Money Investing?

[EL PRESIDENTE]

Yeah, but I am paying less than $1000 a month in rent living a mile from the ocean. If I were to buy, I'd have to live somewhere I don't really want to, pay more money, throw a big down payment down (assume what, $40grand for a $200k place) , and deal with a lot of stupid crap like insurance, property taxes, maintenance, etc. I rent out of sheer convenience and because it doesn't really affect me financially. Keeping things simple.

 

[44Thrilla]

Yeah, but I am paying less than $1000 a month in rent living a mile from the ocean. If I were to buy, I'd have to live somewhere I don't really want to, pay more money, throw a big down payment down (assume what, $40grand for a $200k place) , and deal with a lot of stupid crap like insurance, property taxes, maintenance, etc. I rent out of sheer convenience and because it doesn't really affect me financially. Keeping things simple.

If that works for you, then that makes sense. Renting in this part of the country is not like that. My mortgage payments are right on par, or cheaper, than the rents for similar places. Especially with so many people foreclosing on their houses. More people are renting, so rents are going up. Supply and demand.

 

[MARIS61]

I thought about that actually, but Real estate unfortunately around here would net people about $1500-$1700 a month mortgage, and we cant afford that, but we also arent looking to move, even though we understand it would be cheaper to do so.

I did some looking this summer in Hood River, The Dalles, Pine Hollow...area for some clients for whom I eventually found ten acres with a nice home in La Pine.

Apparently they don't get "news" in the gorge and are completely unaware that the market has changed since 2006. Sellers are in the complete denial phase that Bend sellers went through 2 years ago and so of course nothing is selling as it is priced about 40% above current value. I expect the crash there to come late next summer after another year of no activity.

 

[EL PRESIDENTE]

If that works for you, then that makes sense. Renting in this part of the country is not like that. My mortgage payments are right on par, or cheaper, than the rents for similar places. Especially with so many people foreclosing on their houses. More people are renting, so rents are going up. Supply and demand.

Yeah, if I wanted to "settle down" or something, I'd probably buy. Honestly, my lifestyle is not conducive to that though.

 

[44Thrilla]

Yeah, if I wanted to "settle down" or something, I'd probably buy. Honestly, my lifestyle is not conducive to that though.

Mine either. I'm blue collar, though. If I don't plan my future, I will be pretty fucked.

 

[Wheels]

What you can't afford to do is rent! Renting=throwing money in the trash. At least with real estate, you're just setting your money aside, at worst.

what it comes down to is a $1000 difference just in monthly cost alone. Thats not something I want to risk for me personally.

 

[Wheels]

I did some looking this summer in Hood River, The Dalles, Pine Hollow...area for some clients for whom I eventually found ten acres with a nice home in La Pine.

Apparently they don't get "news" in the gorge and are completely unaware that the market has changed since 2006. Sellers are in the complete denial phase that Bend sellers went through 2 years ago and so of course nothing is selling as it is priced about 40% above current value. I expect the crash there to come late next summer after another year of no activity.

thats exactly it here. The people who are buying here, are people with money. Prices have dropped in a lot of places, but not as much here. Cant really find a house for less than $250,000 here.

 

[EL PRESIDENTE]

what it comes down to is a $1000 difference just in monthly cost alone. Thats not something I want to risk for me personally.

Its more than that when you figure insurance, upkeep, property taxes, etc.

What's the general rule...isn't it 20-30% of your household income on that stuff and you should be fine...if its creeping above that, you might be getting in over your head.

House shouldn't be as important as having a safety net for when the apocalypse happens. I actually enjoy living a more minimalistic lifestyle with money spent on travels and enjoyment of life rather than a house, which I wouldn't personally enjoy that much.

 

[Wheels]

If that works for you, then that makes sense. Renting in this part of the country is not like that. My mortgage payments are right on par, or cheaper, than the rents for similar places. Especially with so many people foreclosing on their houses. More people are renting, so rents are going up. Supply and demand.

Yeah its same with me.. Rent is a LOT cheaper than a Mortgage. But if they were on Par.. for sure I would be owning.

 

[Wheels]

Its more than that when you figure insurance, upkeep, property taxes, etc.

What's the general rule...isn't it 20-30% of your household income on that stuff and you should be fine...if its creeping above that, you might be getting in over your head.

yep, so even more. Unfortunately around here, the difference of rent vs cost is just too high, and one is much more convenient as you said.

 

[Wheels]

It reminds me of Mitch Hedberg talking about the Home depot, and the Apartment Depot. "the Apartment Depot, which is just a big warehouse with people standing around saying 'hey, we ain't gotta fix shit!'"

 

[MARIS61]

unless your house loses value, which has happened to many. if you can't sell your house, then its not setting your money aside...the days of housing being a stable investment are long over. If you're going to live in your house..sure, its nice to own. but its a new world.

or if your house payments don't let you live life. what good is a house if all you do is live in it?

I agree it's a bad idea to be chained to your home because you bought too expensive a home, but unless you're on the street you're buying somebody a home. Might as well be yours. I have also had clients who rent their own home because they don't want to be tied to an area, but still invest in a retirement home that they rent out until they retire.

