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FatWallet Investment Property Thread

By corntrollio follow corntrollio   2011 Jun 14, 5:03pm 10,627 views   18 comments   watch   nsfw   quote   share      


Has anyone ever read through it? It's a great historical study on boom mentality. It starts out somewhat sedately in 2002 with people who at least had some experience explaining things about property investment. There was a relatively heavy focus on ROI in the early days, and people seemed to understand that you needed adequate return to compensate for the risk and hassle.

Then, as the boom continues, you can see the vast army of people who wanted to be property "investors." It's even to the point where you have 22 year olds straight out of college saying they want to go into residential property investment. Classic bubble mentality there, where all the amateurs are willing to take massive negative returns in exchange for speculating on appreciation and taking bizarre loans in some cases. In many cases, they didn't understand why all the people in the early threads focused on good return, because how could you lose? People are also willing to buy "investment" properties hundreds of miles away from their residence.

Then it's followed by talk of loan resets and recasts, being underwater, litigation, talk of waiting out the turmoil, people being locked into bad situations, crappy tenants, etc. It's sad and educational all at once.

Seems like the thread has been hot and heavy the last few years, I guess because the people looking for return are picking up deals on true investment properties again.

http://www.fatwallet.coms/finance/59627/

#investing

1   CaffeineAddict   ignore (1)   2011 Jul 1, 2:05pm     ↓ dislike (0)   quote   flag        

thanks for the link

interesting read

2   bubblesitter   ignore (0)   2011 Jul 1, 2:25pm     ↓ dislike (0)   quote   flag        

Yeah I have come across that thread,interesting one.

CaffeineAddict says

how could you lose?

No you can't loose, even people who bought in 2006 can't loose. /sarcasm

3   FortWayne   ignore (4)   2011 Jul 2, 11:33am     ↓ dislike (0)   quote   flag        

A fool and his money are easily parted.

4   corntrollio   ignore (1)   2011 Jul 6, 5:31am     ↓ dislike (0)   quote   flag        

E-man says

Those were speculators. You're right for saying that they were "wanted to be property investors."

Yes, I should have put "investors" in quotes. I have added some quote marks above.

Taking negative returns and ignoring transaction costs because of free credit was always speculation. It depended on massive appreciation, which wasn't guaranteed to occur. A lot of these people never did the math.

5   bubblesitter   ignore (0)   2011 Jul 6, 5:50am     ↓ dislike (0)   quote   flag        

corntrollio says

A lot of these people never did the math.

It was all emotion,absolutely no math. Dream of never ending HELOC - best path to becoming rich in America.

6   edvard2   ignore (1)   2011 Jul 6, 6:03am     ↓ dislike (0)   quote   flag        

Most people simply don't get that the words "houses" and "investments" shouldn't really go together. There is a reluctance to believe the fact that if you took $100,000 and put it into stocks versus taking that same money and buying a house that you'd be rich and retired a lot sooner. Instead there is this persistent belief that somehow "investing" in houses is the magical, cozy thing that surely must be "invested" in.

7   ch_tah   ignore (0)   2011 Jul 6, 7:36am     ↓ dislike (0)   quote   flag        

E-man, I know you were looking to invest in a new property or two over the past year or so, any luck? Just curious if the markets you've been looking in have softened enough for you to buy.

8   corntrollio   ignore (1)   2011 Jul 6, 8:14am     ↓ dislike (0)   quote   flag        

E-man says

With positive cashflow, principal pay down, tax write-offs, step-up in basis, etc., the cash on cash return is a lot more than the stock market. Once RE investments are paid off by the tenants, it's a nice chunk of change to collect in your golden years. For me, it beats the stock market by a wide margin.

You're mixing up several different concepts there. Positive cashflow is positive cashflow. Principal pay down *lowers* your ROI because you have more cash in. Tax write-offs mostly lower your interest rate for primary residences, although for rental property like you're saying, the benefit can be limited if you aren't a "real estate professional." The stepped up basis at death is at death. :)

If your properties are paid off, your ROI might be low because you aren't leveraged, as you mentioned.

bubblesitter says

Dream of never ending HELOC - best path to becoming rich in America.

No joke. There are some people who thought being rich was getting a home equity loan and buying two 7-Series BMWs. Debt is not wealth.

9   ch_tah   ignore (0)   2011 Jul 6, 8:39am     ↓ dislike (0)   quote   flag        

Thank E-man. It doesn't sound promising for regular joes to find investment properties in today's market.

16 months is pretty young to be teaching your little one about foreclosures. Do you tell her, "see, if you don't pay your mortgage, this is what happens to your house?" ;)

10   corntrollio   ignore (1)   2011 Jul 6, 9:06am     ↓ dislike (0)   quote   flag        

ch_tah says

It doesn't sound promising for regular joes to find investment properties in today's market.

