal entity with one controlling company that holds majority interest in each entity. So, yes, multiple companies are recommended when you get to a certain size, but it can be dealt with later.

"Beating up the homeless. It's cruel, but it's a good clean work-out and leaves you feeling winded and superior." - CheeseburgerBrown
[ Parent ]

not entirely tax-free (2.00 / 2) (#124)
by emmons on Wed Sep 08, 2004 at 08:43:37 PM EST

Before the nuts go off on you... the Roth IRA account method isn't tax free, just tax-deferred. He'll still pay income tax on the money when he takes it out of his IRA when he retires.

In the beginning the universe was created. This has made a lot of people angry and been widely regarded as a bad move.
-Douglas Adams

[ Parent ]
No, that's a regular IRA (3.00 / 2) (#131)
by roystgnr on Wed Sep 08, 2004 at 11:29:53 PM EST

In a regular IRA you can deduct contributions when you make them but then have to pay taxes when you take money out.  In a Roth IRA you get taxed on the money you put in, but then (assuming you qualify - i.e. you're actually retired or buying your first house or something) you take your money out tax-free.

[ Parent ]
oh oh (none / 1) (#132)
by emmons on Wed Sep 08, 2004 at 11:34:34 PM EST

That's the difference between a Roth and 401(k). I was wondering about that...

Thanks for the correction.

In the beginning the universe was created. This has made a lot of people angry and been widely regarded as a bad move.
-Douglas Adams

[ Parent ]

IRA vs 401(k) (none / 0) (#196)
by hab136 on Tue Sep 21, 2004 at 02:16:00 PM EST

That's the difference between a Roth and 401(k). I was wondering about that...

Woah, there's three different things there:

  • 401(k) - contribute pre-tax, withdrawals are taxed
  • IRA - contribute pre-tax, withdrawals are taxed
  • Roth IRA - contribute post-tax, withdrawals are tax-free

An IRA is your own, completely set up and managed by yourself (and your bank). A 401(k) is set up and managed by your current employer. IRA and 401(k) act about the same, but there are subtle differences, and you usually cannot contribute to both (max contribution is up to about $13,000 for 2004). You normally want to contribute to 401(k) instead of an IRA, but regardless, you can ALSO contribute to a Roth IRA (up to $3,000 a year)

401(k)/IRAs are great investmenta if you make any kind of money. Roth IRAs are great regardless.

[ Parent ]

interesting (2.50 / 8) (#7)
by urdine on Tue Sep 07, 2004 at 03:55:22 PM EST

A lot of Kuro5hinites have some sort of netpunk flashback when they see "business" or "profit-making" articles, but I think this is well-written and potentially useful.  Good job.

Thanks! (nt) (none / 1) (#12)
by Jave27 on Tue Sep 07, 2004 at 04:02:34 PM EST

"Beating up the homeless. It's cruel, but it's a good clean work-out and leaves you feeling winded and superior." - CheeseburgerBrown
[ Parent ]

Everyone should read this: (2.83 / 6) (#9)
by wireless orc on Tue Sep 07, 2004 at 03:59:39 PM EST

The Residential Real Estate Bubble by Gary North

Good article, but... (3.00 / 2) (#14)
by Jave27 on Tue Sep 07, 2004 at 04:17:35 PM EST

It's always speculation. Historically, real estate prices have always gone up. People are predicting a huge population growth over the next 20-30 years in the United States, so it'll probably remain a strong market even if a few financial industry companies have issues. But, that's my opinion, too. Take it or leave it.

For the karma-type people, though, I don't think you can go wrong if your goal is to make property look better and improve the general area of town that you're working on. In exchange for that, you ask for a bit of a profit. :-)

"Beating up the homeless. It's cruel, but it's a good clean work-out and leaves you feeling winded and superior." - CheeseburgerBrown
[ Parent ]

not real prices -nt (none / 1) (#64)
by MrLarch on Wed Sep 08, 2004 at 04:25:43 AM EST

[ Parent ]
Important ratios (2.87 / 8) (#31)
by NoBeardPete on Tue Sep 07, 2004 at 05:46:50 PM EST

The ratio of average family income to the average cost of housing (either as mortgage payments or rent) is, as my understanding goes, at an all time high in the US. This ratio can't keep going up without bound. It may not yet be as high as it can possibly go, but there's got to be some ceiling beyond which further increases in housing prices cause dramatic consequences to the economy. This means that in the long run, over the whole country, housing prices can't rise faster than the rise in wages.

Now, obviously, there will always be some places where prices are going up dramatically, and there will probably always be some places that are stagnating or dropping dramatically. If you have a good nose for which area is which, you could certainly make money speculating on property.

I would warn everyone, however, that it's as close to a sure thing as one can get that once people start saying, "The price of this thing has only ever gone up, and it's just going to keep going up," we're looking at a bubble. Bubbles pop, sooner or later. If you've got an LLC set up, the worst that can happen is that your business has big problems. If you're holding the mortgage on your house yourself, though, you're probably pretty leveraged, so it won't take much of a swing in the price to leave you with with negative equity. You may think that it's unlikely we're in a bubble, or that it's unlikely the bubble will pop anytime soon, but consider how dramatic the consequences to you could be.

I would encourage anyone thinking of buying their own house to _not_ consider it as an investment, but as buying yourself a house to live in. If your main goal is that you'll find some other sucker to buy it for an even more inflated price 5 years down the road, you'll be screwed when the bubble pops. If, on the other hand, you aren't concerned with resale value, and just intend to make your payments and live there, enjoying the house yourself, the bubble popping won't impact you too much.

Arrr, it be the infamous pirate, No Beard Pete!
[ Parent ]

If (3.00 / 5) (#50)
by losthalo on Tue Sep 07, 2004 at 09:25:38 PM EST

If the real-estate bubble pops, this country (US) is in deep, deep shit.

[ Parent ]
WHEN, not IF (3.00 / 5) (#52)
by RandomLiegh on Tue Sep 07, 2004 at 10:12:13 PM EST

all bubbles burst. All of them.

Thought of the week: There is no thought this week.
[ Parent ]
Very deep indeed (3.00 / 5) (#79)
by NoBeardPete on Wed Sep 08, 2004 at 10:19:07 AM EST

A lot of economists are seriously concerned about this happening. When a stock market bubble pops, it hits the whole economy pretty hard. When a stock market bubble pops, it mostly hits banks, insurance companies, pension funds, and wealthy individuals. The finances of your average middle class family aren't really affected, aside from the (very problematic if it happens) possibility that their job may go in a bunch of cost cutting., and the fact that the (most likely distant) prospects for retirement get pushed back a few years. If the housing bubble pops, middle class families are precisely the people who will feel it the hardest. It's common for people to be highly leveraged in their properties, which means a sharp drop in prices could leave lots of families with negative equity. This could mean lots of bankrupcies, and possibly lots of forclosures. Now, consider who all of these mortgages are owed to. The banks and firms that this money is owed to, or who own securitized rights to this money, are all suddenly looking at a heap of bad debt (unless the government steps in with money, which is a real possibility, although I'm not sure it'd be prudent). So we're looking at a tremendous blow to the middle class families that drive most of the economy, plus a giant hole in the banking system. The total effect could be much, much worse than pretty much any stock market bubble we've seen pop so far.

Several people have pointed out that if house prices everywhere go up, you don't really benefit by the increase in the value of your home. Presumably, if you sell your home, you'll be buying another one somewhere else, so you won't come out ahead. What's really going on, then, is that a wealth transfer is taking place from people that own their home to people that don't yet own their home. The young, poor, or urban (which I am not using as a code word for black, but just people that live in the middle of a city. How many Manhattan professionals own their own home?) lose out, and the middle aged, wealthier, and suburban/rural gain at their expense. That's fine, it's how markets go. But as markets go up, they also come down. If the price of houses drops, that means the wealth transfer will reverse. In principled, this is a risk people knowingly took when they bought a house they couldn't really afford. The thing about letting people deal with the bad consequences of their own decisions, though, is that it's hard to do when it's happening to half of the country at once. So the people who've gained for so long at the expense of non-property owning folks will probably be bailed out by the taxpayer, meaning they'll be doing it even more, again.

Arrr, it be the infamous pirate, No Beard Pete!
[ Parent ]

You failed the doom troll test (1.00 / 4) (#102)
by duffbeer703 on Wed Sep 08, 2004 at 01:50:47 PM EST

You failed to mention:

 - The gold standard
 - The Bush family
 - Canned food

[ Parent ]

Houses as investments (3.00 / 5) (#61)
by koz on Wed Sep 08, 2004 at 01:21:39 AM EST

I don't like the idea of housing as an investment for a number of reasons. In addition to your points, it really takes away from community. People buy houses expecting to live in them no more than 5 years. There is no need to build community in this case. Why take the time to meet your neighbors when either they, or you, will be gone in 2 years.

I don't think people looking at housing as an investment can be for "affordable housing". You're hoping that the value will go up rather significantly in the short term. Contrary to the initial article, I don't think one comes out significantly far ahead in buying vs renting in two years, unless there is a significant increase in property value. Any income tax advantage is negated by the property tax in most states. I've compared renting vs buying and when I figure in insurance, upkeep, mortgage interest, commissions, etc, it's a wash for the first 2-3 years... unless the property value takes off and you sell.

This leads me to another question. Many people buy houses expecting their value to go up, at which point they sell. Buy where are they moving to? Surely all the other homes in their area are appreciating at the same rate, so you end up in the same hole. Unless you move from, ie, Boston to Kansas.

I want to buy a house to live in, for an extended period of time, but I realistically cannot do so with the current prices, even though I make far more than the median household income.

[ Parent ]

I'm Calling Your Bluff (3.00 / 14) (#58)
by Peahippo on Wed Sep 08, 2004 at 12:28:01 AM EST

Good article, but... It's always speculation.

No, it's a mathematical fact that you cannot long have increasing prices in an environment of decreasing wages or jobs. And even with the cushioning, social fact that a person who insists his $100K home is worth $200K can sit on it for years without selling (as I'm seeing now in Toledo OH), the increasing pressures of property taxes (as you'll recall, corporations are now largely escaping those) will demand that the property owner decrease the price or assessed value. This can only be especially true once this bubble bursts, since too many people "bought" homes they can't afford to maintain, hence they won't be able to continue paying the increased property taxes.

Historically, real estate prices have always gone up.

That's true with everything that people continue to use ... and also with everything useful, the prices can adjust downward and sharply, especially as is utterly necessary after market speculators like you simply destroy all rationality.

I can only recall the market downtick that happened in Massachusetts in the early 1990s. Want to talk about something historical, eh? Just the home I was living in at the time in Brookline (as a renter) dropped from $577K to $393K in ONE YEAR. And that was just the one I remembered; Brookline's local paper advertised property values each year, and it was full of these steep price falls.

People are predicting a huge population growth over the next 20-30 years in the United States

Yeah, that includes the uncontrolled wave of illegal immigrants. They're bringing their own law. To hazard a guess, you're the wrong color to appeal to their south-of-the-border hues, so you're not going to last long being the Gringo landlord. Furthermore, increased population growth with continued wage drops still equals a poor rental population. True, they must rent; but false, since they will either bankrupt you or reject you for Latino landlords.

even if a few financial industry companies have issues

You're being too kind. Banks are now highly drunk on cheap loans. They are heading for their own crashes. At least, banks will layoff about 30K to 120K people to compensate.

To Sum Up {tm}: I've met people like you. You're a market speculator who fancies himself savvy, but you're just being setup to hold the (empty) bag once the real market manipulators have decided that the time is right to pull out their substantial holdings. I've watched people like you in Massachusetts crying in their beer after taking a serious soaking in the real estate market. You're not fooling anyone, Ace. All you're doing is trying to ride a wave until it crashes into the breakwall of Final Sensibility (i.e. Reality).

P.S. Good luck with your "rent late 1 day == eviction notice" bullshit. Boilerplate leases specify things like grace periods, late fees, and of course the landlord-tenant laws that vary from state to state that DICTATE how you can treat your tenant. But you knew that, right? I mean, you being such a savvy real-estate investor and all.

[ Parent ]
I answered some of this in editorial mode... (3.00 / 3) (#72)
by Jave27 on Wed Sep 08, 2004 at 09:36:25 AM EST

But, I don't know how to get to those comments, so I'll just repeat it here.

You make very valid points in regards to inflation, speculations, etc.  There very well may be a nation-wide bubble at some point, but I still contend that there will always be money to be made in this market.  If this "bubble" actually bursts, then there will be a huge recession that will cause world-wide issues in the financial markets.  Let's all hope that never happens.  Real estate inflation has gone up about 4% each year, which is pretty close to the regular inflation rate, so it's not completely out of control.  My method involves finding undervalued homes in comparison to the rest of the neighborhood, not picking a home at random and thinking it'll be worth twice as much 2 years down the road.

As far as being white, yes, I am, but my business partner/roommate is black, and that has already helped out in a few situations.  There are some tenants we have had that simply don't trust white people, so he's been the primary contact.  Other times, it's me.  It's sad that we have to play that game, but race is still sadly an issue for a lot of people.

