“first off a $200K 30 year mortgage at 6.5% is about $1250 a month”

Bah, you’re right. For some reason, the loan calculator I was using was bumping the loan value to $300k. A $200k loan is at 6.5% $1264 per month. But the rest of the analysis remains the same — you’re still not considering taxes, insurance, or maintenance.

Which isn’t to say a lot of people don’t do OK in rentals, but I don’t think the particular scenario you lay out is realistic. I think your monthly expenses are closer to $2,000. Plus you will probably have one month every two or three years where you don’t have a tenant, that’s 8% less cash that particular year.

A friend had special assessments of $5,000, $3,000 and $7,000 in the ten years he lived in his condo.

Are you joking? Market psychology is what J6P thinks, not what a few Net intellectuals think. If the people on this board were representative of the market as a whole, houses would be selling for rent equivalence NOW.

The barometer for market psychology is the market itself. That’s what people are willing and able to pay.

first off a $200K 30 year mortgage at 6.5% is about $1250 a month. Plus dues of $400 is $1650. Lets say its a 2BR. $1400 is not too hard to get these days if you aren’t renting a slum. ($1650 would probably be achievable… but lets be conservative just for argument’s sake)

To get to $500K from $250K requires a whopping 2.34% annual appreciation. (ok, we will have a couple of tough years coming up). Everyone here seems to agree that we will return to the ‘norm’ probably within the next 5 years. That leaves 25 years of ‘average’ realestate appreciation which is probably above 2.34%.

Ok, so you price in some risk and use conservative estimates, take out the opportunity cost of those $200/month cash payments for the first 5-10 years and bing, I’ll take 8% on that 50K all said. (I think its going to be more like 9-10%… which only requires an average yearly appreciation of 3.5%)

We can agreee to disagree if you like, but $200/month isn’t going to sink my boat any time soon (and it certainly won’t hinder me from buying another place).

Everyone beleives that things won’t get better for a long time. As soon as people think it might get better, you already missed your buying opp. This board is a great barometer for market psychology… i’d say its a little more negative than average, but still useful when you are trying to understand what ‘everyone else’ is thinking.

I didn’t say that rents went up. I said that the rental premium, which is the ratio of rent to the cost of purchasing, went up. In fact nominal rents went down in many places.

And I didn’t say that the rental premium doubled, I said that it moved up to around 2. Historically it was greater than 1 as I pointed out previously.

mister bubble your math is all wrong dude.

first of all, I only invested $50K and I receive $500K after 30 years. minus the $200/month negative cashflow (since all other costs are covered by the renter)…. thus the 7% annual return.

A 30-year fixed on a $200,000 loan at 6.5% is going to run about $1900 a month. Once you factor in taxes, insurance, maintenance, etc., you’re easily looking at $2500 per month. Good luck finding a renter who’s going to part with that every month, in a town where 90% of the rentals go for less than $1500 per month.

But hey, I’ll come play with you in the land of make-believe for a little while: let’s assume that you can find that mythical fool who is willing to pay a 50% premium to live in your house (or more likely, a large selection of fools, since at that rent range, your target market is college kids who are going to live 5-up at $500 a pop — hope you like bongwater, “dude”). Under the rosiest possible scenario, after 30 years of ruined carpets and clogged toilets (“I swear, dude, I don’t know who tried to flush that pillow!”), you’ll have turned your initial $50,000 investment into $500,000 — a 10x increase (1000%), for an annualized gain of about 8%.

Meanwhile, you have to pay to live somewhere, and I’m guessing that will mean another mortgage (I’m assuming, here — you don’t seem smart enough to rent). So, you’ll lose the interest, taxes, insurance, etc. on that property, instead of your “investment”. Six of one…

Bottom line: after thirty years, under the rosiest possible scenario, you’ll have earned 8% annualized on your original $50k, a performance that is entirely mediocre, by any standard. Investing in an index fund will do about as well, with substantially less risk.

If on the other hand, you assume sane rents, then my original numbers are closer to the truth. You’ll pay a good chunk of the $380,000 in interest payments you’ll owe over the life of the loan, and that will significantly cut into your profits, “dude.”

During the Great Depression that premium [to rent] rose to twice the cost of buying, because people were afraid to buy or banks were afraid to lend.

Think about it.

is that the nice way of saying that property values dropped in half? perhaps you have the ratio right, but I think you have the cause wrong

“You’d better not rent because your landlord will increase your rent”

now it’s…

“You’d better not rent because your landlord will come in and rob you”

good one Markor…for a laugh that is…

During the Great Depression that premium [to rent] rose to twice the cost of buying, because people were afraid to buy or banks were afraid to lend.

