Au contraire, mon ami, just because I pay ca$h for my properties does not mean I’m not making $$$. W/out mortgage payments to make, my ca$h flow on rentals is VERY positive + I have managed well on appreciation on every one of my properties since the 1960’s. I wasn’t always able to buy property w/out a mortgage, but that has been the way for me to retire young & enjoy my retirement 'lo these many years. I like to get up in the morning because I plan on having a nice day instead of simply because I have to go to work to feed the parking meters on my properties. This doesn’t mean my life is is totally carefree (after all I have offspring who have offspring who have offspring); it just means that I don’t have to chase mortgage $$$, & that I don’t have to worry about major financial disaster.
At the very least, I believe that by retirement most folks should own his/her residence outright. Not everyone agrees w/this, but it sure works for me.
Tye (who keeps her passport current & doesn’t have to go to work Monday morning)
I did one rehab and sold it before the boom about 3 yrs ago- single family home. Then I started to see my real-estate club go from 20-30 people to 200-300 in a couple of years and I said this is too much.
Now I wanted to see what the market was doing and I stumbled across this article from Kiyosaki regarding the Boom in the market. Some of you may have read the article.
It spoke of how the RE boom is going to bust and gave theories on why it will bust soon based on excessive leveraging etc.
It cautioned new investors (which I feel I still am) from investing now that the market is just about ready to burst.
When I did my rehab I was taught the importance of buying houses 20% below the FMV. There is a demand for quality low income housing.
I am trying to buy homes in bread and butter neighborhoods not gaited communites.
It would seem that if the bubble breaks or not one should not be affected if they are buying homes 20% below the FMV. Would this be true?? Or would it be wise to wait for the bubble to burst first- whenever it does?
Posted by bhagan (Mi) on July 23, 2005 at 10:20:29:
If you read deeper into Kiyosaki’s message and the books he recommends he is not just concerned by the appreciation of the housing market but by an eventual collapse in the dollar. This will be, according to him and others, caused by an over leveraged US government as well as an unprecedented level of consumer debt. Like Ed says good investing principals will serve you in any market. I think it is wise to be prepared for a weaker dollar ( for which there is a lot of historical precedent) which could have a ripple effect around the world. I suggest, as others have said look for good cash flow, do not get into an over leveraged situation and stay away from variable rates. A significantly weaker dollar will send rates higher quickly and a fixed rate will have the effect of allowing you to pay future mortgage payments with less valuable dollars.
Mr. Kiyosaki?s message is not a secret. It?s obvious that the bubble will burst; it?s just a matter of when?
You certainly don?t need to buy his book to know that, the title says it all. When Mr. Kiyosaki can pin point the economy, dates and time frame, I?d be so impressed that I?d be glad to buy his book. Until then, it?s just conversation.
The key to investing in all markets is to be a Prudent Buyer. A Prudent Buyer is one who makes their money on the buy and the deal CASH FLOWS. Good deals are not found, they?re CREATED. So for the Commercial investor, this means properties with upside potential.
Of course there are investors in the market who have so much money they?re looking for a real-estate investment to park their money. You can?t be concerned about bidding against them, but thankful that they?re there, as an exit strategy for your deal.
I?m oblivious to the market, you can study it until the cows come in and tell me every thing you think is going to happen, but it makes no difference. I predicted that the market was going to crash 2 years ago and it?s still trucking.
This game isn?t about always being right, but about playing percentages. You have no control about the market, but you do have control on parameters you set in your deal that protects you against the market.
When the various bubbles burst across the country, prices could drop 20% or more (e.g. Orange County CA 1991). However, structurally sound bread-and-butter housing is a sensible way to ride out difficult times. As long as you don’t go wild on the loan types, you should have solid cash flow to offset expenses. I believe the day w/come before long when cash flow is king, not appreciation, which is why I’m buying a MHP. I think the “water-cooler investers” who, in their chase for appreciation, have signed for foolish loans w/out reading the fine print, w/be the 1st to fold & their HGTV-style homes w/sport “FOR SALE” signs up & down the streets. However, the folks who work @ Wal-Mart w/always need a place to live, as w/retirees & newlyweds. That is the population that w/keep your bread-and-butter houses pumping cash every month. You still have to buy carefully, paying as little as possible for each house, & making sure each home has really “good bones.”
Sometimes it is good strategy to leverage & to seek appreciation. I may still be in the minority, but I think the easy appreciation train on SFHs has left the station. I cashed out this spring & am not even looking @ SFHs. I have invested in land (limited in my area), which has no cash flow, so buying the MHP because it does has good cash flow.
Times change, & w/that, strategies have to also change. Your notion of making good buys in bread-and-butter housing makes sense to me. Maybe others could chime in on what to look for in that kind of housing–
I hate to burst the proverbial bubble, but in places like Orange County or San Diego houses have solidly negative cash flow even with a 20% drop in prices. You’d need more like a 40% drop just to break even.
The only thing that makes sense to me right now is putting an option on a house and turning it over to another eager investor. I don’t know what the future hold but, I don’t want to have any risk investments in my name. By risky I mean houses in areas with more than 5% appreciation. My feeling is that if the bubble does burst the areas with low appreciation will not be affected.
The best part of buying in areas where it is a buyers market you can pick up houses well below market value that cash flow $200-300 a month. They are tough areas but provide cash flow to ride out the bubble. And then when it does burst you can have that extra money to target water front properties and gated communities that will rebound faster than bred and butter areas.
It all depends on your equity, though I must agree most investors in those areas have for decades placed themselves in negative cash flow situations. If you don’t put the $$$ down in the beginning, you’re going to continue to pay the negative every month, including all the extra interest, for the life of the mortgage. Chasing the No/Low Down dream gets ever more expensive. My own lifelong dream has always been to pay 0 interest in an enjoyable retirement. I haven’t paid interest in nearly 15 years, but I’ve still gotten plenty of appreciation.
I agree, Bob, that so. Calif. is totally outrageous for traditional investing. I’ve been out of that mkt since '91, & find that less populated areas can be profitable w/out so much risk, hassle, & traffic–
I’ve long thought that waterfront properties, along w/bread-and-butter SFRs, are good investments. For that reason, I’ve owned waterfront for the past decade & a half. Didn’t think to mention it in my earlier post because I am using the one I have now as my residence. Waterfront is almost always desirable, but the key is to seek out areas (think villages) where it isn’t yet so expensive. Waterfront usually weathers downturns by just selling slower, rather than w/deflated prices.
When I left Calif years ago & had to park my $$$ while cruising I bought waterfront raw land because there was no maintenance, yet appreciation would be almost assured. I didn’t know what the market would do while I was out of the country, & I needed to know that even if wild appreciation occured that I’d have enough value to get back in the game. It worked.
>If you don’t put the $$$ down in the beginning, you’re going to continue to pay the negative every month, >including all the extra interest, for the life of the mortgage.
If you put that money down just to break even, you’re making a 0% return on your money, and you risk being put into a situation, like the late 80s through late 90s, where your net appreciation is pretty much zero. Not my idea of prudent investing.
Are you paying 0 interest because you own all your properties free and clear, or because you have been successful at negotiating 0 interest purchase money financing?