For the late rent = eviction part, let me clarify.  This is the process in my state:

  • At some point after their rent is due and unpaid, you have to send them a 7 Day Notice (Let's assume the 2nd for now).  This notice informs the tenant that they have 7 days to pay up before you can file for an eviction trial.
  • After 7 days of sending notice, you are allowed to file the 7 Day Notice at the court along with a Summons and Complaint form (Now we're on the 8th, best case scenario).
  • Within 3-4 weeks, you will get a trial date set (Let's say the 30th for rough guessing).
  • Once you have the trial, the judge or magistrate will give the tenant at least 10 days to move out.  If they don't comply by that date, you can call someone who is licensed to go out there with a gun with you.  They can't help you move the person out, but they are there to make sure that you don't get hurt while you move them out yourself.  You have to pay for removing any junk that is left in the apartment, as well as any damage done to the apartment.  Granted, you can get a money judgement from the court for all damages done, but good luck getting that money back.  If it's at this point, you'll probably never see it again.

So, in the best case for a tenant that won't pay, you're looking at 45 days to get them out of your building so you can make repairs, clean it up, and get someone else in there.  The sooner you send that 7 Day Notice, the better off you are.

"Beating up the homeless. It's cruel, but it's a good clean work-out and leaves you feeling winded and superior." - CheeseburgerBrown
[ Parent ]

Gary North? (none / 1) (#164)
by cameldrv on Fri Sep 10, 2004 at 04:58:07 AM EST

Heh. This guy was the #1 Y2K doomsayer in the world, in addition to being a christian whacko and totally ignorant of economics. You might want to get a second opinion on that one.

[ Parent ]
Slaves to the wadge (2.62 / 8) (#10)
by tmenezes on Tue Sep 07, 2004 at 04:00:36 PM EST

I'm reading a lot about real estate investing and want to give it a try as soon as possible. All you have to have tos start is the the hability to get yourself in debt for one apartment. Some people may have problems with this but this is hardly upper-class stuff.

I'm amazed at the comments. Do you people really want to spend your life as corporate slaves? Well I don't. I want a lot less work, a lot more money and a lot more time for stuff that I enjoy, like working in software projects for pure fun and have nothing to do with all the boring stuff. If real estate investsing makes this all possible, why not? But I'm not convinced that it is as easy and talentless stuff as some of you people make it sound.

Ok, you may be ant-capitalist and I respect that. But in that case I must warn you that being a corporate slave will not help your cause.

When did you forget syntax? (3.00 / 4) (#26)
by sudog on Tue Sep 07, 2004 at 05:33:07 PM EST

Given the following:


... when did you suddenly forget how to spell and write standard English?

We are all corporate slaves--including the author of this story. What, you didn't know the banks you borrow money from are businesses trying to make money also?

Unless you can afford to be comfortable in the middle of nowhere, fighting your way through crappy homes, fixing them up, and trying to suck in the next basically gormless shmoe who believes your tripe is all you're doing.

[ Parent ]

syntax is hard for me (2.75 / 4) (#29)
by tmenezes on Tue Sep 07, 2004 at 05:37:53 PM EST

Because I'm portuguese. I can write fairly good english if I make an effort but not in an hasty comment. Look, I and many others make an effort to write/speak your language so please be more forgiving when we make mistakes. Not everybody here is anglo-saxonic you know? Estamos entendidos?

[ Parent ]
Calm down. (3.00 / 2) (#34)
by sudog on Tue Sep 07, 2004 at 05:51:34 PM EST

You just called us all corporate slaves, remember?

[ Parent ]
myself included[nt] (none / 1) (#65)
by tmenezes on Wed Sep 08, 2004 at 05:35:16 AM EST

[ Parent ]
Sorry--I get enough of this from infomercials.. (2.57 / 19) (#23)
by sudog on Tue Sep 07, 2004 at 05:22:57 PM EST

-1: I'm trying to save the rest of K5 from having to read regurgitated informercial in section or FP.

Sorry, but I have trouble voting up a story which sounds so much like i. spam I used to get, ii. late-night infomercials where they yell a lot about "no money down!", and iii. A plug for real-estate websites and programs.

In fact, there it is right there. You have a link to that obnoxious informercial bastard and you're shoving it in the reader's face halfway through the article, as though we don't get enough rammed down our gullets, trying to find cartoons when we're insomniac at 2:30 a.m.

Words like "spread" and "low-ball," euphemisms like "motivated seller," and phrases like "don't break any laws, but..." and "[h]owever, it is 100% legal in the U.S., assuming..." make me think of you as a cheap huckster who doesn't mind shamelessly profitting at all costs be it human, legal, or financial.

Take it to late-night and buy time for an infomercial so we don't have to be exposed to this kind of glossed-over sales pitch here.

uhm (3.00 / 3) (#24)
by thekubrix on Tue Sep 07, 2004 at 05:24:22 PM EST

hes not selling you a fucken thing, so whats wrong with it?

its free information....

[ Parent ]

Is it free information now? (3.00 / 3) (#27)
by sudog on Tue Sep 07, 2004 at 05:36:28 PM EST


I don't want to change K5 if it makes it look and sound so much like late-night infomercials it's impossible to tell them apart.

[ Parent ]

wtf? (none / 1) (#32)
by thekubrix on Tue Sep 07, 2004 at 05:46:58 PM EST

At what point did that linked comment have ANYTHING to do with the initial reply in this thread?

First off, even in that comment, I didn't suggest to trhurler to change K5, thats impossible, trust me. But to rather start his own site. Second, even to that, what does that have to do with this story? His article isn't an infomercial because HES NOT SELLING ANYTHING!!!! It doesn't even come across like that.

you know, forget it......

[ Parent ]

And you don't find his tone condescending? (3.00 / 5) (#35)
by sudog on Tue Sep 07, 2004 at 05:57:59 PM EST

Come on, gimme a break.

The fact that he's not selling something directly from the article does NOT imply that all is well.

In fact, if you read my comment again, I never once complained that he was actually selling something, you twit. His tone and content are similar to infomercials and real-estate hucksters and are thus unworthy.

So what, have all our discerning K5 readers gone the way of the dodo this afternoon? Am I alone here beating back the hordes who are incapable of a little simple exegesis?

[ Parent ]

Just offering up free information if you want it (3.00 / 3) (#25)
by Jave27 on Tue Sep 07, 2004 at 05:31:31 PM EST

If I were trying to sell something to you, then I'd agree with you 100%. However, since I'm just giving out information freely based on my experience in this industry, why get so upset? Sorry if you feel that I'm a "huckster". I'll try to work on my article writing skills for you in the future. The websites were simply links for more information, and I think I disclosed that in a fairly obvious manner.

"Beating up the homeless. It's cruel, but it's a good clean work-out and leaves you feeling winded and superior." - CheeseburgerBrown
[ Parent ]

Let me explain.. (3.00 / 7) (#33)
by sudog on Tue Sep 07, 2004 at 05:50:01 PM EST

I'll try to make it clear. You're advocating that people blatantly try to find ways around real estate law, try to find people willing to collaborate with them in a shady fashion, you advertise in a basically positive light obnoxious informercial personalities, and there is a general lack of professionalism in your techniques that is annoying to read and easy to find suspicious.

Your constant reassurances and general esteem-building tone is also insulting to anyone who detects it. After all, how can you possibly think that your audience--here of all places--is "scared" to buy real estate? ("Even though it's a scary thought..." you boldly assume.)

You really do sound like late-night infomercials, and the way you talk down to your audience makes me think you're just trying to polish your sales pitch, as though you're using us as a springboard to clean your act up and make your presentation more palatable to people who would otherwise see right through you.

[ Parent ]

Ok, I'll bite (3.00 / 2) (#41)
by Jave27 on Tue Sep 07, 2004 at 08:04:30 PM EST

How is doing things legally getting around real estate law when the laws are clearly established to allow people to make such transactions?

"Beating up the homeless. It's cruel, but it's a good clean work-out and leaves you feeling winded and superior." - CheeseburgerBrown
[ Parent ]

You're ignoring your own tone. (3.00 / 3) (#93)
by sudog on Wed Sep 08, 2004 at 01:05:38 PM EST

I find it interesting that you seem to be ignoring your own tone and my description of specific words and phrases that imply you are searching for ways to exploit existing laws and people that don't land you in jail.

Here's the most telling example:

"It's also good to have "flexible" appraisers who don't mind stretching values a bit to make deals happen. Don't break any laws, but..."

Come on. How criminal do you think your audience is? "Flexible appraisers"? "Stretching values"?

What kind of reputable real estate developer tycoon do you think you are? You're going to do this to someone who has more a handle on it than you, and he's going to nail you straight to the wall for it, dude. And your "flexible" appraisers will follow shortly.

[ Parent ]

haha, yeah, ok (3.00 / 4) (#101)
by Jave27 on Wed Sep 08, 2004 at 01:33:16 PM EST

Ya' got me on that one.  However, if you look at the appraisal business, it's all gambling and speculation anyway.  They look at your house, then they look up recent sales figures of similar houses around your area.  If they can't find anything that matches exactly to yours that's sold within the last 3 years, they make something up that they "think" is close to what your house should sell for.  Yeah, they have to go through training first...  (hint, the "training" is 2-3 weeks worth of courses and a week or two possibly training under someone else who does the same thing)  I don't want to discount the service that they provide, but it's always going to be speculation.  You'll have your liberal appraisers and your conservative ones as far as what they feel homes are worth.  I'm just suggesting that you find one that will work with you.  Sorry if that sounds shady or unprofessional.

"Beating up the homeless. It's cruel, but it's a good clean work-out and leaves you feeling winded and superior." - CheeseburgerBrown
[ Parent ]

Appraisers and the bubble (3.00 / 3) (#109)
by marinel on Wed Sep 08, 2004 at 04:13:38 PM EST

From my own experience in dealing with appraisers, juve27 is right. I also deplore the whole situation in which current appraisal methods are one of the main reasons we will always have real estate bubbles and busts. Think about how the appraisal process works:
  • 1. Find similar nearby homes sold recently.
  • 2. Adjust price of appraised home relative to above given real differences between properties.
  • 3. Adjust price relative to time frame of sold properties using govt published HPI.
Can you see the Ponzi scheme in point 3? If demand outstrips offer, inflation happens automatically, feeding itself along the way. In dense urban areas, booms and busts are inevitable due to this flawed process.

Last fall, even Case and Schiller declared that a bust is brewing. The only question is when and how bad will it be?
Proud supporter of Students for an Orwellian Society
[ Parent ]

go away (none / 1) (#191)
by NightEyez on Wed Sep 15, 2004 at 11:30:56 AM EST

It's people like you who will pay rent all their life and cut down anyone around them who are doing better than them. I'm sorry to tell you this, but dude you live in a capitalistic country and it's proper to get ahead, be greedy and use the loopholes to your advantage. That's why they exists! Hello, McFly?!? If you wish for a socialistic goverment then please go live in some over taxed European country. And take Michael Moore with you... please!!

[ Parent ]
I would bet (3.00 / 4) (#67)
by tmenezes on Wed Sep 08, 2004 at 06:19:29 AM EST

I would bet that more than 90% of the k5ers are afraid of buying real estate for investing. Myself included. This fear as nothing to do with culture or intelligence.

[ Parent ]
Sales pitch? (3.00 / 4) (#68)
by Pelorat on Wed Sep 08, 2004 at 08:12:46 AM EST

What is he selling to us and how is he getting a cut of it from us?

I guess I just didn't see the double secret probation fee imposing subliminal message hidden in every third character, or something. =P

[ Parent ]

What you gotta realize (3.00 / 7) (#71)
by smegma hauler on Wed Sep 08, 2004 at 09:34:42 AM EST

is you are dealing here on K5 with a bunch of dorks (synonymous with 'losers') who are desperately trying to not be losers.

Some become ultra-leftists and talk about sex a lot.

Some mention their girlfriends at every opportunity.

Some set up online communities where the rest can ply their trade, and get upset when their wife (hey, look who has a wife!) gets photoshopped.

Some troll.

Some present themselves as insightful, ballsy beat-the-system types as you've stated.  Actually the article struck me as something out of a movie where maybe Joe Pesci is saying these words to some ladies at the bar.  You, too, can make a fortune in real estate.

[ Parent ]

Haha awesome. :) Thanks for the comment. (n/t) (3.00 / 2) (#92)
by sudog on Wed Sep 08, 2004 at 01:00:09 PM EST

[ Parent ]
Perspective (3.00 / 2) (#56)
by Peahippo on Tue Sep 07, 2004 at 11:42:36 PM EST

You can't argue back to those fucking scumbag informercials. On K5, you can. And you think this is bad ... why, exactly?

[ Parent ]
+1, pro-capitalist (2.11 / 9) (#36)
by foon on Tue Sep 07, 2004 at 06:43:27 PM EST

Hopefully this will encourage some of the whiners on this site to stop whining about the lack of socialism in the USA, and start investing responsibly to better themselves and ultimately enrich everyone.

probably not (3.00 / 2) (#123)
by emmons on Wed Sep 08, 2004 at 08:38:58 PM EST

They'll just complain about how this guy is screwing the poor and not really earning his money. They somehow forget that before he started doing this work, he was poor.