 

[EL PRESIDENTE]

Yeah. My garbage disposal breaks, I call building maintenance and it works again. Home owner? They schlep to home depot and buy a new one or call a plumber. fuck that man.

 

[Wheels]

I agree it's a bad idea to be chained to your home because you bought too expensive a home, but unless you're on the street you're buying somebody a home. Might as well be yours. I have also had clients who rent their own home because they don't want to be tied to an area, but still invest in a retirement home that they rent out until they retire.

Thats what I would want to do personally. But if I didnt have tenants for a while, I would be screwed.

 

[EL PRESIDENTE]

I agree it's a bad idea to be chained to your home because you bought too expensive a home, but unless you're on the street you're buying somebody a home. Might as well be yours. I have also had clients who rent their own home because they don't want to be tied to an area, but still invest in a retirement home that they rent out until they retire.

I am not ruling out buying a home somewhere, just not in LA. It just doesn't make a lot of sense. I think I've stated, I've actually been looking at somewhere like Nevada or Texas, where home prices are low and there is not a lot of taxes. I'd still keep my place in LA...its just pretty cheap. My mom was telling me that in their condo in LA there are several foreclosures and short sales for like $200k or so....I just told her that I wouldn't want to live there, I like living by the beach for a number of reasons. Unless I'm pulling in $750k a year though, it does not make sense to buy a house here.

 

[MARIS61]

thats exactly it here. The people who are buying here, are people with money. Prices have dropped in a lot of places, but not as much here. Cant really find a house for less than $250,000 here.

My clients bought a 4 year old 2100sf home on 10 treed acres with a Mt Bachelor view here for $245,000.

Everything we looked at in that price range up there was built 40-100 years ago, needed massive fix-up, and had maybe an acre or 3. Not many foreclosures that I noticed, so maybe that's the problem. No pressure to sell.

 

[BLAZER PROPHET]

If you do get a financial adviser, do NOT go to Edward Jones. In the small fine print (which they didn't tell me about), on top of their high fees and maintenance fees (no problem with those), they get 10% of all your profits- that is a stinger. So fully understand all fees...

 

[MARIS61]

5 Reasons Home Ownership Trumps Renting

The seemingly endless run of bad housing news is discouraging some potential home buyers from considering a purchase. But the truth is that the advantages of home ownership have very little to do with investment gains. The best things about owning a home have a lot more to do with personal comfort and satisfaction.

Here are five of them:

· Be your own landlord. The bank can only kick you out if you don’t pay; a landlord can be much less dependable – deciding to sell the property or choosing to live there themselves.
· Paying the principal is forced savings. Yes, it’s possible that home prices will fall further. It is also possible that your 401(k) will lose value. But over the long haul, both are likely to enjoy modest gains in value.
· Fixed-rate mortgages never rise – and eventually you pay them off. With mortgage rates at record lows, people who buy now are locking in real bargains.
· Good schools. Family-sized rentals are harder to come by in areas with excellent public schools.
· Spacious properties in pleasant neighborhoods. Sizable homes in attractive communities are almost always owned – not rented.

Source: The New York Times, Ron Lieber (08/27/2010)

 

[toutlaw25]

Don't forget the enormous tax advantages of owning a house. Not only are you adding equity with your monthly payments, all of the interest you pay on the loan is tax deductible, and depending on the amount of your loan, it will significantly lower your taxable income.

 

[Mediocre Man]

unless your house loses value, which has happened to many. if you can't sell your house, then its not setting your money aside...the days of housing being a stable investment are long over. If you're going to live in your house..sure, its nice to own. but its a new world.

or if your house payments don't let you live life. what good is a house if all you do is live in it?

Which is why a recession is the best time to buy a house. There are also many programs out there that will allow the double income love birds a way to get in with less than 20% down....sometimes nothing down. Another way to go is forclosure. Most likely they could get into a house for a few hundred dollars more than they are paying in rent right now. Depending on how well they save or not, they could easily make a 150,000 mortgage payment of 800.00 or so a month (5% interest) And stick $200 a month in a high earning savings account, then suppliment their property taxes at the end of the year with money they will get back in taxes because of their house. It's insane to rent if you have any ability at all to buy.

I rarely agree with her, but Crandc probably gave you the best advice so far. A good financial advisor (harder to find than you'd think) is worth every penny. That being said, I am 100% confident that any advisor will tell you what I said already. Buy real estate, and get a Roth IRA. One thing that worked for a friend of mine was that he bought a duplex, and rented one side out. It cut his mortgage payment in 1/2. He got in at the right time though, and has since moved out of that duplex and has several properties. I just think you should buy a house for you to live in, not as an investment property.

 

[tlongII]

Real Estate! It always goes up in value!