That's my point -- this isn't for regular joes. This is for people who are dedicating significant time and resources to real estate investment. You have to understand the risks and you have to understand what return you need for this to make sense.

11   ch_tah   ignore (0)   2011 Jul 6, 9:13am     ↓ dislike (0)   quote   flag        

corntrollio says

That's my point -- this isn't for regular joes. This is for people who are dedicating significant time and resources to real estate investment. You have to understand the risks and you have to understand what return you need for this to make sense.

Why can't you be a regular joe and understand the basics of investing? It isn't that complicated.

12   ch_tah   ignore (0)   2011 Jul 6, 9:15am     ↓ dislike (0)   quote   flag        

E-man says

Yes, average joes can find investment propertiess, but they would have to pay retail or above retail prices. I guess that's part of the learning curve before they could figure out how to buy properties at wholesale prices.

You, or someone else, has probably already covered this, but who is buying at wholesale prices? Are ordinary RE agents able to, or is it only RE agents that have connections with the banks? Or someone else?

13   corntrollio   ignore (1)   2011 Jul 6, 9:26am     ↓ dislike (0)   quote   flag        

ch_tah says

Are ordinary RE agents able to, or is it only RE agents that have connections with the banks? Or someone else?

Realtors often pick up deals on the sly when they can. Sometimes you will see a grossly underpriced sale, and it's because a realtor sold it to themselves or another colleague instead of zealously advocating for their client.

In addition, a lot of foreclosure auctions are basically run by a mafia of insiders -- here's an example of where the FBI is looking into the practices of Bay Area foreclosure auctions and bidders:

http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2011/01/21/MN491HBP8L.DTL

ch_tah says

Why can't you be a regular joe and understand the basics of investing? It isn't that complicated.

You can, but most people who are regular joes aren't good at this. You have to dedicate significant time and resources to it, which most people don't do. They just eyeball the numbers, think they're getting adequate return, etc.

If you can't calculate ROI, you shouldn't be in this business. It's likely you are getting worse return than if you invested elsewhere.

14   ch_tah   ignore (0)   2011 Jul 6, 9:33am     ↓ dislike (0)   quote   flag        

corntrollio says

If you can't calculate ROI, you shouldn't be in this business. It's likely you are getting worse return than if you invested elsewhere.

Again, who can't calculate ROI? I'm not sure why you are trying to make it sound more complicated than it is. The problem with the bubble years was that many people didn't do the necessary calculations because they bought (stupidly) for appreciation, not that they couldn't do the calculations.

15   corntrollio   ignore (1)   2011 Jul 6, 9:47am     ↓ dislike (0)   quote   flag        

ch_tah says

I'm not sure why you are trying to make it sound more complicated than it is.

Finding deals is certainly more complicated than you're making it out to be. As E-man says, most average joes are often buying retail, not wholesale. There are deals out there, but they are hard to find.

It also helps to be able to anticipate trends and know the market. If you're that guy who thinks in 2004 (as some people did) that buying property in Merced in preparation for college students coming in is a genius idea, you're probably an amateur. Average joes are much more about herd mentality and putting good money after bad than seasoned investors.

I'm not sure why you think it doesn't take a lot of work to become a good real estate investor. Most people who become landlords usually buy a property, then rent it out when they move to a new place. That's not always a good way to get return because you probably bought a nicer place because you planned to live in it and paid a premium for that.

Can an average joe do it? Sure, but they have to invest the time and gain the knowledge.

16   zzyzzx   ignore (1)   2011 Jul 7, 12:30am     ↓ dislike (0)   quote   flag        

Personally, I prefer slickdeals. FatWallet is ban happy and censors too much stuff.

17   ch_tah   ignore (0)   2011 Jul 7, 1:56am     ↓ dislike (0)   quote   flag        

corntrollio says

Finding deals is certainly more complicated than you're making it out to be. As E-man says, most average joes are often buying retail, not wholesale. There are deals out there, but they are hard to find.

I agree finding good deals is difficult. To me, that's different than being able to understand the concept of a good deal.

18   corntrollio   ignore (1)   2011 Jul 7, 3:54am     ↓ dislike (0)   quote   flag        

E-man says

However, I think you're giving realtors too much credit. Most of them live paycheck to paycheck with the exception of the top 1% agents. 99% don't have the money to invest believe or not.

No, I certainly know that. However, the well-off realtors are making a killing, and it doesn't take a large number of them to snap up the best deals. I pointed out one such couple last week who has purchased 5 houses for what is probably lower than wholesale and is doing quite well:

http://patrick.net/?p=616071#comment-747594

E-man says

If you don't know what you're doing, you could lose that entire cashier's check and end up with no property.

I'm assuming you're talking about the amateurs who don't realize they're buying subject to a first mortgage because only the second mortgagee foreclosed.


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