Posted on August 18, 2008 @ 10:59 pm - Written by BawldGuy
You know the kinda place I’m talkin’ about. I joke about it all the time. Around here it’s known as East Toilet Seat, Wisconsin. Buy an income property there, and five years later it’s either worth the same, or gone up just enough to pay the costs of selling, and break even. Like I said, slloooow. This is why we do so well with investors in those type areas, ‘cuz folks often have capital but no place for it to grow. We make it easy for them to export their hard earned investment capital safely. Makes plenty of sense, but not everybody wants to travel that road. They’d rather stay local. For most that’s a huge long term mistake in those kinda markets. Why? ‘Cuz you’re forced to grow your capital almost exclusively through expertise, technique, and courage.
Therefore, in those markets, any strategy relying upon appreciation in general should be discarded out of hand. It’s a failure just achin’ for a sucker to grab hold.
If it can be reasonably assumed an area won’t exceed 1-2% annual appreciation, here’s what the real estate investor’s lookin’ at.
Buy at $200,000 and hold for about five years at 2% annual appreciation. In those five long years you made a whole $21,000 — and I rounded up. 
After sales costs you can take the family for a week’s vacation to lovely Lemon Grove, California — just a $4 cab ride away from the famous Lips. Read the rest of this entry »
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 10, 2008 @ 8:44 pm - Written by BawldGuy
This post was recently published as guest post. Thought I’d also publish it here as Sunday reading.
In my opinion, the all time political football in America has been the middle class. They either don’t make enough at work, are taxed too much or too little (too little?), or have disappeared altogether. None of those arguments are what continually keeps my attention. Not even close. Taxes? Middle class families figure things out and manage to survive the idiots in D.C. and their ‘help’ one way or the other. How ’bout college for the kids? Again, they figure it out.
The #1 concern I’ve always had when it comes to the American middle class is what’s waiting for them at retirement.
In my view, the debates over middle class job income, or even their net worth to a certain extent, misses the target for which they should be primarily aiming. What I’m not saying very well is that saving and investing in and of itself is the very reason the vast majority of our middle class is gonna be living out a life sentence instead of enjoying a wonderfully planned retirement. How so?
They’re listening to folks who apparently haven’t gotten the memo on what’s workin’ and what’s not. What are middle class folks being told these days? Slam as much money into the government’s qualified plans for retirement as possible. They sell this easily by hawking the annual tax savings allowed contributors for each dollar they invest in their qualified plans. The only retirement being enhanced in a major way by most qualified retirement plans is Uncle Sam.
Here’s how.
Take a middle class couple contributing to their 401(k)’s from 30-65 years old. Each year they they save anywhere from $3,000-10,000 in state/federal income taxes. In 35 years let’s say they’ve saved a total of $250,000 in taxes. If after 35 years they’re combined plans have reached $2 Million, and they figure a way to obtain a 6% annual return for their retirement income, they’re potentially in trouble. Their house is no doubt free and clear. They have no tax shelter of any consequence.
In reality, they arrive at retirement with at best, $120,000 a year in income. They’ll most likely be liable for the highest income taxes possible. Let’s say they pay about $35,000 in combined state/federal taxes. This means by the time they’ve been retired 14 years, they’ll have paid just short of twice what they ’saved’ in the previous 35 years. And that’s it ’till death.
Please tell me in what scenario does saving $250,000 in taxes for the privilege of paying out twice that amount in less than half the time, make sense. Why not investigate alternatives allowing you to not only create a far more abundant retirement income, but also keep more of that larger income? Why not also do this while building tax sheltered and tax free income?
Indeed, why not?
Here’s what I’d be pleased for you to take away.
Don’t keep your eye on a few tax dollars saved each year. Keep your eye on the real ball — your retirement income, and it’s after tax safety. Stop allowing Uncle Sam to play ‘hide the pea’ with your retirement plans. That pea is your gold.
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 »