 

[mook]

I rarely agree with her, but Crandc probably gave you the best advice so far. A good financial advisor (harder to find than you'd think) is worth every penny. That being said, I am 100% confident that any advisor will tell you what I said already. Buy real estate, and get a Roth IRA. One thing that worked for a friend of mine was that he bought a duplex, and rented one side out. It cut his mortgage payment in 1/2. He got in at the right time though, and has since moved out of that duplex and has several properties. I just think you should buy a house for you to live in, not as an investment property.

That's exactly what I did with our first home several years ago. I bought a duplex and was making $1000 house payments, but my upstairs tenant was paying $600. So my net payment was only $400. Add in that the interest was tax deductible, and it was probably more like $350. You can really start saving if you only have a $350 house payment.

I made a killing when I got out of that one.

But I'm not really interested in being a landlord again. I had one tenant commit suicide, and a couple bailed on me without paying rent.

The worst was the last one, though. Just a very nice, decent, poor family of three. Great daughter. I had to show the place while they were still living there. At one point this cute little 6 year old asks me, "Are you going to make us leave our home?" I said no, but I sold it a month later. (Had to for financial reasons.) The next landlord immediately evicted them so they could do a major remodel and restore it to a single dwelling.

I guess you can get property managers to deal with that kind of stuff, and if I had to do it again I might. But when I think back about that little girl, I think I'd really rather just make money doing other things.

 

[mook]

A rule of thumb that I found to be true is that you had to count on your rental to be vacant for at least one month a year. Also about another month of rent/year should be allocated to maintenance (lawn, plumbing, new carpet, socking away for a roof every 20 years, repairing the light fixture the tenant strangled himself from, etc). So if you are trying to work out if a rental property will cash flow (you pay roughly the same in mortgage as you collect in rent), a conservative real estate investor will count on 10 months of rent/year.

When factoring in cash flow, though, you have to also remember that it generally gets better for you as the years go on if you get a great fixed rate mortgage. You may charge $1000 in rent now and have an $1100 mortgage payment now. In five years you'll (hopefully) be able to charge $1150 in rent but you'll still have that same $1100 mortgage. In 20 years you may be charging $3000/month, and still have that same $1100 mortgage.

 

[mook]

BTW-- here's a really good comparison of investing in stocks vs real estate:
http://beginnersinvest.about.com/od/realestate/a/real-estate-vs-stocks.htm

Pros of Investing in Real Estate

• Real estate is often a more comfortable investment for the lower and middle classes because they grew up exposed to it (just as the upper classes often learned about stocks, bonds, and other securities during their childhood and teenage years). It’s likely most people heard their parents talking about the importance of “owning a home”. The result is that they are more open to buying land than many other investments.
• When you invest in real estate, you invest in something tangible. You can look at it, feel it, drive by with your friends, point out the window, and say, “I own that”. For some people, that’s important psychologically.
• It’s more difficult to be defrauded in real estate compared to stocks if you do your homework because you can physically show up, inspect your property, run a background check on the tenants, make sure that the building is actually there before you buy it, do repairs yourself ... with stocks, you have to trust the management and the auditors.
• Using leverage (debt) in real estate can be structured far more safely than using debt to buy stocks by trading on margin.
• Real estate investments have traditionally been a terrific inflation hedge to protect against a loss in purchasing power of the dollar.

Pros of Investing in Stocks

• More than 100 years of research have proven that despite all of the crashes, buying stocks, reinvesting the dividends, and holding them for long periods of time has been the greatest wealth creator in the history of the world. Nothing, in terms of other asset classes, beats business ownership (remember – when you buy a stock, you are just buying a piece of a business).
• Unlike a small business you start and manage on your own, your ownership of partial businesses through shares of stock doesn’t require any work on your part (other than researching each company to determine if it is right for you). There are professional managers at headquarters that run the company. You get to benefit from the company’s results but don’t have to show up to work every day.
• High quality stocks not only increase their profits year after year, but they increase their cash dividends, as well. This means that every year that goes by, you will receive bigger checks in the mail as the company’s earnings grow. As Fortune magazine pointed out, "If you'd bought a single share [of Johnson & Johnson] when the company went public in 1944 at its IPO price of $37.50 and had reinvested the dividends, you'd now have a bit over $900,000, a stunning annual return of 17.1%." On top of that, you'd be collecting somewhere around $34,200 per year in cash dividends! That’s money that would just keep rolling into your life without doing anything!
• It’s much easier to diversify when you invest in stocks than when you invest in real estate. With some mutual funds, you can invest as little as $100 per month. With companies such as sharebuilder, a division of ING, you can buy dozens of stocks for a flat monthly fee of as little as a few dollars. Real estate requires substantially more money.
• Stocks are far more liquid than real estate investments. During regular market hours, you can sell your entire position, many times, in a matter of seconds. You may have to list real estate for days, weeks, months, or in extreme cases, years before finding a buyer.
• Borrowing against your stocks is much easier than real estate. If your broker has approved you for margin borrowing (usually, it just requires you fill out a form), it’s as easy as writing a check against your account. If the money isn’t in there, a debt is created against your stocks and you pay interest on it, which is typically fairly low.

For me, the flexibility and diversity of owning stocks makes much more sense than real estate.