All Forum Posts by: Ryan V.

David, you've been a huge help. Thank you. I am waiting on my CPA to get 2011 taxes done and in the meantime I am crunching numbers to gauge the likely hood of the banks writing a blank check....or no check.

Either way, thank goodness there are other options out there!

I agree with most of what has been said. I looked at historical charts of prices and rates and there seems to be a little correlation.

Now I need to find a chart with home prices superimposed on charts of "unemployment, economic outlook, population growth, household creation/consolidation, consumer confidence, tax codes, etc." to figure this all out....

While interest rates should be relatively low for a year at least, they will rise one day. How do you think that will affect real estate prices? In theory, as rates rise prices should be adjusted to offset the added expense of borrowing, but there are so many other variables that could counter that relationship.

Knowing the relationship will help determine better investment strategies. Also, it's fun trying to figure it all out!

What do you think?

My 2 cents....

Rates rose during the Depression because we were still on a quasi gold standard. When we left it in 1933 rates fell. The Fed pegged rates around 2% for the next 15 years or so.

Bernanke isn't going to let rates rise much at all until the private sector is finished deleveraging. He'll use more monetary stimulus if he thinks it's needed. Deflation is the bigger threat at this time. The economic recovery and inflation we've had so far is due to all the fiscal and monetary stimulus. The private sector isn't healthy enough to stand on its own just yet. Take all that stimulus away and we'll deflate. They're not going to let that happen though.

I think precious metals and oil could rise more due to further monetary stimulus but.....it all depends on where the economy goes from here. If we accelerate, Bernanke will tighten sooner than he forecast. The dollar will rise and precious metals will fall. Oil could go both ways because as the dollar rises, oil should fall, but if the economy speeds up demand will increase. I think demand will win that battle though. Throw the middle east in their and who knows.

I think we'll muddle through for another year or so and we might get more monetary stimulus. I don't know when we, Americans, are going to open up our wallets and spend like we used to allowing the economy to take off. I don't know when the housing mess will be over and our debt to income levels will be down to reasonable levels, levels where we feel we can put more cash toward spending vs paying down debt. I do think we've got another year of "easy money" at least, so precious metals should be fine.....for a little while.

I think the only way we'll see $5 gas this summer is if there's a massive escalation of conflict in the middle east. Possible, but not probable.

If gas goes much over $4.00, without more middle east conflict, it will begin to slow down the economy, putting a break on higher prices.

How old is this building? Are you doing all the work yourself? Did you assume these expenses or call around and get solid numbers?

If you are planning on doing the work yourself, then I would price the rehab with contractors anyway. If you haven't done this before and for some reason can't finish the job then you know you can bring in a contractor and still be ok.

From what you listed it doesn't seem like the duplex needs a major rehab, but some of the numbers seem low. What flooring are you planning on using? What is the price per sq/ft?

I would be overly conservative on rehab analysis. Take the higher number in the range you predict on each expense. Add everything up and throw in at least 10% for the unexpected and then.....double it.

The good thing is if your analysis on rent is correct then you have a cushion you can spend on rehab and holding costs (don't forget those, especially if you are doing all the work yourself. it will take longer than you assume), but I would make sure the rent estimate is accurate. Get solid numbers by calling around about rentals within a street or two. In my area online rent estimates are worthless.

How did you get your rent estimate?

From your current rent estimate of $550 per unit, by the 2% rule of thumb, divide $550 by 2% and you get a value of $27,500 per unit. This value is for a rented unit in good shape. $55k total. You want to buy the property for around 60% of after repaired value. So 60% of $55k is $33k. Deduct cost of rehab and holding costs and you get the highest amount you should offer on the property.

Since the current price is $19k you should be able to spend $14k on rehab and holding costs and still be ok.

The biggest advice I can give you is to slow down. Do your homework. Run the numbers a hundred times. Go over the property with a fine tooth comb. Do a solid market rent analysis. Proper due diligence separates the burned out landlords, like the one that owned this property, from the ones that love real estate and can't get enough of it and its wealth generating power. There are hundreds of other deals out there, so don't try to make this one work by assuming.....anything.

From my pov, if something catastrophic happens to the point where dollars are worthless then gold will be worthless too. At that point the only thing people will worry about is survival.....guns and butter.

Hyperinflation would make dollars basically worthless too, but I think the chance of that happening in the US is basically zero.

Gold has been a good investment for many, but I view it as highly speculative for the very reason you allude to when pondering its value.....it has value but how is that value determined? Is it currently priced too high or too low and why?

I agree with Don and Jon. I think precious metals are very risky. Prices will come down to earth. It's just a matter of when. That's not to say they won't continue their run a little longer, but I wouldn't want to time it.

What I don't like about precious metals is that nothing backs them up except perceived value. Precious metals aren't productive assets or income producing. There's no earnings, dividend yield, or cash on cash return. Some people like them as an inflation hedge. Some like them as a "the sky is falling" and "guns and gold" will be the only things of value when we are in some kind of Mad Max environment.

Basically, I think it is a fear trade. When fear about the economy subsides, precious metals will fall.

I have gone through local banks for mortgages under 50k. Most regional or national banks won't touch them. Two of the local banks will do 15 years max and they adjust every 5. No fixed. I agree with others that it will be difficult finding a 30 year fixed.

If you post more info on expenses for rehab and post-rehab I could let you know what I think about the deal.

Arthur,

I installed allure flooring in one of my mobile homes. Did the entire house. Love the stuff. Tenants love it too. I also use Kinecto ("luxury" vinyl tile) that was 60 cents cheaper on other properties. I bought surplus warehouse's entire stock of it in 3 different stores. It sits in my shop waiting to be used when needed.