Think about it.

Plus renters with cash would have to secure it themselves, since banks were out of commission. Where are you going to hide it when your landlord not only has a key to your place, but also the incentive to look for your cash?

can you run some numbers for me?

The new downtown condo I rent was purchased presale at a smidge over 500k. (Comps are asking 549k and 599k by flippers that are currently losing money)

Dues are 450+/mo.

Taxes are whatever they would be on 500k.

I rent for 1667/mo.

How much is the negative cash-flow for my LL?

You can’t just add up all your annual cash flows to see whether you come out ahead or not. You have compound the cash flow forward (or discount backward) by the interest rate. $1000 lost today is worth 1000*(1.06^30) = $5743 30 years from now (assuming you’re paying 6% to borrow). That’s why early cash flow deficiencies are so costly.

Wow, It has completely revolutionized how my team codes. Unit tests using TDD, mock objects and design patterns has dropped our bugs by more than 90% and has made our apps much easier to modify and expand later on. I can’t imagine ever going back to hack coding.

first of all, I only invested $50K and I receive $500K after 30 years. minus the $200/month negative cashflow (since all other costs are covered by the renter)…. thus the 7% annual return.

i would be shocked if places only double in value over the next 30 years… and yes, my cost basis is from 2004, so I’m not including what the place is probably worth today… in case you’re just about to say, don’t forget the 30% discount your place is going to take over the next 4 years… I’d be up 30% plus today…

I (and most others on this board I think) would have no problem buying a house that is cash flow negative (opportunity cost vs renting) by $200/month because as you say inflation will turn things around in due course.

The problem is you left out a zero. The cash flow deficiency today is an order of magnitude higher, which means it may never be made up on a present discounted value basis.

100% gain, 30 years = 2.3% annualized return. You’re still doing better with a savings account.

If you have a 30 year fixed, you are SURE to go positive within 10 years. After that, (and including depreciation in the meantime) you are scott free on the dilly and someone is paying principal towards your mortgage. Ok , you put $50K down, after 30 years, your $250K place is now worth $500K. Thats a 7% plus return on 50K in an automated investment. Easy money…

(sigh…stupid blog software…)

A 50% gain in thirty years is only a 1.4% annual return, genius. You could do better by putting your money in a savings account. And that doesn’t take into account interest on the “dilly”, which is going to run you 6-7% per year.

If you have a 30 year fixed, you are SURE to go positive within 10 years. After that, (and including depreciation in the meantime) you are scott free on the dilly and someone is paying principal towards your mortgage. Ok , you put $50K down, after 30 years, your $250K place is now worth $500K. Thats a 7% plus return on 50K in an automated investment. Easy money…

It’s not a moral imperative, dummy, it’s an economic imperative. One prices have stopped rising (like right now you know), nobody is going to buy a house to rent it out if they are going to lose money. And existing landlords are going to bail. A big chunk of demand (specuvestors) moves to the supply side.

During the Great Depression that premium rose to twice the cost of buying, because people were afraid to buy or banks were afraid to lend.

Think about it.”

It’s all supply and demand. Doesn’t matter if owners make a profit to anyone. If there is too much supply, prices can even fall. There is no moral imperative that renting be at a premium. It’s not now and my rent would have to go up 50% AND prices would have to come down 50% before it would cost more to rent than buy. That would require a true second great depression.

Carter left office in January 1981 and was succeeded by you know who.

The high interest rates in the 70’s and the early 80’s were a direct result of the inflation caused by the Vietnam War and OPEC. Carter appointed Fed Chairman Paul Volcker who used tight money to kill inflation and pave the way for the prosperity and lower interest rates of subsequent decades.

However Volcker did not have a long stay as Fed chair as who know who replaced him with Alan Greenspan, whose easy money policies have resulted in you know what.

The historical norm is that there is a premium to rent, just like there’s a premium to rent cars, skis, or anything else. That’s how the owners make a profit.

During the Great Depression that premium rose to twice the cost of buying, because people were afraid to buy or banks were afraid to lend.

Think about it.

When will they Get IT? Add value to your services and help your clients?

Live within your means. (generally) Play by the rules (use every loophole legally available, but in the end of all the pencil pushing, fly low UNDER the radar).

Jeezus, If a balding middle-aged not too attractive white guy with a regular sales job can amass way over a million dollar (almost all paid for, with big monthly cash flow) rental real estate portfolio in

Nice theory, but never seen it actually WORK in practice, IMO.

