All Forum Posts by: Account Closed

Welcome to a fellow Bay Area investor.

One huge advantage of the US is stable politics (yes even with dysfunction in Washington its still better than most of the world), a working set of laws and legal system, and a well established tradition of property ownership. Investing in other parts of the world adds a whole other layer of risks that I dont understand and cant really evaluate. So I would stay away. But if its a country you have ties to, or family etc it may make sense.

I have never invested in hotels but the question that would bother me is: how do you track income in a cash business if you are not running it yourself? You have to trust the on site manager but I have heard many horror stories of remote investors being burned severely. Also how can you really verify the historical occupancy? Its not like there are leases. I think its pretty high risk unless you are really experienced in Hotel investing and management.

I bought my first two home cash. Quickly realized my folly and refinanced them with cash out. All future purchases were leveraged. The govt and the federal reserve has decided that saving is bad (forced low interest rates) and borrowing is good. Its very hard to fight the Fed. So why not use it to your advantage. Borrow as much as you can at long term fixed low rates and invest it in high yielding rental property. Once the Fed bond buying party stops, interest rates will rise. The opportunity is now to capitalize on the cheapest money in a generation. The other factor is inflation. All the money printing will eventually be inflationary. Debt allows you to pay back principal with cheaper dollars. You win both ways.

The analysis by Ned Carey is leaving out the risk factor. Paying down debt is like investing at the same rate of interest with NO RISK. Investing in anything else has some risk. Therefore the interest rate on investments should be significantly higher than debt interest to make it comparable. I would say unless the debt is a low rate long term fixed debt like a mortgage, its better to pay it off. After that save at least 6 months of living expenses in cash. Only after that start to invest.

From a strictly financial view point you should take a 30 year loan. Money is as cheap as you will ever get. If you plan to invest in other things you can save the difference in payment and use the capital more efficiently. Its not hard to get more than 3.5% return on money. On the other hand, there is some emotional security in a paid off home. If thats what makes you happier, then do it. After all purpose of money is to enhance life and whatever enhances your life the most is what you should do.

My $50K houses are not in the Bay Area. Its almost impossible to get decent rental returns in the Bay Area. I am a firm believer in the power of diversification to manage risk. Putting all your eggs in one basket may work with high returns but a lot can go wrong in a single property. Vacancy, damage, natural disaster, declining neighborhood etc etc. Diversification protects you from risk. So I prefer more properties than less.

I would take exactly the opposite view. I live in the SF Bay area. My home is worth about $600K. If I rented it, I could probably get about 2800/month. If I have 20% equity, thats $200K. After mortgage/tax/HOA it would leave me about $300/month positive. Thats not including maintenance or vacancy. So at best its a zero cash flow investment. If it is vacant , the cost is huge.

It only makes sense to do this if I am expecting great appreciation or if I am renting it for a short term and intend to use it again as a primary residence.

Now instead of one home for 600K, I could get 12 homes at $50K each. Each would rent for at least $800 for a total rent of $4800/month. Yes I may have some vacancy but the fact that I would have 12 would make the impact of any single vacancy not too bad (8%). While I may have more vacancy than the expensive home, the number of homes makes the risk spread out.

I would never buy a luxury home to rent out. I would buy it to live in. Think of it this way, if you were running a taxi service would you buy BMWs for your fleet or Toyotas?

10 year fixed conventional on SFRs. 20-25% down. The cash flow is comfortably paying the loan after expenses with some small residual. My objective is fully paid off properties in less than 10 years.

Your plan looks good. A slightly off topic question. You say you have $100K in student debt. Thats quite high. Is your job on the cruise ship related to your degree?