In the beginning the universe was created. This has made a lot of people angry and been widely regarded as a bad move.
-Douglas Adams

[ Parent ]
All fine and well (2.88 / 9) (#37)
by balsamic vinigga on Tue Sep 07, 2004 at 07:03:11 PM EST

but in san francisco a condo will cost you half a mill and in the neighboring suburban counties the median price for a home is $550,000.  For us it's rent or relocate to a comparatively shitty location :(

Please help fund a Filipino Horror Movie. It's been in limbo since 2007 due to lack of funding. Please donate today!
Same here in NYC (3.00 / 3) (#97)
by CheezyDee on Wed Sep 08, 2004 at 01:18:34 PM EST

The average six family home in Queens will cost you close to $750K, but if you can scrounge/beg/borrow the down payment, you can squeeze at least $1200 to $2000 a month out of each apartment depending on location.

[ Parent ]
My parents house cost $100k (none / 1) (#122)
by emmons on Wed Sep 08, 2004 at 08:35:30 PM EST

2200 square feet, 4 beedrooms, two stories on its own lot with a decent yard. Quite comfortable (though not new) and in a nice neighborhood. It's in Wisconsin, though. I suppose there's something really great about SF that would make you want to pay $450k more?

In the beginning the universe was created. This has made a lot of people angry and been widely regarded as a bad move.
-Douglas Adams

[ Parent ]
SF (3.00 / 2) (#140)
by rusty on Thu Sep 09, 2004 at 11:07:12 AM EST

I suppose there's something really great about SF that would make you want to pay $450k more?

No, there really isn't. It's either a form of collective insanity or a severe lack of imagination that compels people to live there at all.

To be slightly fair, if you're living in the Bay area and even thinking about buying property there, you're certainly making more than someone living in Wisconsin. That $450k more is partly offset by higher average wages. But not entirely offset -- it's unlikely that just because you're living in SF you're making enough more to make the two properties equal in apparent cost.

Not the real rusty
[ Parent ]

well (3.00 / 2) (#143)
by balsamic vinigga on Thu Sep 09, 2004 at 12:43:46 PM EST

I think median income is like $40k so most people barely can pay rent.  The people that buy real estate in SF aren't doing it for the same reason people do it in wisconsin.  It's more of a long term investment type situation, which has caused an unreal number of vacancies because people need huge rents to relieve their mortgage payments.  In other words the rent prices are far higher in SF than they should be right now.  But I don't know what compels people to live in the bay area.  For many it's just what they know, and where everyone they know lives.  And to stick around is just the easiest thing despite the cost of living.  The Bay Area is also much better than LA if you want urban lifestyle in CA.

Please help fund a Filipino Horror Movie. It's been in limbo since 2007 due to lack of funding. Please donate today!
[ Parent ]
IIRC (none / 1) (#147)
by wiredog on Thu Sep 09, 2004 at 02:38:53 PM EST

You once called the Bay Area a "holier than thou fascist ghetto".

How're things doing on the island with the hurricane going overhead?

Wilford Brimley scares my chickens.
Phil the Canuck

[ Parent ]

CORRECTION: (none / 1) (#148)
by wiredog on Thu Sep 09, 2004 at 02:39:37 PM EST

"Trendier than thou..."

Wilford Brimley scares my chickens.
Phil the Canuck

[ Parent ]
We don't get proper hurricanes (none / 1) (#150)
by rusty on Thu Sep 09, 2004 at 03:21:07 PM EST

The remnants are going by, but it's just some rain. No wind or interesting bad weather, just gloomy and wet. I think it's extremely rare for an actual hurricane to make it up here, even if it travels up the coast.

And yeah, my comments on the Bay area were motivated by personal antipathy. :-)

Not the real rusty
[ Parent ]

just to give some numbers (none / 1) (#171)
by Delirium on Fri Sep 10, 2004 at 01:52:21 PM EST

According to Wikipedia articles, San Francisco's median household income is around 170% that of Milwaukee's, and its per capita income is around 205%.

It's hard to find good housing price figures to compare, but saying that SF's property values are around 250-350% of the national average seems to be reasonably in keeping with what Google has to say on the subject, and Milwaukee's values are around 70-90% of the national average, making SF about 300-400% more expensive than Milwaukee.

So, to give a very rough estimate, housing proportionally costs twice as much in SF as in Milwaukee, after taking into account income differences.

[ Parent ]

-1 (1.42 / 7) (#38)
by The Aggrandised Mu on Tue Sep 07, 2004 at 07:31:38 PM EST

Advice not sincere and from the lips of Donald Trump or Warren Buffet.

I think of people starving
But do you think I care
Let them all die hungry
So I can breathe their air.
I just figured... (none / 1) (#43)
by Jave27 on Tue Sep 07, 2004 at 08:14:37 PM EST

that I'd take their attitude early and pretend like money is a game. And, it is kinda. So, sorry if this sounds insincere. I'll work on my writing style, though.

"Beating up the homeless. It's cruel, but it's a good clean work-out and leaves you feeling winded and superior." - CheeseburgerBrown
[ Parent ]

+1sp (3.00 / 2) (#39)
by Violet Null on Tue Sep 07, 2004 at 07:50:47 PM EST

Interesting concept, but not very detailed at all. Kind of silly to say, "Well, here's some stuff about real estate, but if you actually care, you should go and buy some books..." Still, the queue's been kinda dry, so...

But I'm curious about the seed money. Capitalism being what it is, it seems obvious that if you have the money, you can do it, but where do you get the money in the first place? You mention buying your first house when you were 20, but where did that money come from -- or did a 20-yo college student get a 0% down mortgage?

A little less than 3% down initially. (none / 1) (#42)
by Jave27 on Tue Sep 07, 2004 at 08:11:26 PM EST

Using a combined MSHDA (Michigan State Housing Development Authority) /FHA (Federal Housing Authority) mortgage through Bank One. Just had to save up for a few months. 0% down loans are getting more and more common these days, though.

"Beating up the homeless. It's cruel, but it's a good clean work-out and leaves you feeling winded and superior." - CheeseburgerBrown
[ Parent ]

Thanks for driving up my rent (2.55 / 18) (#40)
by aristus on Tue Sep 07, 2004 at 08:03:27 PM EST

Wow! Here's a bunch of people trying to get by! Let's snap up the property, "rehab" it with a shrub or two, and raise the rent! Then let's evict those losers and get some good clean upscale folk so we don't get a late check.

You think maybe huh if there wasn't a layer of landlords flipping properties every two months we wouldn't have houses tripling in price all the time?

Is the next article going to be on how to convert a section 8 to a condo? Asshole.

??? "A man of imagination among scholars feels like a sodomite at a convention of proctologists." -- Paul West

Some houses REALLY need rehabbing... (3.00 / 3) (#45)
by Jave27 on Tue Sep 07, 2004 at 08:19:52 PM EST

I'm not disagreeing with you that the "flipping" game will artificially drive up prices, but if you've seen some of the shitholes that we've taken on, you'd understand that some properties are in desperate need of repair. I just looked at one today that had 4 pseudo-bedrooms, no finished bathrooms, and a kitchen whose appliances were rusted through and had no ceiling. The place is 100% unlivable until someone comes up and guts and rehabs it. Sadly, they're asking way too much for it to be worth doing right now, but eventually, someone will go for it.

"Beating up the homeless. It's cruel, but it's a good clean work-out and leaves you feeling winded and superior." - CheeseburgerBrown
[ Parent ]

Don't miss your payments and you won't get evicted (1.83 / 6) (#115)
by tzanger on Wed Sep 08, 2004 at 04:56:28 PM EST

Seems simple enough.

[ Parent ]
Thanks for that, Einstein. (2.00 / 5) (#117)
by Torka on Wed Sep 08, 2004 at 06:26:21 PM EST

You should travel to Africa as a motivational speaker.

"Eat food and you won't starve to death. Seems simple enough."

[ Parent ]

ditch the cell phone and broadband (3.00 / 2) (#121)
by emmons on Wed Sep 08, 2004 at 08:32:11 PM EST

I just saved you $80/month. That should make it easier to make your payments.

It's very possible to live quite cheaply in this country, the problem is that most people don't like it and get pretty whiny when they don't get everything they want. But it's okay, we all know that it's not your fault.

In the beginning the universe was created. This has made a lot of people angry and been widely regarded as a bad move.
-Douglas Adams

[ Parent ]

"This country"? <nt> (3.00 / 2) (#126)
by Torka on Wed Sep 08, 2004 at 09:14:02 PM EST

[ Parent ]
sorry, being too US-centric <nt> (3.00 / 2) (#127)
by emmons on Wed Sep 08, 2004 at 09:19:13 PM EST

In the beginning the universe was created. This has made a lot of people angry and been widely regarded as a bad move.
-Douglas Adams

[ Parent ]
reductio ad absurdam (2.40 / 5) (#129)
by tzanger on Wed Sep 08, 2004 at 10:32:20 PM EST

Nice 0, by the way.  

There's a world of difference between starving in Africa and not being able to make your rent payments because you're blowing it all on booze, smokes and lottery tickets.

[ Parent ]

End of contract vs keep paying (3.00 / 2) (#177)
by mavetju on Sat Sep 11, 2004 at 03:05:25 AM EST

Don't miss your payments and you won't get evicted

If the owner of the property decides that it's time to cash in, he will evict you by just terminating the contract (after the legal waiting period).

That was the last time I rented from a private person. Companies which build properties and rent them out are much more reliable for the longer term.

[ Parent ]

excellent point (none / 1) (#182)
by tzanger on Sun Sep 12, 2004 at 10:35:58 AM EST

I had not thought of that side of it.

[ Parent ]
Borderline slumlord tactics (3.00 / 15) (#46)
by metalfan on Tue Sep 07, 2004 at 08:21:30 PM EST

If their rent is due on the 1st and you don't get it, send them an eviction notice on the 2nd.

It's not reasonable to send an eviction notice for a payment a day late. As you mentioned, most places allow a short grace period. In my opinion, the reasonable action would be to send a polite reminder that the rent is due, and send the eviction notice only when you haven't received word at the end of the grace period. I'd rather have a good tenant who pays a day late than a bad one who pays on time, or no tenant at all.

Don't bend to their every whim.
If a tenant complains about the colour of his/her fridge, it's reasonable for the landlord to tell said tenant where to stick said fridge. If you try to charge the tenant for every little problem, I won't be surprised if you have a very high turnover rate. It's your responsibility as a landlord to provide a comfortable residence and the rent you charge is compensation for that responsibility. With your attitude, I pity the people who rent from you. As my mom always said, you catch more flies with honey than you do with vinegar.

Finally, my experience with tenants who live on some form of government assistance (and therefore are guaranteed to pay their rent) is that they really don't give a flying shit what happens to the property.

I say so because I've witnessed yards that were ignored and grew chin-high with weeds, houses abandoned and full of fleas, garages literally full of garbage, and the worst one of all, a kitchen gutted by a fire started by an uninvited drunken guest (who later passed out in the house) after the house was abandoned.

Luckily said guest narrowly escaped death by smoke inhalation thanks to the fire department.

There's also been some flap here lately from landlords who've stopped receiving rent cheques now that they are no longer sent directly to the landlord.

Honey/Vinegar (3.00 / 3) (#74)
by Jave27 on Wed Sep 08, 2004 at 09:40:48 AM EST

I agree that if you have a tenant that you truly believe will pay up, a friendly phone call can be better than a notice.  But, I outlined the eviction process in this thread and it's not pretty.  Just inform the tenants on the phone that you'll be sending a notice to protect yourself just in case they are unable to pay, not because you want to evict them.

"Beating up the homeless. It's cruel, but it's a good clean work-out and leaves you feeling winded and superior." - CheeseburgerBrown
[ Parent ]

+1 FP; Useful how-to guide for my future career. (3.00 / 2) (#47)
by Danzig on Tue Sep 07, 2004 at 08:22:02 PM EST

Thank you so much. I have been thinking about doing the same thing for my future career, because like yourself I think work sucks. Any suggestions for a single 20 year old male with $2000-$4000 saved up, with the possibility (likelihood) of earning more? How much startup capital would you suggest before attempting to buy the first house, if only one person will be involved?

You are not a fucking Fight Club quotation.
rmg for editor!
If you disagree, moderate, don't post.
Kill whitey.
-1 (2.60 / 5) (#73)
by GenerationY on Wed Sep 08, 2004 at 09:38:09 AM EST

Encourages you into gambling and deflecting you from what you should be doing.

At 20 with 4k in the bank you should be travelling the world mate :) You can have money whenever in life. Youth won't return again however.

[ Parent ]

Go for it (none / 1) (#75)
by Jave27 on Wed Sep 08, 2004 at 09:44:09 AM EST

Find an investors club in your area (that CREonline.com site is a good starting place), and choose which area of investing you want to get into.  Do you want to do development, rehabbing, multiple-unit buildings, single family rentals, commercial, etc.?  Read up on the different options and just pick one.  You might change your mind multiple times before finding something you enjoy, but you won't know until you try it.  The amount of startup capital is dependant on your chosen field, too.  Good luck!

