Posted on August 14, 2008 @ 9:14 pm - Written by BawldGuy
Until the last couple years, our clients, for the most part, have been able to acquire their investment real estate without paying loan points. As change in the markets took hold, things began to change. How’s that for understatement? The lender problems emerged big time. Underwriting changed even more, and lenders changed the way they viewed investor loans. To all this you may all now roll yer eyes while in unison saying, Duh. I know, I know. When yer used to no points and read closing statements these days, it can be chilling.
How ’bout goin’ from loan fees totaling less than $2,000 for a fourplex purchase, to $5,000 sans processing for a duplex? Ouch and a half.
Yesterday we learned investor loan costs have risen — again. My response?
So what.
Real estate investing is, in so many ways almost perfectly analogous to baseball, the perfect sport. (And no, we’re not gonna waste time debating that assertion, as there’s no point in doing so.) And the first rule in baseball is the same as in real estate investing:
There’s no crying. Read the rest of this entry »
Posted on August 12, 2008 @ 8:59 pm - Written by BawldGuy
In a recent post, I promised I’d get David Shafer over here to give you some ideas about what a real estate investor might do with cash flow, both before and after taxes. Dave not only stepped up to the plate, he’s knocked another one outa da park. It’s always driven me nuts the folks view their cash flow as ‘date night’ money, or vacation spending dough, etc. When I used to teach seminars on cash flow analysis, one of the crucial factors was dealing with cash flows during holding periods. Think big picture.
The next time temptation pulls at you to grab yer cash flow and go out on the town, think about this post. That juicy, perfectly broiled steak yer about to enjoy? Hope is was good, ‘cuz it coulda cost you a million bucks. ‘Course, it is your money, right? It’s your retirement too. Know what an extra Mil is worth in retirement income? $50-80,000 a year, easy. And that doesn’t take into account the extra properties that woulda been added to the portfolio along the way. Oops, there’s another million. The treatment of cash flow over the long haul can either be beneficial to your retirement, or medium rare. Your choice. The results of wisely reinvesting cash flows over time can be like world class cheesecake for dessert.
Again, that steak better be sent from Heaven. OK, enough. Here’s David Shafer, someone I respect and admire. This is good stuff people. Read the rest of this entry »
Posted on August 7, 2008 @ 10:52 pm - Written by BawldGuy
Due to the nature of tonight’s topic, pictures will again be at my whim. I’m feeling quite random as it turns out. When I’m talkin’ ’bout numbers and basic analysis on-topic pictures just don’t cut it.
A post published here earlier this week generated an excellent comment by David Shafer.
The post discussed the differing results of 10% or 20% down payments.
Here’s David’s comment:
I argue with myself over which is better the 10% or 20% version. I think it is really individualized. But gotta comment that the 20% version is less costly in terms of lower mortgage rate and/or no mortgage insurance which is expensive now. And if you take that cash flow and put it into another investment, then you might just come out even with the 10% down option!
Dave — I know what you mean, as I’ve done this particular analysis hundreds of times.
These days we’re seeing little or no difference in interest rates on the two loan LTV’s. Even if there was a .25% spread, if that kills the deal, then generally speaking the investor might not be a candidate for real estate at that time. ‘Course sometimes common sense dictates a particular deal just won’t work.
Let’s look at your suggestion though, which might be a logical alternative. Read the rest of this entry »
Posted on August 5, 2008 @ 10:27 pm - Written by BawldGuy
Warning: The pictures used in this post have no connection whatsoever to the topic at hand. Any connection therefore is either accidental, or more likely, a result of your incredibly fertile imagination.
You have $100,000 to invest in income property. You aren’t bound by geography, and are currently interested in growth, not cash flow. For the next 10 years you have one goal: Capital growth. How should you approach this? What strategy will you employ? Are you comfortable with low down payments? What is a low down payment to you? Are you willing to sacrifice some growth for a perception of increased safety? The price range in the area on which you’ve settled is $200-300,000. Let’s take a look at your options. Read the rest of this entry »
Posted on July 30, 2008 @ 11:47 pm - Written by BawldGuy
Here’s how I explain to real estate investors in other states what it’s like to trade equity from California to much lower priced growth regions.
It’s kinda like buying that killer Norstrom’s dress for yer wife. You honestly thought it was perfect for her. But after she stopped laughing, and could speak English again, you were back in the car, headin’ for a refund. Now, imagine you hafta spend the entire refund at the Dollar Store. That is what the CA real estate investor faces when he exchanges his properties’ equities to another state.
Take a Bay Area, San Jose (Palo Alto), or San Diego income property owner. We’ll use a San Mateo duplex. Let’s say it can sell for $850,000 and with a loan balance of $400,000 the net proceeds would be roughly $385,000 or so. If they paid $600,000 back in the day, their annual tax shelter runs in the neighborhood of $18,000 +/-. (Should be more, but that’s another post.) Their current cash flow is either zip zero nada zilch, or enough to treat the family to a monthly dinner at Sizzler. Oh boy! We’re goin’ to Sizzler!
Here is the ‘before & after’ picture when their 1031 tax deferred exchange has been successfully completed. Read the rest of this entry »