Deals a decade ago?

Question

There are always stories about people who were burned buying before the financial crisis a decade ago. Can we get some inspirational deal rundowns from people who have held from 2008-2010 purchases?

What was the deal?

What’s your ROI looking like now?

Cash flow then vs. now?

Will you continue to hold?

Rates are super low... would you make the same deal again for that reason or would you have held off?

Anything else you’d like to add for us newbies.

I’ve got 90 days to find my first deal. Don’t want to get scared off by rising prices and uncertainty.

Account Closed · Answer

I bought my townhouse in San Jose in 2007. But it was a primary home so no cash flow at that time. I bought it for $620K at the bottom of the crash it was probably worth about $550K (based on neighbors sale), now worth about $1M.  Bought it when interest rates were almost 7% refi'd it down to 3.25%, moved out in 2014 and kept it as a rental. Starting rent was about $3200, current rent is $3700. Paid it off in 2019 (sorry @Joe Villeneuve) and using it as peace of mind consistent cash flow as I no longer work for the man :-). And a paid off place to live if I move back to California.

Joe Villeneuve · Answer

Sorry Anish, but you have to include 7 years of expenses you had to pay, that the tenant would be paying either from the rental income or on their own, including the full mortgage payments, taxes, insurance, utilities, maintenance, furniture (yes, that's part of the cost of living there), etc...and any and all of the rest of the costs after you turned this into a rental in 2014.

I see at least $240k in mortgage payments during that time period between the two loans.  I also see that the mortgage payments are just under the rents during the time before you paid the property off, so you also have to subtract the negative cash flow during that time period.

Also, since you paid it off in what looks like 5 years, I assume with your cash, you have to subtract the payoff (yes you do...that's a cost to you since you paid for it out of pocket) amount too.  As I'm looking at these numbers, I bet the net result is on the negative side...even if you assume the current value as a positive, that only offsets the payoff, and since that spread is in the form of equity (nothing wrong with equity) it isn't realized yet, so you are probably running in the negative...until you were to sell the property.

From 2007 to 2014 it was my residence. Of course there were expenses but I would have had those wherever I lived. I refinanced down the interest curve over those years as rates dropped. From 2014 to 2019 I still had a mortgage and about $800/month positive cash flow. In 2019 I paid it off. I know you advocate the infinite debt until death philosophy but I value things other than just the numbers. I have reached a point of "enough" in my life and I am happy to simplify and deleverage. This game is over and I won (by my own definition of course). No point chasing something you already have is there? There is much higher value to me of a paid off home that either cash flows reliably or is a low cost place for me to live that I actually like. So there is more to life than just the dollars and cents of it.

You're not wrong in what you say based on your goals, and the timing of your deal.  However, what you have shown as an example, is the final result.  What I'm talking about, is how you get there.  When you use a home you live(d) in at some point, as an example of an investment, you have to include the math from both when you lived in it, and when you rented it out.  In both cases, there are a number of costs.  The difference is who pays for them, and when, and how.

Your goal is to have a paid off property.  That's fine.  All I'm showing is how the math side of it means you are at a loss financially.  I'm not saying you're wrong in what you did.  Just saying that it isn't a plus from an investment side.

Account Closed · Answer

From 2007 to 2014 it was my residence. Of course there were expenses but I would have had those wherever I lived. I refinanced down the interest curve over those years as rates dropped. From 2014 to 2019 I still had a mortgage and about $800/month positive cash flow. In 2019 I paid it off. I know you advocate the infinite debt until death philosophy but I value things other than just the numbers. I have reached a point of "enough" in my life and I am happy to simplify and deleverage. This game is over and I won (by my own definition of course). No point chasing something you already have is there? There is much higher value to me of a paid off home that either cash flows reliably or is a low cost place for me to live that I actually like. So there is more to life than just the dollars and cents of it.

Brian G. · Answer

@Richard Mace virtually anyone that bought anything in 2008-2012 has made a killing as prices were at all time historic lows after the crash. If you want to know if I’m a buyer now, the answer is yes if I find the right deal, though my capital is currently tied up.

Joe Splitrock · Answer

@Richard Mace every market has recovered to well beyond where prices were a decade ago. Anyone who held on those ten years will have seen rents and cash flow increase.

Joe Villeneuve · Answer

...because it was part of your opening statement.

Joe Villeneuve · Answer

"What was the deal?"  Not one deal.  Each deal is part of a string of deals where I'm moving the cash/equity from one deal to the next...when the equity doubles in size from when I first controlled the property.

What's your ROI looking like now?  If you're asking for a percentage, I don't know...nor do I care. The day I spend percentages, is when percentages will start to natter.  Percentages tell me nothing of value...and they lie when they do "speak"

Cash flow then vs. now?   It changes as the cash/equity changes location...but always very good...or I wouldn't have gotten the property in the first place.

Will you continue to hold?   Yes.  That's the name of the game.

Rates are super low... would you make the same deal again for that reason or would you have held off?   Rates are only a part of each deal, so I can't answer that question.  The decision to move the cash/equity into the next property is based on "That| property at "that specific" time and the financial criteria the current timeline in my plan tells me I need to achieve.  This means I use different strategies for each deal.

Joe Villeneuve · Answer

Sorry Anish, but you have to include 7 years of expenses you had to pay, that the tenant would be paying either from the rental income or on their own, including the full mortgage payments, taxes, insurance, utilities, maintenance, furniture (yes, that's part of the cost of living there), etc...and any and all of the rest of the costs after you turned this into a rental in 2014.

I see at least $240k in mortgage payments during that time period between the two loans.  I also see that the mortgage payments are just under the rents during the time before you paid the property off, so you also have to subtract the negative cash flow during that time period.

Also, since you paid it off in what looks like 5 years, I assume with your cash, you have to subtract the payoff (yes you do...that's a cost to you since you paid for it out of pocket) amount too.  As I'm looking at these numbers, I bet the net result is on the negative side...even if you assume the current value as a positive, that only offsets the payoff, and since that spread is in the form of equity (nothing wrong with equity) it isn't realized yet, so you are probably running in the negative...until you were to sell the property.

Richard Mace · Answer

@Brian Gerlach

Tracking. I think I wasn’t super clear. I meant deals made from the market heights that preceded the financial crisis.

Richard Mace · Answer

@Anish Tolia

Awesome. That sounds like it worked out pretty well.

Deals a decade ago?

Most Popular Reply