"Beating up the homeless. It's cruel, but it's a good clean work-out and leaves you feeling winded and superior." - CheeseburgerBrown
[ Parent ]

Warning to all the new investors (2.73 / 15) (#51)
by Markusd on Tue Sep 07, 2004 at 09:26:04 PM EST

The author did a good job explaining all the positives of owning real estate but failed to mention the risks. Markets rise and markets fall. The (North American) real estate market has been hot for a while now and it may continue to rise, or prices may fall causing the value of your assets to depreciate. If your interest rate is tied to prime, there's also the risk that interest rates may rise. Although the bank rate is not expected to increase too much in the near future, there is a chance of it within the next 5 years. An increase of a few percentage points could greatly increase your monthly payments and cause you to have a negative net income.

Just some words of caution to those that think this is a risk free way of earning money. Make sure to do your research.

Beware the ARM. (3.00 / 5) (#53)
by Empedocles on Tue Sep 07, 2004 at 10:51:25 PM EST

The time to pay the piper may come sooner than you think.

And I think it's gonna be a long long time
'Till touch down brings me 'round again to find
I'm not the man they think I am at home

[ Parent ]
Ah, the good ol' ARM and a leg mortgage (3.00 / 2) (#134)
by nlscb on Thu Sep 09, 2004 at 12:27:56 AM EST

Just sign here, and if real interests rates go up, we own you forever.

Comment Search has returned - Like a beaten wife, I am pathetically grateful. - mr strange
[ Parent ]

It's good to have friends in finance (3.00 / 2) (#153)
by trog on Thu Sep 09, 2004 at 05:13:03 PM EST

So, I was hanging out with the CFO and controller of my last company at lunch about a year ago. They were discussing the rush of low interest refinancing around here (I live in the Bay Area). I was lamenting that even though I make a six-figure income, I cannot reasonably afford a house (I currently rent a townhouse in a very nice neighborhood. Two story, three bedroom, two bathroom, garage. Pets are cool. $1,100 per month. I'm not going anywhere anytime soon).

Anyways, Mr. CFO and Mr. Controller educated me on the impact varible rate or interest only morgages will have on property values in my area. Their prediction: once that 7 year period is up following the re-fi, and interest rates have began to creep up (as they are doing now), there will be a rush on bankruptcies and forclosures in the Bay Area. Property values will drop to more sane levels.

As for myself, I'm waiting and saving for my downpayment. I estimate 3-4 more years before the realities of a variable rate morgage sinks in to recent home buyers. 30 year fixed with 20% down may be old fashioned, but it makes the most sence if you're looking to buy a home you intend to live in for a long time. And if this doesn't happen, hell, I'll have enough to buy a home in another state.

[ Parent ]

Warning? No, "SCREAMING KLAXON"! (3.00 / 16) (#59)
by Peahippo on Wed Sep 08, 2004 at 12:36:04 AM EST

The US is mired in a housing bubble of enormous proportions. What the author of this article is proposing is only cashing in on the bubble.

Like any investment bubble (in reality, it's gambling) it must burst. If you (random reader) are the type of person to take advantage of that, then you're a fucking scumbag. But if you're a scumbag ... enjoy!, since the market for scumbags is still quite positive. However, I look forward to all the tears you'll shed like those I saw falling in Massachusetts in the early 1990s. When you confuse gambling for investment, you deserve to lose everything you own.

Prediction: The Great American Housing Crash will happen by 2008, and by 2012 so many houses will be in such states of disrepair by their uncaring owners (who will hold lots of defaulted property, but they aren't able to maintain them (hey, ain't buying on 100% credit a BITCH!?!?)) that homes being bulldozed will be a common sight around America's remaining cities. In fact, sometime after July 2nd, 2012, there will be an article on K5 (then known as www.Kuro5hin.com.dhs.gov, after the US Congress passes the EDIT (Eradicate Destructive Internet Thought) Act of 2009) on how to take advantage of the booming bulldozer market.

[ Parent ]
Hey... (3.00 / 3) (#108)
by Shajenko on Wed Sep 08, 2004 at 03:48:24 PM EST

Sounds like it'll be good to file this info away. After the bubble bursts, buying up real estate from desperate owners looking to sell could be quite profitable, if you can ride it out.

[ Parent ]
Yeah, sorry (3.00 / 2) (#76)
by Jave27 on Wed Sep 08, 2004 at 09:48:56 AM EST

I really tried to show this all in a positive light and completely left out the "you can lose your ass" part.  Truth is, you definitely can lose a lot, but if you do your research correctly and don't just jump into it, you can limit those losses to what you put into it.  The US has very strong bankruptcy laws so you won't end up in prison for going broke, but you might have a tough time obtaining credit again for a few years.  In my opinion, the rewards outweigh the risks, but yes, there are plenty of risks.  Just be careful, as you should be with any business venture.

"Beating up the homeless. It's cruel, but it's a good clean work-out and leaves you feeling winded and superior." - CheeseburgerBrown
[ Parent ]

Here, meet my dad. (2.85 / 14) (#54)
by mjfgates on Tue Sep 07, 2004 at 11:23:44 PM EST

He's been doing this for, ummm, eighteen years now. In some of his better years, he made almost half as much money with real estate as I made writing code. 'Course, he does also know how to put down a hardwood floor now.

The thing is, some small number of people manage to profit from the whole flipping/buying houses with no money/rehabbing properties thing. However, a much larger number of people either destroy their credit on the first or second deal, or struggle along for years making less than they would by getting a more normal job.

It's a whole lot like selling Amway. Right down to the couple dozen rich people at the top who actually haven't actually worked in the business itself for years, but instead go around giving motivational speeches and selling tapes on "HOW TO SELL MORE!!1!" You see, that's where the real profit comes from.

Not enough "meat" but... (none / 1) (#57)
by The Amazing Idiot on Wed Sep 08, 2004 at 12:11:53 AM EST

I like it. Some snub it as an infomertial, but I see no "pitches" or somesuch as other posters have said.

Personally, it looks like a really jaded 25 year old, but that's my opinion.

Oh, one last thing Jave27, check out HUD homes. Govt homes, usually trashy and really cheap. My parents picked up one for 20k, cleaned, added a wall (where one should have went), added a new sink, built a deck, and general flowers and stuff. Ended up selling for 82K. -5 or so % for listing, and made about 58K on it.

Govt drug bust homes, welfare homes, and other places found in "Sherrifs Auctions" are a great supply of fixer-uppers. Just make sure to fix ones up tht are in good locations anyways, course you know this.

Jaded? (none / 1) (#77)
by Jave27 on Wed Sep 08, 2004 at 09:50:48 AM EST

Yeah, we have bought foreclosed homes, and other places like you describe.  How do I seem jaded, though?

"Beating up the homeless. It's cruel, but it's a good clean work-out and leaves you feeling winded and superior." - CheeseburgerBrown
[ Parent ]

Well, jaded.. yeah (1.50 / 2) (#110)
by The Amazing Idiot on Wed Sep 08, 2004 at 04:28:02 PM EST

Jaded is experiencing 'things' and finding out how they really run. You learn to know what and who to expect, and how they'll mess it up.

Your way of talking about how to deal with tenants seems quite jaded in that you expect nothing from them.

Being jaded isnt bad.. It was just something that easily caught my eye. Im quite jaded too.

[ Parent ]

Absolutely (3.00 / 2) (#163)
by Hatamoto on Fri Sep 10, 2004 at 01:08:28 AM EST

I know a couple who were handy (he worked in construction), bought a crack house and 5 acres just outside of Moncton, NB for $15k. A years worth of work and its now valued at over $100k.

They'll never sell it of course... it's their baby now. It'd be like giving up a limb to them, but buying a property like that and financing contractors to do the work for you could yield some serious profits (assuming you get a good foreman and keep an eye on the contractors, of course!)

"Innocence is no defense." - Federal District Judge William H. Yohn (People v. Mumia Abu-Jamal)
[ Parent ]

Owning Other People's Homes Is Not So Great (2.80 / 5) (#63)
by freestylefiend on Wed Sep 08, 2004 at 03:12:30 AM EST

I don't subscribe to the conventional idea of property, but I have some objecions specific to property investment.

Here in the UK, house prices have been rising fast for a long time. I am told that prices are ceasing to rise, but I don't know what the future holds. Some people say that there just aren't enough houses or that people want to live alone and that this is the cause of the housing boom (that most have no stake in). However, I believe houses are overpriced because of high profile failures of pension schemes. Many people don't know how else to prepare for retirement, so they invest in housing. Some probably have unrealistically expectations about what they can earn, but I think that many would take any return at all. I wouldn't want to borrow to be a British landlord right now.

Also, there is real work to be done. If you suceed in commanding enough rent from multiple properties, then society has lost (unless you plan to do volunteer work) the work and expertise that the rest of us have no choice but to offer. If you have earned the money to invest, then perhaps you deserve the rewards. If you have borrowed the money, then the real winner is the lender. If you were born into money, then you are ensuring that other people do the real work.

Finally, there are not enough houses for everyone to become a landlord. It is a higher priority for me that people own their own houses. Fewer people can do that if we all try to own their houses too. I want to own one house, but the prices must fall before I buy.

I think (3.00 / 3) (#66)
by GenerationY on Wed Sep 08, 2004 at 05:43:16 AM EST

the real culprit is low interest rates, but this has to lead to buy-to-let madness. Certainly if you are in the market to rent right now the market is saturated and rents, whilst increasing, are doing so quite slowly.

But I feel as you do, the only way I'll own a house now is if theres a crash or I win the lottery. It would take me more than a decade to save up a sufficient deposit and that assumes the market stays still (nb. relatively high amounts of deposit are becoming required as compared with the US. This is because you need a x5 or x6 mortgage to get anything).

The only people I know under the age of 30 with property did it through their parent's largesse and help with security. The rest of us will be 40 until we can even buy. If it all. Who wants to give a 40 year old a 40 year mortgage? Its very depressing.

[ Parent ]

Huh (3.00 / 4) (#80)
by jmzero on Wed Sep 08, 2004 at 10:29:14 AM EST

Here in Canada housing works a little different, apparently.  I'm 27, and bought a house for around double my yearly income - it took a year or so to save up a good down payment.  It's mostly paid off now.  It's not huge or anything - but it's fine.
"Let's not stir that bag of worms." - my lovely wife
[ Parent ]
Average house price in the UK (3.00 / 6) (#82)
by GenerationY on Wed Sep 08, 2004 at 10:58:09 AM EST

is 158 thousand pounds (281k USD, 363k CD).
The thing is thats not the median figure and there isn't a whole lot around below that. More problematic is that there is hardly any housing stock available now. You might buy a house that is worth less than 100k, but your chances of actually finding one are very low indeed.

The average deposit for first time buyers is approximately 20k pounds (er so thats 50kish Canadian?) with a third of all buyers putting down more than 30k (the analysis of this is that its their parents releasing equity, the days of saving up yourself have gone).

I'm 28 and depressed as hell about it to be quite honest with you. I'm either going to have to get married to someone with a better income than my own, win money by chance or thats my lot. I don't have a particularly great paying job (I'm not a lawyer or surgeon or anything) but I do have a "respectable" full-time professional job.

It could be worse because the current generation of recent graduates have large loan repayments to make at worse.

How difficult would it be for someone with a PhD to emmigrate to Canada? I'm really beginning to wonder about emmigrating at this stage.

[ Parent ]

Sorry, context (3.00 / 5) (#84)
by GenerationY on Wed Sep 08, 2004 at 11:11:09 AM EST

average income is 26k. So the average family have to take out a x6 mortgage to buy the average house. Basically an entire generation has been priced out of market altogether.

[ Parent ]
This x6 thing... (3.00 / 2) (#99)
by Jave27 on Wed Sep 08, 2004 at 01:23:36 PM EST

I've seen it mentioned a few times, and I'm being too lazy to google it..  Care to give a brief description?

"Beating up the homeless. It's cruel, but it's a good clean work-out and leaves you feeling winded and superior." - CheeseburgerBrown
[ Parent ]

Six times your annual income (3.00 / 7) (#104)
by GenerationY on Wed Sep 08, 2004 at 02:05:27 PM EST

Its a tricky situation because the market means that people are having to look at borrowing that much. It is of course going to cause tears before bedtime if the interest rate moves up. Its exactly what happened the last time the market crashed; a run of very low inflation rates and then slam.

The Government have apparently warned the mortgage lenders not to let people expose themselves that much and are mulling regulatory action (to protect the economy and also because the last crash had a number of unfortunate social consequences).

OTOH, how are we supposed to get a foot on the ladder? Its all very vexing.

[ Parent ]

What exactly happened last time? (3.00 / 2) (#107)
by nlscb on Wed Sep 08, 2004 at 03:01:11 PM EST

I knew someone who owned a flat on A something or another highway leading out of London back in 1997 who stll had negative equity after buying in the 80s. I heard that there was some weird legislation passed that helped pour gasoline on the fire. I remember seeing stories from UKia in the early 90s about hundreds of thousands having negative equity. Anything else particularly nasty happen? Broken homes? Homeless children ala Oliver Twist? I love the gory details.