Waiting, scrimping, taking stock: This is the vernacular of the moment for a nation reckoning with the leftovers of a real estate boom gone sour. From the dense suburbs of northern Virginia to communities arrayed across former farmland in California, these are the days of pullback: with real estate values falling, local governments are cutting services, eliminating staff and shelving projects

….

Cape Coral is in Lee County, across the Caloosahatchee River from Fort Myers. In the county, a tidal wave of foreclosures is turning some neighborhoods into veritable ghost towns. The county school district recently scrapped plans to build seven new schools over the next two years. Real estate agents and construction workers are scrambling for other lines of work, and abandoning the area. As houses are relinquished to red ink and the elements, break-ins are skyrocketing, yet law enforcement is resigned to making do with existing staff.

How long until the Aurora block-housing ghettos are lost to the elements? Those townhomes will look beautiful with a few missing windows, I’m sure.

Personally I’m willing to pay a premium to own but hope to at least not lose much in the long run…

If its value drops 30% after you buy, you can find consolation in the fact that it’s still worth one comparable house (well, 90% of that anyway, after transaction costs).

Markor: You paid $1200 for a new water heater?? You got ripped off unless it is supersized with some amazing technology. I have replaced 3 water heaters recently in rentals (all 50 gallon gas) that cost me $475.00 installed for each by a plumbing company.

Good to know, thanks. Yeah I probably got ripped; it was an emergency replacement, so I didn’t shop around. I did get an expansion tank (I was told that’s code now), a new base to raise it up (my old one was shot), and disposal of the old unit.

i would add that even these people should be prepared to keep the house for 10 or 15 years, unless of course money is meaningless to them.

private String whatDoIHeart (boolean iHeartHouse) throws BankException{

Too much fun, at least to a geek like me. Perhaps this should be a scary comment on my persona … :-)

You are assuming that everyone looks at homes at least partially as a financial investment, but there are other reasons for buying a home that are quite rational. But very few people are in a position where they can safely buy a home they know will drop in price: only those with a very large down payment or who can pay cash should be doing it around here right now.

That is good, make sure to include who reviewed your code and what static analysis tests were run in your checkin comments.

I agree, I think we should schedule some peer code review sessions before the post is accepted and put onto the page. Easier to catch things now than revert the change later.

Hey, guys, considering it was on the fly and I had a hell of a time with the formatting, I think I did pretty well. I promise to not submit anymore code without at least going through a review process first.

I agree, I think we should schedule some peer code review sessions before the post is accepted and put onto the page. Easier to catch things now than revert the change later.

We only look at houses where the roof and other major things were recently updated…When you have small kids and a full time job building sweat equity is not that high on my list

Updates have a value with labor included. Why pay $30K for a $20K roof, installed? You can end up paying $30K more for the house just by reducing your pool of house possibilities to just those with newish roofs. The only reason I can see to do that is if the roof definitely needs replacing before you can possibly save up the cash to have that done.

I recently replaced my water heater; it cost all of $1200, less than 0.2% of a typical house value. Yet most buyers would I think include that in a list of “major things” and end up paying > $2K if the seller replaces it, esp. if the seller replaces it before the old one needed to go.

Not only that, but usually said upgrades look like they were done by a 2nd-grader. (No offense to your 2nd-grader if you have one) Not only do you need to spend your time and money doing the place right, but you need to rip out the prior owner’s hack-job before you can even get started.

On Designed to Sell on HGTV they sometimes make rectangles on the dining room walls out of chair rails, for an elegant look on the cheap. It really looks like the $10 they spent, but the buyers inevitably ooh and aah over it. (If anything’s staged, that it.) Recently they put little floral curtains on kitchen cupboards. The seller said “That’s so cute!” and the designer replied “That’s the reaction we want from the buyers!” Barf!!

By the way Markor, you do realize most of that real estate porn on the boob-tube is staged, don’t you?

Doubtless there’s tons of editing done for the HGTV shows, but I don’t think they’re fiction, if only because that would cost a lot more to produce. On Designed to Sell, where they stage a house that isn’t moving, the end result is not always a clear winner. On Buy Me, where HGTV is a passive observer of the selling experience, the houses don’t always sell, even after many months—not exactly an advertisement for real estate. Also I was once a first-time buyer myself, so I can attest to making some of the same mistakes that the buyers on Property Virgins do.

Not only that, but usually said upgrades look like they were done by a 2nd-grader. (No offense to your 2nd-grader if you have one) Not only do you need to spend your time and money doing the place right, but you need to rip out the prior owner’s hack-job before you can even get started.

No thanks.

By the way Markor, you do realize most of that real estate porn on the boob-tube is staged, don’t you?