Comment Search has returned - Like a beaten wife, I am pathetically grateful. - mr strange
[ Parent ]

Well (3.00 / 5) (#114)
by GenerationY on Wed Sep 08, 2004 at 04:46:38 PM EST

I wasn't too old at the time but here is what I think is supposed to have happened.

Basically in the 1980s there was a huge boom. You are were basically considered an idiot (irresponsible even) if you werent throwing all your money into bricks and mortar. Partly this is because prior to the Tories coming to power mortgaging had been very highly regulated with lenders only able to give out quota of loans (you had to queue and back then it was important to have a long term relationship with a lender so they would dein to give you a motgage when your time came). Lenders were also constrained as to how much they could fork over and usually expected a reasonable deposit. In short, prudent/crazily restrictive depending on how you see it.

With deregulation and Thatcher selling the social housing stock (people had the right to buy council houses from local authorities) the floodgates opened. Simultaneous to this the Tories also cut taxes and also reduced stamp duty (tax on property purchases basically, 1% lower band, 3% if the house > 250k atm). At the same time everyone who wasn't feverishly buying started getting loans against their equity and spending. In retrospect this was being on the deck of the Titanic and thinking "wow that iceberg looks neat. hope we pass by close enought to have a really good look at it."

I'm sure it wasnt that clear at the time but at least as I paint it you can see what was going to come next.

Basically what hit was soaring inflation Government's last ditch attempt at correcting it was to ramp up interest rates (it was very cruel because the boom hit is peak in 1989 because people thought interest rates were coming down). They were basically doubled (you can see what happened very clearly in this figure) Long story short: recession, unemployment, foreclosure, bankruptcy, doom and gloom. The market started to contract and lenders (fingers badly burned) started being awkward about giving out mortgages. The cycle that had caused overheating lead to a sort of freezing instead. 1.5 million people had negative equity (worse, they couldn't even find buyers for their properties at a loss so they couldn't even cut and run and take the hit as a debt) which is I guess the financial equivalent of being told you have a terminal illness.

This time round people have "better" mortgages (fixed rate/flexible/insurance and what have you that buffer them from short term changes) and the institutions claim they have learned their lesson.  Still, people are borrowing more to buy houses and the level of consumer borrowing is collossal. Theres also the same sort recklessness in the air amongst people who think that they are richer because the value of their house is going up (not entirely true is it because your next house is similarly overpriced etc.)

I don't really know enough about economics to speculate further but it doesn't look sustainable really. Then again, perhaps this time it will be OK and I'm losing money every second I wait (what people used to say in 1988).

[ Parent ]

And thus we are deceived (3.00 / 3) (#156)
by samjam on Thu Sep 09, 2004 at 06:07:38 PM EST

Not by the previous poster but by low interest rates. Interest rates are low, we have to borrow more and end up paying the same (all our spare cash) to buy our houses only THIS TIME we don't get back anything on our savings or pension investments cos interest rates are so LOW. I'm putting every spare penny into paying of my mortgage ASAP. Sam

[ Parent ]
Wow... (none / 1) (#112)
by Jave27 on Wed Sep 08, 2004 at 04:39:47 PM EST

That's a bit of leverage...  How can you even afford to make payments on a beast like that?  That would make your house payment your only expense.  Yeah, I wouldn't recommend that much leverage just to avoid renting unless the rents in the area costs as much as the mortgage, and in that case, there are probably bigger problems...  

Just ouch...

"Beating up the homeless. It's cruel, but it's a good clean work-out and leaves you feeling winded and superior." - CheeseburgerBrown
[ Parent ]

it could be worse (3.00 / 4) (#128)
by m a r c on Wed Sep 08, 2004 at 10:22:19 PM EST

In Australia the average house price is now ten times the average income. In Sydney the house prices have almost doubled over the last 5 years...
I got a dog and named him "Stay". Now, I go "Come here, Stay!". After a while, the dog went insane and wouldn't move at all.
[ Parent ]
Good lord (none / 1) (#136)
by GenerationY on Thu Sep 09, 2004 at 05:12:15 AM EST

that really is terrible. That said, I'm finding it slightly hard to understand why; Sydney I can appreciate, its probably like London, but as for overall average prices, Australia is not exactly overpopulated is it? Surely people can buy land and build?

Is there something more complex going on than just supply/demand economics I wonder?

[ Parent ]

Technically, yes. (none / 1) (#138)
by Zerotime on Thu Sep 09, 2004 at 06:47:41 AM EST

Assuming there's land to buy, you're generally looking at a couple of hundred grand for half an acre or so a couple of hours away from the capital cities, and even then you've got to build a house on it. I was looking at inner-city apartments on my side of the country (Perth, on the opposite coast to Sydney) recently, and even those are a hundred grand plus for 1x1 breadboxes.

The inflation problem doesn't seem to be so much supply and demand as pure capitalistic greed, though the problem is much worse in the eastern states than it is here.

<small>(keeping in mind that this is what I know from my parents' property developments and the occasional lifestyle show on tee-vee.)</small>

"You don't even have to drink it. You just rub it on your hips and it eats its way through to your liver."
[ Parent ]

Don't Dispair GenY - USia and CANia to the rescue! (3.00 / 3) (#85)
by nlscb on Wed Sep 08, 2004 at 11:16:54 AM EST

Bring us your tired, your overeducated. Your huddled white collar workers yearning to breath free.

Don't just consider Canada. While it's a great place and real estate even in Toronto isn't that bad, the job market leaves much to be desired. Assuming you have a PhD in something math/science heavy, try America. It's harder to get into than Canada, but worth the effort. You're UKian and probably white, so you won't have too much trouble getting a work permit sponsorhsup through an employer with that combination. Just avoid the high priced areas of America (Boston, NY, DC, Cali are NO-NOs) - but everywhere else is cool. Try the South, especially North Carolina, North Florida, and Texas. Once you get your greencard, they'll be plenty of cheap real estate to look into.

Comment Search has returned - Like a beaten wife, I am pathetically grateful. - mr strange
[ Parent ]

Food for thought (3.00 / 4) (#88)
by GenerationY on Wed Sep 08, 2004 at 11:59:42 AM EST

it may seem like an over-reaction ("right, I'm leaving! you can all go to hell!") but the thing is if I'm paying rent for evermore in a sense its like a lifetime reduction in pay by a half or a third given that its dead money. So it is a very serious issue for people like me. Also I have aspirations to one day being self employed in consultancy in my field (just need to drag my carcass through approximately five more years of experience). Having no property is going to seriously impede my ability to secure loans and so on.

[ Parent ]
Fish and Chips are better in CANia than USia (none / 1) (#149)
by nlscb on Thu Sep 09, 2004 at 03:13:00 PM EST

Just thought you'd like to know if it's important to you. A stunning array of European products are more easily available in Canada.

Comment Search has returned - Like a beaten wife, I am pathetically grateful. - mr strange
[ Parent ]

LOL (3.00 / 2) (#173)
by GenerationY on Fri Sep 10, 2004 at 02:28:02 PM EST

That is indeed quite important. Can't trust the yanks to lay these things on...after all, look what they did with all that lovely, lovely tea. Sniff, sniff.

[ Parent ]
LOL (3.00 / 5) (#89)
by jmzero on Wed Sep 08, 2004 at 12:29:10 PM EST

I lived in England for a while (Bristol, Cheltenham - all over the SW).  It's sad to think what my employer was probably paying for rent on some of the crudholes I lived in.

If you're wondering, my modest Edmonton house was $140,000 CDN.  The lot is a little small, but it has a two-car garage and a little outdoor hot-tub.  Built in 1983 - which is a fairly old house for my area.  I bought a couple years ago, and prices have gone up a good bit since then - but not all that much.

And sure it's colder here, but it's a dry cold.  

Come on over...
"Let's not stir that bag of worms." - my lovely wife
[ Parent ]

Lucky Duck (3.00 / 2) (#105)
by nlscb on Wed Sep 08, 2004 at 02:30:55 PM EST

You probably live in one of those nice CanuckIAN neighborhoods too, where you can actually walk to a store, park you car if don't feel like walking, have services like police, road work/clearing, and sanitation that actually work, not get shot at, while commuting less than 30 minutes one way to work - all for C$140,000/US$100,000.

I'm going to go fill up the bathroom sink, dunk my head, and scream obscenities until I lose my voice.

Comment Search has returned - Like a beaten wife, I am pathetically grateful. - mr strange
[ Parent ]

Indeed (3.00 / 2) (#113)
by jmzero on Wed Sep 08, 2004 at 04:41:28 PM EST

My commute is 8 minutes.  The convenience store is about a block away, and the elementary school/park is about a block the other way.  The nearest grocery store/shopping area is a drive most days (especially in winter), but it's a quick one.

My setup is pretty good, but not extraordinary for Edmonton - although you'll have a somewhat longer commute (40 minutes or so) if you work in the downtown core like my wife does.  Edmonton is a well thought-out city (unlike Calgary to the south, or pretty much anywhere else I've been) - though it's definitely built around the concept of everyone having a car.  

I'm going to go fill up the bathroom sink, dunk my head, and scream obscenities until I lose my voice.

Well, do keep in mind that it gets terribly cold here - there's lots of months that are -20 (Celsius), and -30 isn't rare.  Still, I think I got colder in England than I ever get here - it's a dry cold.
"Let's not stir that bag of worms." - my lovely wife
[ Parent ]

Edmonton traffic lights (none / 1) (#125)
by metalfan on Wed Sep 08, 2004 at 08:46:50 PM EST

Are the Edmonton traffic lights all on timers (rather than sensors), like Calgary's lights?

DAG NAMMIT driving through downtown Calgary at rush hour is a pain in the ass.  Move 10 feet, slam on brakes.  Repeat 50 times per block.  Dog help you if you need to change lanes in that mess.e a car to drive anywhere if I did, mind you.)

I'm not sure what's worse, the above routine, or waiting five minutes for the light to change when there are no cars or pedestrians in sight.

I guess I'm just spoiled from living in BC where the traffic lights actually make sense.  Most of the time.

[ Parent ]

Timers would be better but.... (2.00 / 3) (#159)
by The Amazing Idiot on Thu Sep 09, 2004 at 09:06:37 PM EST

Traffic engineers are just like network engineers on big networks. You have to take load in to consideration what type of "stop" deserves what kind of signalling mechanism.

If where you describe used a per-hour pre-computed timer lists based on average traffic through, you could make it so many, many cars would get through with few stops... perhaps none at all. You could have it this sort of way:

a = b = c = d
|   |   |   |
e = f = g = h
|   |   |   |
i = j = k = l

Say the space between each letter is 1 mile (just for numbers sake). If you want people to take the road at 30-35 miles per hour, you have them take 2 minutes per letter. To create a nice, flowing traffic condition, you could remove the connecting streets (or better yet, drastically reduce spells) between B-F-J and C-G-K. If you have a wheel structure, those do tend to flow much quicker.

A structure I could see viable is A-E-F-G-H-D-C-B-A and E-F-G-H-L-K-J-I-E.

Ill quit rambling now ;P

[ Parent ]

You lost me (none / 0) (#160)
by metalfan on Thu Sep 09, 2004 at 10:03:28 PM EST

at "take load into consideration"

All I know is that traffic flow was extraordinarily smoother in BC than in Alberta.

That doesn't count the highways, though.  Highway traffic is a lot smoother when there are no hills, curves, or obstacles of any other sort to deal with.  But DAMN are those highways ever boring!

[ Parent ]

Expand on this, and +1FP (none / 1) (#174)
by nlscb on Fri Sep 10, 2004 at 02:44:40 PM EST

Sounds like you know a lot about civil engineering. If you expanded on this more, maybe with some political/historical contest, I will definitely give you a big shiny +1FP.

Comment Search has returned - Like a beaten wife, I am pathetically grateful. - mr strange
[ Parent ]

Thanks much for compliment ;) (1.50 / 2) (#185)
by The Amazing Idiot on Mon Sep 13, 2004 at 12:41:28 AM EST

---Sounds like you know a lot about civil engineering. If you expanded on this more, maybe with some political/historical contest, I will definitely give you a big shiny +1FP.

Thankya much for the compliment, but I'm applying more of network topology, basic human interactions, and common sense to the problem (get people from a to b as fast/safe as possible).

I've personally seen the circular lights and also have seen certain cities with one-way streets as follows. Blooington, IN does as such. It's the home of Indiana University.

Ive also seen other cities designed with more modern ideas implemented (columbus, IN, USA). Both roads going in and out (2'nd street in, 3'rd street out) use a speed-tailored timed approach, with lights synchronised when the car-sensor plates are triggered. When you hit the 3'rd light, there's only 1 block to the 4'th light. When a certain amount of time passes for 3'rd waiters, the signal changes and allows 3'rd signal AND 4'th signal waiters to go.

I just have a tendancy to pay close attenion to details.. Of course, waiting at stoplights also encourages curiousity ;)

[ Parent ]

Well, insulation and good construction helps ;) (none / 1) (#133)
by nlscb on Thu Sep 09, 2004 at 12:07:11 AM EST

Those 500 yr old english homes are charming, unless nice long hot showers and the inside of your house being warmer than the outside is important to you.

Yeah, I went to university in Ontario (why? you ask - well, it was cheaper and I could drink - I was 19, it was a very pursuasive argument). It's interesting. If it is above freezing, I think of the weather in Fahrenheit. If it's below, I think in Celsius. Canada would be paradise if it wasn't for the weather. But then again, 40 below keeps the riff raff out. Anyway, enjoy your home with a nice tasty Big Rock Grasshoper, eh!

Comment Search has returned - Like a beaten wife, I am pathetically grateful. - mr strange
[ Parent ]

UK housing prices (3.00 / 6) (#100)
by will payne on Wed Sep 08, 2004 at 01:25:56 PM EST

Ok: I should issue a warning before I start ... more bitterness from the UK housing market about to spew into international awareness. :-) I am 24 - I earn approx 22k as a staff scientist / programmer / all-rounder in the field of machine and human vision. It's not a bad salary - maybe slightly less than some of my contemporaries, but not drastically so. (And considerably better than the random temp-agency jobs I have had before now, which pay around 10-12k max). The maximum I can borrow on 22k is generally about the 3.5x salary multiple, which is about 77k sterling. There are 11 houses (not flats) below 105k in the whole of Kent at the moment. (That is 11 houses in an area that contains approx 1.4 million inhabitants - most of these are a bit grubby, and in less-than-desirable areas such as sheppey: ( http://www.sheppeyscum.com/ ) Seems a little unreasonable to mee.... Ok. enough spleen.

[ Parent ]
The bubble is slowly growing here too (none / 1) (#152)
by MSBob on Thu Sep 09, 2004 at 03:45:12 PM EST

I'm in Canada as well. Ontario, BC and Alberta have seen double digit house price hikes in the last few years. No doubt spurred by unacceptably low interest rates. Heck, even where I live (New Brunswick) there is a bit of a housing "boom" in the more vibrant parts of the province. It's hard to buy anything half decent near Moncton for less than $160,000 which used to be the top end of the market here just a few years ago.
I don't mind paying taxes, they buy me civilization.

[ Parent ]
Wow. (none / 0) (#194)
by harik on Thu Sep 16, 2004 at 02:03:13 PM EST

I own my own home, fixed rate mortage for 30 years. It's in a developing area, so appreciation in it is real as opposed to speculation. The entire area is growing, so what used to be farmland is becoming suburbs. It's really not that hard to do, and I did it on a 45k salary. When people talk "housing market crash" they're looking at places with insupportibly high prices. (Bay area, I mean you.) Talk to a housing insurance company, they know EXACTLY how much it takes to build a house, and THAT price will be unlikely to crash. When the going prices begin to be 2-3x what it would take to build the house, you know you've got serious bubble action going on.

Plus, a 20k appreciation on a 150k house is worth more then 20k on a 750. If you're going to invest, do it in areas where the values are real and there's diversity in income sources.

[ Parent ]

Not everyone should own a home (3.00 / 4) (#81)
by NoBeardPete on Wed Sep 08, 2004 at 10:32:29 AM EST

If you live near a university, say, there are probably a lot of students that form small groups to rent houses. These students have no intrest in purchasing a house - they just want somewhere to live for a year, maybe two. There's a decent sized chunk of the US population that is currently living somewhere, but doesn't plan on staying there long. Most of these people would rather rent.

Given that they are renting, someone needs to rent to them. This someone is going to need to find tenants. Tenants need to find this someone. By advertising that he has property for sale, the landlord is performing a service to society. The landlord also needs to perform repairs, do basic maintainance, and generally ends up assuming most of the risk involved in this sort of thing. This is the ideal case anyway. A good landlord does contribute to society just as much as most jobs allow people to contribute.

Arrr, it be the infamous pirate, No Beard Pete!
[ Parent ]

OK (2.00 / 2) (#183)
by freestylefiend on Sun Sep 12, 2004 at 12:39:08 PM EST

"Not everyone should own a home"

OK. I was probably wrong about that, but it worries me that some should find it easier to buy rental properties than others find buying their own homes on a basis other than merit.

"A good landlord does contribute to society just as much as most jobs allow people to contribute."

If maintainance gets done because someone if paid to coordinate it, then that is fair. I disapprove of landlords receiving rent because they own the property, rather than a wage because they manage the property.

[ Parent ]

Want some Webvan warrants or Flooz? (3.00 / 4) (#70)
by duffbeer703 on Wed Sep 08, 2004 at 09:33:56 AM EST

You've bought into the bubble. I hate to burst your it, but most of your success is based on two things:

1. The nearly 10-year appreciation of real property values in most US markets.

2. The outrageously easy access to capital during that period.

Do not assume that either condition will continue forever. If you are buying houses with money obtained by fast & loose banks that the writing 100% LTPRV (Loan to Post-Repair Value) mortgages, you are going to have a rude awakening when these banks start having financial problems and call your loans in.

You also mentioned renting to tenants using Section 8 (or similar programs) vouchers, but failed to mention ANY of the caveats of accepting tenants using those programs. That's kinda scary too.

Real Estate is a highly cyclical beast that requires capital reserves to survive. If you are more than 80-85% leverages, you need to address that asap.

Bubbles do burst, I've seen it... (3.00 / 2) (#87)
by claes on Wed Sep 08, 2004 at 11:39:35 AM EST

I lived in new england during the 80s. We rented, but I know a lot of people who lost many tens of thousands of dollars on brand new housing. Seems impossible, but it did happen.

That being said, demographics point to housing value going up in nice city neighborhoods for a long time. The boomers are coming back to roost, and bringing their wallets with them. Too bad for those who can't keep up with the prices.

-- claes

[ Parent ]

Exactly (3.00 / 2) (#96)
by duffbeer703 on Wed Sep 08, 2004 at 01:14:51 PM EST

But "nice city neighborhoods" aren't where you buy run down multi-family houses and rent to low income tenants.

And even if they were, boomers are not going to be moving into "fixed up" three families owned by "investors".

Most real estate is way overpriced now. The only good values out there are run down single-family homes with excellent locations in smaller markets. (ie, not NYC, Boston, Bay Area)

[ Parent ]

wrong about section 8 (none / 0) (#190)
by NightEyez on Wed Sep 15, 2004 at 10:56:59 AM EST

Section 8 has many rules for it's tenants. If you screw up and trash an apartment you go to the back of the line and have to wait a long time before your number comes up again for section 8 housing subsidy. My experience is this rule alone keeps tenants in line.

[ Parent ]
Owning your house in Germany (3.00 / 3) (#78)
by schrotie on Wed Sep 08, 2004 at 09:53:20 AM EST

The market for one unit houses in Germany is a sure bet to loose your money. In Germany building ones own house is a must do for any man in a social position to inhabit a one unit house - along with planting a tree and having a child. It's a cultural thing. Thus the market is pretty saturated, selling houses is possible but not terribly profitable. Also there is a whole generation inhabiting one unit houses on the verge of dying - and German houses last long. A substantial drop of the market in the next decade is anticipated for that reason.

Profitable real estate investment in Germany is in condos and commercial buildings. Due to the nature of such investments you have to invest a lot of money into those though. And you have the risks. The article notes the possibility of vacancy. That means if you misjudge the market you are screwed. It fails to mention that you are also screwed if you misjudge your contractors (if you do not have substantial money reserves a bankrupt plumber can flush you out of business) or other factors. The local government decided to build a bypass route next to your rehab project? Goodbye. The rehab turned out to be older than you thought and thus has memorial status? Tough luck. Fungi are eating away the truss? Business can be cruel.

People are not stupid. At least enough people are not stupid to make money making schemes useless in the long run. Sure avenues of profit are well traficked which limits the revenue. The only way around this is being very good at what you do or being very original and very lucky, or taking big risks. If you sympathize will real estate investment go buy some closed investment fund. They have very atractive interest rates and reasonable risk levels.

Housing bubble in America and zoning (3.00 / 3) (#83)
by nlscb on Wed Sep 08, 2004 at 10:58:19 AM EST

Several people before me have addressed the problems of low interest rates in feeding the housing boom better than I could, so I won't get into that. However, no one has mentioned the zoning laws in certain USian (and I suspect UKian) jurisdictions that help fuel the problem by artificially restricting increases in the housing stock. While US housing is getting pricier, it is still concentrated in a few metro ares (NY, California, South FL, DC, Boston, etc...). This is caused by the triple whammie of zoning against transportation improvements, flexible real estate use, and school districting.

I'm DCian, and probably we are the worst example of this - thanks to having the highest concentration of lawyers on the planet. DC is blessed with a wonderful subway - and nothing else transportation wise. We hav the third worst traffic in the country, after LA and SF. People from LA often complain about the traffic here - when people from LA feel entitled to complain, you know you have a problem. Because of NIMBY, nothing can be built to improve the situation - and I mean nothing. The liberal, gronala eating, $40,000 Volvo driving hippie borgouis bohemian lawyers say highways can't be built because they "ruin the environment" - as opposed to the clean air we all enjoy by 1 million cars sitting in traffic for 4 hours straight. The Neo Con racist fascists Hummer driving lawyers say that only highways make sense, and they'll be damned making it any easier for people from the inner city (blacks and latinos) from getting to their houses to clean the windows and mow their lawns. So, nothing gets done. In order to get anywhere, you have to live in a few areas, or you'll spend the rest of your life sitting in traffic -> increased housing prices.

Next, we come to bullshit construction zoning laws, or DCians like to call them "Smart Growth" laws. There is nothing smart about smart growth laws. The whole "high density" housing thing is a crock. They just become more unafordable condos. Basically, all new construction of affordable housing is prohibited. Naturally, this gives current owners a monopoly on housing, so they can charge more.

Finally, schooling. If you want your kid to learn how to read around here, you send him to basically one of five public schools or pay for private education. So, if you don't want to pay, you have to live in the school district. Since parents don't want to pay for other kids education, the current property owners zone the neighborhood to prohibit. For example, in the DCian suburb of Fairfax county they tried to make it illegal to sleep in anyplace don't designated a bedroom in order to beat up on poor people who dared tried to give their kids a better future.

The net effect of this is that increasing the usable housing stock around DC has been made a criminal offense. Someone is making with a bundle, while the rest of us get screwed.

Comment Search has returned - Like a beaten wife, I am pathetically grateful. - mr strange

Is rent really "money down the toilet"? (2.66 / 3) (#90)
by nlscb on Wed Sep 08, 2004 at 12:37:05 PM EST

If one were to look at housing as a service - the service of maintaining a roof over one's head - is rent really that bad? Few if any of us will ever buy a house in cash. We will have to take on debt. If one looks at the full costs of financing that debt over a lifetime, is renting the entire time really that bad? Divide $600,000 present value of payments over 60 yrs x 12 months = $833 a month. Any personal rental where I live is $1000 a month. There is savings, but it's not that great. Now, studies usually show that you will come out ahead by buying, but I don't think it's buy the large margins this article implies. As well, in certain areas, this gap is clearly narrowing as rental prices remain stagnant while residential housing prices continue to climb.

Comment Search has returned - Like a beaten wife, I am pathetically grateful. - mr strange

Yes. (2.50 / 2) (#91)
by Violet Null on Wed Sep 08, 2004 at 12:53:58 PM EST

Rent is really money down the toilet -- you spend it, you never see it again. Still, that doesn't make it a bad choice.

If you're not planning on living there more than 2 years, renting is smarter. The closing costs for buying and selling, the property taxes, and the commision you'll pay the agent will likely be more than the appreciation in your house, ergo, you lose money. Also, in a good market, you can make more money by investing in, eg, small cap stocks than your house would appreciate on its own. Finally, the article's really about making money acting as a landlord, not just owning your own place.

Between 2-5 years, it can go either way. Over 5 years, if you're planning on staying for awhile, owning has the distinct advantages of a) you get your principal + appreciation when you sell, and b) you pay no taxes on your mortgage interest. That is, $1000 rent is just $1000 rent, but $1000 mortgage can be, eg, $100 you'll see again when you sell, and $300 off your tax bill.

[ Parent ]
What if you can't sell at the price you paid? (2.66 / 3) (#95)
by nlscb on Wed Sep 08, 2004 at 01:13:55 PM EST

For example, if the local market tanks and you have to leave, was it still worth buying it even though you lost money? Is there anyway to factor in this risk?

Comment Search has returned - Like a beaten wife, I am pathetically grateful. - mr strange
[ Parent ]

Probably. (none / 1) (#106)
by Violet Null on Wed Sep 08, 2004 at 02:42:56 PM EST

If you lose money, it's not worth it. Obviously. (Though you could always default on the mortgage if things got really nasty -- then, ruined credit aside, you'd still be up from the mortgage interest tax break).

As to factoring in the risk: Hey, if I knew, I'd be rolling around in my bed of money, not posting on k5. All I can say is that home prices traditionally rise (due to inflation if nothing else), and even if the housing bubble bursts, since it's the housing market, it's going to take months/years for it to take effect, so you should have plenty of oppurtunity to see what's happening and limit your losses.

But if you can realistically see that you might have to cut and run at some point, buying a house is probably not right. Motivated sellers who need to sell their houses pay through the nose for their need of a speedy transaction.

[ Parent ]
another take on rent (none / 1) (#119)
by khallow on Wed Sep 08, 2004 at 07:47:08 PM EST

You pay a premium for the right to own. It's not just a choice between paying $1000 of rent and $1000 of home. By paying less for rent, I save more of my income.

Stating the obvious since 1969.
[ Parent ]

Its fueled by income tax (3.00 / 9) (#103)
by duffbeer703 on Wed Sep 08, 2004 at 02:01:22 PM EST

You'll notice that suburban development started after the income tax came about in the early 20th century.

Basically, the government subsidizes debt by discounting it with income tax decuctions. I'll owe the bank about $8,500 in interest this year, but after tax deductions, the net is about $4,500 for me, which makes my effective interest rate something like 2.3% (i have a subsidzed mortgage), which is well below the rate of inflation.

Renting a decent 2 or 3 bedroom apartment in my area would cost about $8,000-10,000 annually, without Uncle Sam kicking in a tax deduction.

Back in the day all debt was like this. You could lease a new car every two years (when leases included oil changes and repair), deduct the entire amount from your income and have no other car expenses except gas.

[ Parent ]

Yes it is (3.00 / 2) (#165)
by brunes69 on Fri Sep 10, 2004 at 07:45:55 AM EST

I just recently bought my first house.

I was paying $550 rent / month for a modest sized two bedroom apt.

With the currentl'y extreely low interest rates in Canada, ( my mortgage is at 3.2% variable) I am now paying $425 / month for a house that is *at least* 8-10 times the square footage of my apt.

I mean, its a freaking *house*. Even if you pay the exact same money / month, youa re still coming out ahrea d- you have much more space, you can do anything to the property you want, and in the end, you can sell it and get most (if not more than you paid in!) of your money back.

---There is no Spoon---
[ Parent ]

No. Rent is good. (3.00 / 3) (#168)
by ckm on Fri Sep 10, 2004 at 12:06:32 PM EST

Where I live, there is no way I could even afford a mortgage.  Not just on the equivelant to what I rent, but on pretty much anything on the market.

Pretty much any piece of housing stock is about $500k around here, which is something like a $4k/month mortgage, roughly double what I am paying for a nice apartment in a desirable part of town.


[ Parent ]

Jeebus! (none / 1) (#180)
by metalfan on Sat Sep 11, 2004 at 04:28:28 PM EST

$2k/month for an apartment is a lot in any currency.  Where the heck do you live?

[ Parent ]
For the sake of argument (none / 1) (#175)
by generaltao on Fri Sep 10, 2004 at 02:55:55 PM EST

Let's say that whole $600,000 will have to be paid. (Ignoring tax breaks which actually make that lower)

Let's also say that the rent comes out to exactly the same per month ok?  I'll use your $833/month.

So buying a house will cost you the exact same amount per month as renting one.


After your 30 years are up.. in one case YOU HAVE A HOUSE and in the other, you have nothing.

That's what people mean by "down the toilet".

So the reason you don't see the huge gap is because you are forgetting that in one case, the payments are BUYING you something and in the other they are only letting you use it.

Factor in appreciation over the term of the loan and it's a total no-brainer.


[ Parent ]

depends on how often you move (none / 1) (#176)
by Delirium on Fri Sep 10, 2004 at 05:58:15 PM EST

If you expect to move in fewer than 10 years, you may not build up much equity at all, because mortgages are heavily skewed so that you're paying almost entirely interest until the end of the mortgage, at which time you finally start building significant equity. So if you buy a house now, and sell it in five years, you're not much better off than if you had rented it, apart from the tax incentives. You only own it if you hold it for 30 years.

[ Parent ]
Yes this is another point (none / 1) (#179)
by muyuubyou on Sat Sep 11, 2004 at 09:34:42 AM EST

I have moved 3 times in 5 years, as far as Canada->Japan->Spain. The hassle of selling the house would have outcosted any difference.

[ Parent ]
Right in a sense. (none / 1) (#187)
by generaltao on Mon Sep 13, 2004 at 12:42:42 PM EST

While it's absolutely true that the longer you own the same house the more one benefits from ownership, there are some other factors to consider.

You can own a house for 3-4 years and sell it for a profit.  If you are smart, this can be done after 2 years right after the capital gains time limit is up.

That's what I did.  Bought a house, spent some time fixing it up, and sold it for a profit.  The money I made went to a down payment on a new, bigger house.  The new house was way better than the first one, but since I had all that money to put down, my payments stayed about the same.

The most expensive house you'll ever buy is the first one.  After that, the equity you build in your current house can be used to make the loan on the next house smaller.

This means that ownership lets you do something renting doesn't:  it lets you continuously upgrade your accomodations without increasing your payments. (Rent tends to go the other way.. you pay more and more money for the same appartment.)

[ Parent ]

Answer: maybe. (none / 1) (#178)
by mindstrm on Sat Sep 11, 2004 at 09:22:51 AM EST

It all depends on the area, the housing market, your income, and the math... However.

In your example.. you say Mortgage is $833/m, but rental is $1000... but your savings are much more than the $167 a difference in monthly payments.

When you pay rent, you are paying someone else. That money and any value it represents is lost to you, completely.

When you pay your mortgage, you are paying yourself, and the bank (interest).  If you are paying the bank, say, 10% (for napkin-math sake), then of your $833/mo, $83 is for the bank, and the $750 is going right back to you, in the form of equity in your house... so your real difference is from paying $1000 a month in rent, to paying $83 a month to the bank and investing $750 in the house,  a $917 difference, which is significant.

Now, you own your house, you can borrow against it, sell if if you need the money, and generally feel more secure.

[ Parent ]

a clarification... (none / 1) (#181)
by astatine on Sat Sep 11, 2004 at 06:05:15 PM EST

typically on a new-minted mortgage, 7/8 of your payments are interest. however, at least in the US, the interest on the first $1M of a primary home mortgage is tax-deductible.

Society, they say, exists to safeguard the rights of the individual. If this is so, the primary right of a human being is evidently to live unrealistically.Celia Green
[ Parent ]
hmm... (none / 0) (#197)
by pod on Sat Sep 25, 2004 at 05:44:19 AM EST

Well, that's a simplistic look at things. Obviously situations vary greatly, as do people, and you can make up numbers to show anything you like. The poster above you did the exact opposite as you.

The thing with owning a house (well, a mortgage) is there are some minuses. First, you have debt. Lots of it. You want to pay it off as soon as possible, so you make large payments up front. This limits your disposable income, money that you can use to invest in something that makes better return. Call it the opportunity cost. And hey, don't forget costs like property taxes (1-3% of value EVERY year), mortgage interest, and all kinds of maintenance costs that come with having a house. And if you want to sell it, you'll likely have to spend a few grand fixing it up to bring it up to spec.

More gutsy (or market wise) people will rent a place for less money than they could own it, and invest the difference. Don't like where you live? It's much easier to move, there's nothing to sell.

So in summary, yes, the 'old' saying that owning a home is an investement is half true; yes, it's an investement, but not a very good one, and certainly not guaranteed. And by the same token, renting is not always throwing money away.

[ Parent ]

When renting is better. (3.00 / 2) (#188)
by awgsilyari on Mon Sep 13, 2004 at 06:54:35 PM EST

People often claim that home ownership is wiser, because it is an investment. But it's not the only kind of investment you could make.

Let's draw up a situation. Hopefully you'll agree that it's realistic.

Say you spend $600 a month on rent. You're looking into buying property, and are aiming at a mortgage payment of $1600 a month. Ignoring the interest for a moment, you would be paying $1600 per month into equity, i.e., you are investing $1600 per month. As opposed to $0 per month for the apartment.

Suppose that the house appreciates in value at 3% annually. Over a year, that's 0.03 * 1600 * 12 = $576 you've gained by choosing home ownership over renting.

But! When you were renting, you weren't spending as much. You're paying $600 a month. If you still want to spend a total of $1600 per month, that leaves you with $1000 of cash per month, just sitting around. What should you do with this cash? Invest it, obviously.

Suppose, then, that you invest that $1000 per month into a stock portfolio earning a modest 5% annually. After one year, that's 0.05 * 1000 * 12 = $600 profit.

Hey, look! You made $24 more by renting, than you would have by owning.

This entire discussion ignores the interest on the home loan, as well as taxes, the compounding of interest on the investments, and a bunch of other factors, but the argument remains the same even when you include all of that. Yes, a home is an investment. But in many cases it is a poor investment. If you can find a better one, then it makes sense to rent rather than own.

So rent money is not "money down the toilet." Think of it as the price you pay in order to have money to invest.

Please direct SPAM to john@neuralnw.com
[ Parent ]

Gotta vote next time (3.00 / 7) (#94)
by michaelmalak on Wed Sep 08, 2004 at 01:07:25 PM EST

I can't believe this made it to the front page.

Not only are the risks missing, as another posted noted, but also risk mitigation. The housing bubble is analagous to the dot-com bubble. Any slob can make money on the way up, but knowing when and how to "walk away" is the secret.

At this stage of the real estate bubble (read: likely pop after the November elections), the prudent course is to "value" invest. Yes, find the motivated sellers as you said -- buying a property at 80% value will insulate you against a 20% decline. But it goes beyond that. Find properties that are more resistent to decline, e.g. that house next door to the big name defense contractor looks good.

Then there's the ultimate risk mitigation -- diversification. The prudent investor doesn't hop from bubble to bubble, but rather performs "asset allocation", readjusting the allocation as one market picks up while another slows down. Asset classes include: real estate, domestic stocks, international stocks, bonds, precious metals, cash, and personal or friends' businesses.

Good investors have both studied investing and markets extensively, as well as invested through down markets. I find no evidence that the author of this article has done either.

BergamoAcademy.com  Authentic Montessori in Denver

Risky (2.50 / 2) (#98)
by intuition on Wed Sep 08, 2004 at 01:19:12 PM EST

Buying houses with 100% LTV or 100% LTRV can be extremely risky. Let me know what happens to your investments when the housing bubble bursts.

You should point this out in the article, however it seems like you may be a little too new at this whole real estate investing thing.

Risky to whom? The bank? (none / 1) (#158)
by Eryximachus on Thu Sep 09, 2004 at 07:43:03 PM EST

100% LTV means the buyer isn't risking a penny, the bank is giving a loan for the entire value of the property.

Sounds like a great way to invest to me!

Even if you sell it for $1000 more than you bought, thats your money to keep!

[ Parent ]

The risk is in the property price itself. -nt (none / 1) (#162)
by MrLarch on Fri Sep 10, 2004 at 12:42:42 AM EST

[ Parent ]
The biggest risk of 100% LTV loans (none / 1) (#170)
by Jave27 on Fri Sep 10, 2004 at 01:35:41 PM EST

Is that if you ever need to sell the house and the value has depreciated, then you may be stuck owing a lot more than the house is worth.  However, even in you're getting a conventional 80 or 90% LTV loan, it still take 15-40 years to pay off the mortgage.  If you need to sell in 3 years, you will have only paid off a very miniscule portion of the loan (think 1-3%).

It's basically a matter of pay now or pay later.  If you pay (the down payment) now, you'll be cushioned by that 10-20% just in case the market declines.  If it doesn't decline, you can make it all back when you sell the house.  If it does, you've only lost what you put into it.  If it declines and you're at 100% LTV, you're going to have to pay that down payment that you would have made at the closing table for the sale.

It definitely is more risky for the bank, too, so the rates will typically be a bit higher for high LTV loans.  If they have to foreclose on you, they're stuck holding a property that isn't worth as much as they paid for it.  So, they lose out, too.  Just be careful.

"Beating up the homeless. It's cruel, but it's a good clean work-out and leaves you feeling winded and superior." - CheeseburgerBrown
[ Parent ]

risky to you, unless you plan on bankruptcy (3.00 / 2) (#172)
by Delirium on Fri Sep 10, 2004 at 01:57:10 PM EST

If you have an 100%-financed mortgage on an $100,000 house, and five years later, after having paid off say $2000 of the principal, you have to sell it for some reason, and it's worth $80,000, you are $18,000 in the hole. You now have no house, and still owe the bank $18,000.

The dual problem and advantage of leveraging highly is that it greatly multiples risk. Take a more conservative 90%-financed mortage. You have an initial investment of $10,000 down on the $100,000 house. If you sell it for $120,000, that 20% appreciation in the house's value is a 200% appreciation in your investment (minus fees and interest). If, however, you sell it for $80,000, that 20% depreciation in the house's value is a 200% depreciation in your investment (plus fees and interest). In short, whatever gain or loss you make is multiplied. This is good if you gain, and bad if you lose, of course.

[ Parent ]

Food for thought (3.00 / 3) (#111)
by cr8dle2grave on Wed Sep 08, 2004 at 04:39:19 PM EST

The residential housing market can be pretty volatile, and the margins are rather meagre when compared to other real estate markets. Also, residential tenants are relatively high maintainence plus there are a lot of laws protecting them at the expense of the property owner (not that I necessarily have a problem with that). Commercial real estate is generally a much better investment property. Of course this varies from region to region so you'll need to do your homework.

My father just did his first commercial real estate development deal, the latest in a long string of "retirement projects," which has secured him a very comfortable income (~ $150,000 USD/yr) in addition to the equity he's building as the property increases in value. Also, unlike with residential properties, the value of the development is figured as multiple of gross earnings since it can be sold as an operational business rather than as a real property.

Not a bad return for 11 months of work!

The property he developed is sort of half way in between self-storage and light industrial space. He's got a total of 60 units in pre-fab steel buildings with sprinklers and heating in every unit. Some tenants are running small businesses out of their space, some use it as personal storage, some are car hobbyists whose wives have kicked them out of their garages, and some use it park their motorhomes.

Doing something like this requires more capital than what you've personally got, but that's what investors are for. I know my Dad and his partners anted up about 1.5 million and secured the rest from a bank loan, which was then refinanced on more favorable terms after completion and a few months of demonstrated performance.

The project went from breaking ground to 60% occupancy within 11 months. 8 months later, he's now at over 90% occupancy. Given the current lease rates, the development only needs to maintain about 35% occupancy to cover all of the operating expenses so it's relatively low risk.

Unity of mankind means: No escape for anyone anywhere. - Milan Kundera

The Useless Waste Of Space Game (2.33 / 3) (#116)
by TheOnlyCoolTim on Wed Sep 08, 2004 at 05:23:53 PM EST

Congratulations on making a ton of money while not contributing anything to society.

"We are trapped in the belly of this horrible machine, and the machine is bleeding to death."

"ton of money"? We'll see. (3.00 / 2) (#118)
by khallow on Wed Sep 08, 2004 at 07:38:56 PM EST

The thing I've discovered is that there's no easy money out there. It's a no brainer to earn whatever is considered the "risk-free" rate of return at the time. But if you can make significantly more for little work, then something is wrong. Why aren't large companies doing the same thing, if the profit margins are so good?

Stating the obvious since 1969.
[ Parent ]

risk -nt (none / 1) (#161)
by MrLarch on Fri Sep 10, 2004 at 12:42:04 AM EST

[ Parent ]
missing my point (none / 0) (#195)
by khallow on Tue Sep 21, 2004 at 11:09:23 AM EST

These things are always risk-adjusted. My point is that if it's truly profitable, adjusted for risk, then there would be big players in the market. My suspicion is that when you adjust for risk, this investment won't turn out that wonderful.

Stating the obvious since 1969.
[ Parent ]

unfortunately (3.00 / 4) (#135)
by the77x42 on Thu Sep 09, 2004 at 04:24:23 AM EST

when society is driven by the mighty dollar and your place in it is based as such, being a greedy prick is all you have left.

"We're not here to educate. We're here to point and laugh." - creature
"You have some pretty stupid ideas." - indubitable ‮

[ Parent ]
The contribution made (2.00 / 2) (#139)
by smegma hauler on Thu Sep 09, 2004 at 08:43:24 AM EST

is that you are assuming a risk and your investment could well leave you up shit creek.

[ Parent ]
Sure he contributes, you just aren't seeing it (2.60 / 5) (#151)
by kentrak on Thu Sep 09, 2004 at 03:32:53 PM EST

He's the middle man, and he hooks up potential buyers with his properties, helping them find a home. He hires contractors to fix the property, thus employing a few people for portions of the year. He takes out loans on property, thus stimulating the economy.

If that doesn't count for you, I think your definition of contributing to society is a bit too narrow.

[ Parent ]

Mmmm (none / 0) (#192)
by Spendocrat on Wed Sep 15, 2004 at 11:12:21 PM EST

Market lubricant.

[ Parent ]
this is ignorance of the subject matter talking (2.00 / 5) (#154)
by circletimessquare on Thu Sep 09, 2004 at 05:34:36 PM EST

even wall street investor contribute to society

based on what they buy and sell, they fix the real price of things like companies, and here, real estate

without such independent agents, the real price of things like companies and land can never be known

otherwise, a company can be represented as very valuable, when in fact, it is on its last legs or it screwed up its product royaly

same with real estate: a piece of property can be considered worthless, but the real estate agents out there scouring the market decide better than anyone else if it is really undervalued because it has a great location

therefore, they do serve a valuable function in society

the reason you can't see this is because you're ignorant of what you are talking about

The tigers of wrath are wiser than the horses of instruction.

[ Parent ]

Welfare moms (none / 0) (#189)
by NightEyez on Wed Sep 15, 2004 at 10:42:18 AM EST

My friend does this exact thing in St.Louis. He rehabs Section 8 homes and provides clean homes for single moms on welfare. She sends the kids xmas presents and the moms birthday roses. These mothers are very appreciative and gives them hope that there are better days ahead if they fight the good fight. If that isn't a social contribution I don't know what is.

[ Parent ]
An exception to the rule (none / 0) (#193)
by TheOnlyCoolTim on Thu Sep 16, 2004 at 01:00:17 PM EST

How about the majority of landlords who have a managing company do anything resembling real work while they sit in Long Island and once in a while drive their SUV to the bank to cash checks?

"We are trapped in the belly of this horrible machine, and the machine is bleeding to death."
[ Parent ]

This is a beautiful article (1.25 / 8) (#120)
by sellison on Wed Sep 08, 2004 at 08:00:48 PM EST

It is so wonderful seeing young people buckling down to achieve the American Dream rather than joining the libDems and demanding handouts for the rest of their life!

More power to you, son, and with 4 More Years for Our Leader, you will be able to retire tax free!

Only Kerry's new taxes could ruin your dream but that is a risk getting less and less with every swif boat under the bridge!

"No, I don't know that atheists should be considered as citizens, nor should they be considered as patriots. This is one nation under God."- George H.W. Bush

Not unlike pyramid schemes (3.00 / 4) (#130)
by overdog on Wed Sep 08, 2004 at 11:15:18 PM EST

I wonder if there is any parallel between these real-estate strategies and pyramid schemes. Certainly the housing bubble is dependent on more and more people getting into it and driving up the price of real-estate. And, just like a pyramid scheme, sooner or later the thing will come crashing down because people stop buying. The late-comers will be stuck holding the bag.

Stupid housing bubble (none / 1) (#145)
by jamul on Thu Sep 09, 2004 at 02:28:38 PM EST

It's got me in a bind... I don't want to stay in this house forever or even much longer (and have an adjustable mortgage that will start adjusting in 3 years, so I NEED to get moving or refi by then), but I don't want to leave the area. So I need to, at some point, sell my house and buy another local one. But both houses will be bubbled equally - my house is currently worth double what I paid (three years ago, not bad!), but if I sell it, I'd have to pay double for another local house too. The question is, do I sell now with big numbers on both ends, or wait until there are small numbers on both ends (but presumably much higher mortgage rates)? That seems better in a way, except I imagine high rates being worse than high principal. And of course, the future is always an unknown. And on the flipside, I'm not ready to do the whole moving thing right now! No easy answers.
Mike Hommel
Hamumu Software
[ Parent ]
Just a suggestion (none / 1) (#146)
by GhostfacedFiddlah on Thu Sep 09, 2004 at 02:34:41 PM EST

Rent a while.  If you don't mind moving twice in a few years, then rent is the best way to wait out this bubble.  After all - if it's a bubble, then there are more people owning houses solely for investment purposes than usual - and they all charge rent.  Higher rent supply = lower prices.

[ Parent ]
But what if... (3.00 / 2) (#155)
by omrib on Thu Sep 09, 2004 at 06:02:34 PM EST

What if it turns out that owning your own property IS a rich man's game?

The prices in London, for example, are incredibly high. Now imagine you bought a cheap house there (in 1988), but now you can sell it for triple the price you've paid for it. If you sell and rent, you might find that London IS a very expensive place, and you'll never be able to buy another property there, EVER (there are places where I would NEVER be able to buy a house).

Bubble or no bubble, you might just find that you have to move somewhere else. Even if the bubble bursts, you might find that from 225% percent of what you got for your house, it went drastically down to 150%, but you still can't afford what you once owned.

Somewhere there is this assumption that if house prices go out of the roof, they must fall down. But why? If it becomes a rich man's game to own a house, then everybody else will rent. Does this violate any law of nature? The rich will exchange houses among themselves, and the poor (the rest of us) will pay whatever they ask us to. And? The world used to work like that before, and it can certainly do it again - no problem. Some of us just don't have time to wait for the next revolution...

[ Parent ]

But he's already got a house (none / 1) (#167)
by GhostfacedFiddlah on Fri Sep 10, 2004 at 11:28:03 AM EST

I can't speak for long-term social trends on homeowning, but if it's a simple matter of "do I buy a house now, or rent a while and then buy", then the question becomes "Which costs less?"  Paying rent while waiting for the bubble to burst, or spending (possibly) more now to buy a house?

It depends on where you think the housing market is going to go, and various other factors like property taxes and interest you would have saved by investing, etc, etc.  But the bottom line is that if you're selling a house already, you should end up with enough money to afford another (yes, brokerage fees and all that, but consider it an expense of moving)

[ Parent ]

I wish it was that easy (3.00 / 3) (#137)
by muyuubyou on Thu Sep 09, 2004 at 05:35:02 AM EST

I'm living in Madrid and property is so overpriced it's insane. Property prices have been growing 15-20% for many years in a row. Many owners have seen their properties multiply their value in a few years. It's a matter of time - the whole thing is going to crumble.

Less and less people are buying already... they struggle for weeks or even months to sell a house because it takes 15 years of the average NET salary to buy the average property for sale (and I'm talking about a shithole in the middle of nowhere).

It's probably a good idea in the USA, but in overcrowded, overpriced markets like London, Amsterdam or Madrid, this isn't going anywhere but downhill.

Depends on where in the USA (3.00 / 2) (#141)
by nlscb on Thu Sep 09, 2004 at 11:10:53 AM EST

For most of the country, physically, if you need a house, you can buy one (though investing for profit anywhere would be unwise). There are a certain groups of cities, though, where you buy at your peril. These include NYC, Boston, DC, The State of California, Southern Florida, Denver, Minneapolis, and Seattle. The property increases here match or exceed those of Spain, UK, Ireland, and Australia. Will the author of the article please reveal which city he is investing in? It would give badly needed context to the article.

Comment Search has returned - Like a beaten wife, I am pathetically grateful. - mr strange
[ Parent ]

Michigan's capital city (nt) (3.00 / 2) (#142)
by Jave27 on Thu Sep 09, 2004 at 12:38:50 PM EST

"Beating up the homeless. It's cruel, but it's a good clean work-out and leaves you feeling winded and superior." - CheeseburgerBrown
[ Parent ]

Fuck. (none / 1) (#184)
by Ether on Sun Sep 12, 2004 at 11:40:39 PM EST

I'm reading this article and contemplating getting into the business; then I read this and realize you and I are in the same market. Back to the wage slavery for a while.

OTOH, the Lansing area's housing market is pretty underpriced relative to the rest of the nation. If you want non-contractor labor it's pretty cheap too. There's a lot of opportunity; One of my coworkers rehab'd a forclosure in Lansing and sold it for 4x what they bought it for. College market in East Lansing, and the high rental percentage in Lansing helps, too.

[ Parent ]

Not a problem (none / 1) (#186)
by Jave27 on Mon Sep 13, 2004 at 11:49:15 AM EST

There's plenty of property to go around.  It's unlikely that I'll be taking all of the business anytime soon.  I wish I could, but it's just not possible.  If you want to get into it and into the local REI group, check out RELansing Yahoo Group.  They have monthly meetings and a lot of information available.

"Beating up the homeless. It's cruel, but it's a good clean work-out and leaves you feeling winded and superior." - CheeseburgerBrown
[ Parent ]

Damn It! I knew it was too good to be true. (none / 0) (#198)
by jonnyq on Sat Sep 25, 2004 at 09:29:38 PM EST

Of course I live in denver...

[ Parent ]
good advice, well written (none / 1) (#166)
by bithead on Fri Sep 10, 2004 at 09:17:00 AM EST

Not to disparage the article or its content, but I do have a couple of questions, one rhetorical, and one not.

Why are real estate agents and brokers still working? This seems like something they would end up doing as a natural progression of their career. The ones I've talked to don't do this kind of thing.

One other thing: when flipping properties, whether rehabbed or rented, what do you do about taxes? I'm going to sell a home soon, and rented a room. I deducted the half my home expenses. I found out that I'll owe taxes on half the profit, which will be considerable.

curious, the bithead

Agents and taxes (none / 1) (#169)
by Jave27 on Fri Sep 10, 2004 at 01:26:50 PM EST

A lot of agents do get into this eventually.  A friend of mine just got his agent license recently in order to have access to the MLS to start doing this.  But, it is more risky, and most people are apt to avoid risks, so it's still an unsaturated (well, not fully saturated) market.

Look into 1030 Exchanges for tax purposes.  You are allowed to use the profit of a sale of an asset to purchase another asset tax-free.  It's deferment, but you can continue doing it forever.

"Beating up the homeless. It's cruel, but it's a good clean work-out and leaves you feeling winded and superior." - CheeseburgerBrown
[ Parent ]

The Real Estate Game | 198 comments (174 topical, 24 editorial, 1 hidden)
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