All Forum Posts by: Anthony Halstead

"I could donate $400 to charity and receive the same tax benefit as $400 in mortgage interest. "

Lol, I discuss this so many times... "but I get the tax break..." Yeah, so you save 30 to spend 100, your cost is still 70 that you would not have if you did not have interest expense...

But I am not against leverage, just the uninformed (stupid) arguments for taking debt because you "get a tax break". Guess who wrote that sales pitch (the threesome of bankers, politicians and realtors...).

Do some modeling. You are against excessive leverage. You are an accountant. You can run some scenarios for growth with 0% debt, 20% debt, and 40% debt and see how much sooner you can pay off the properties. If you can buy two houses for 100,000 with no debt, you can buy 3 houses at 40% debt and have 10,000 left for a rainy day fund (which is an important part not discussed thus far). This should give you good cashflow, protect against going underwater if house prices decline further, spread vacancies (one unit empty is still two paying rent, instead of just one unit), AND you get some tax shelter from the income without needing to donate to a charity.. :)

But the biggest advantage is that you now have three units to cashflow to save for the next unit, you do not need to save so much because you are buing at 40k instead of 50k, and your equity is growing faster. And your risk is much less than the 90% leverage guys.

Keep 6 months in reserve, plus a fund for major problems, plus a bit extra, and you should be ok, not overleveraged.

Just my two cents. I think you should take advantage of the interest rates offered today if you are buying houses...

Tony

Jon, what is the marble for?

Thanks,

Tony

Re heat pumps, you can find an option that is a stand alone system. There is one unit outside, then a couple pipes go through the wall to a wall mounted unit. That unit can give heating or cooling, depending on the setting. Cost should be under a couple grand, maybe under a grand. I put one up and it was a grand including installation. Heats a 2100sf house. (one caveat, heat pumps COE drops a lot after the temps go to the teens or lower, but that should not be too often in too much of the country. Then the electric or gas heat should be supplementary.

Tony

House prices are set by affordability. Affordability is determined by each individual's circumstances and motivations. Right now some circumstances are high unemployment, rising taxes (as a ratio of tax to prop value) due to municipalities being starved for cash (spent too much, planned based on high prop values, etc), and uncertainty. These trump the low interest rate, and even negate the govt incentives such as tax rebate. Fear and greed are emotions that rule many decisions made concerning money, and the greed cycle lasted till about 2006-7, now it is the fear cycle. People are scared when they see family members, friends, neighbors who are unemployed. They are scared when they see taxes not coming down, even as property values / prices dropping. So even though they may be able to afford to buy a house (if they can qualify, which is another issue) with the low rates and low prices, they are scared. If rates go up, prices will not go up, that is almost for sure. Rates are now at a 50-60 year low, cannot really go down much more. I do not expect prices to increase much in the next 5 years or so unless massive inflation comes. Even then I am not sure. CPI is not including food and energy, two items that everyone has to pay, and it is a much larger part of poor people's budget and rich people. This will further depress the amount that lower income people can pay for rent or a house. So unless rates stay relatively calm, ie not 8-9%, and energy slows down or gets cheaper, I think that we will have stagflation. Higher prices for food, energy, and all their derivatives, which depresses the amount of income available to be spent for discretionary items and surely depresses the amount of borrowers available to buy a house.

Tony

Barrett,

As a recent college grad you likely have little experience. The world is still wide open for you, no need to commit to a career in banking yet. Now you have the chance to take a divergent path in the same direction, it will make your journey more well rounded and probably open your eyes to things that you may miss in your current state.

Good points mentioned above include checking the contract for no-compete. Just because one has not been mentioned does not mean that one will not be requried... This does not mean to ask if there is one; ask and ye shall recieve...

But I see this as a golden oppurtunity. Same salary, commissions, opening a ton of doors that turn you into an insider, and it will not hurt your banking career if you decide to go back, but will instead give you perspectives and insights to give value to your customers.

Weigh the options, find out the specifics, but if there are no major deal breakers go for it.

I once had a guy talk to me in a bookstore; we were just looking at the same book, and started talking. I was a bit wary, because that was a favorite tactic for MLM and other type sellers, but he seemed to be wary as well. He asked what I did, and we talked a bit more. Then he said he had rights to a phone with radio (walkie talkie) included and asked if I was interested in working with him. It was a regional right. I thought instantly that it was a sham and made some excuse and left. Needless to say, Nextel did quite well after that, and I was not a part of it's growth.

Moral: Try to understand and minimize your bias when recieving an offer (I was in a bookstore, preconcieved notions of persons making offers there), take the time to do your DD (I did not look up his company and check him out), and be receptive of new ideas (I thought putting a walkie-talkie on a phone was some kind of pipedream sham MLM ponzi scheme, never heard of it so I should have checked it out).

You never know where or when that golden door will open in a new direction, but you need to be prepared so you can understand when the door opens (many never even recognize an oppurtunity because they do not know how to value one) and how to determine what to do.

Just some thoughts on life,

Tony

What do you want? It does not matter what I would do because we are not the same person.

However, seeing as you were already studying real estate on your own time, plan to invest in it, and have this oppurtunity, I would say go for it.

These kinds of oppurtunities are not offered to everyone, and sitting at the right hand of a SUCCESSFUL professional is worth more than your degree.

Seize the day, go and get his experience. If you want to go back to banking, I think it would only help your resume and put you in a much better position in the banking industry...

Tony

Jon, you have good words there. I understand the logic.
My thinking is to sell both (well, neither is done yet, but very soon) and keep burning the bubble while it lasts. In a bubble such as this I would prefer to keep some powder dry to for a rainy day and so I am not too exposed for the downside.

Our compromise is to keep the first one because of the location, close to transportation, close to main roads, close to downtown, yet in a country-like, park-like setting. Kinda hard to find it's like around here, in fact almost impossible to find this kind of peace and view this close to everything.

So for that reason we may live in this one and sell the next... after all you gotta live somewhere.

Some facts about the market here: over 92% of the loans issued here are on Euribor plus margin, so averaging around 1.5% recently. They are commonly on a 1 or 3 month variable rate, so highly sensitive to changes in rates. This has, IMO, allowed prices to float higher than 8 times pretax average income, and taxes here are no joke with average of 30-35%, plus 23% VAT, plus gas is 7$ a gallon plus, etc... So I think that there is a bubble and when rates go up again (the ECB is trying to keep them as low as possible to induce "growth", same as the Fed) then there will be a corresponding negative price move.

One last question Jon: I feel that our home, our primary residence should be low LTV, and rental homes should be whatever makes the most sense from a business point of view. With rates so low, it makes sense to have higher LTV in some situations, while when rates go up (and prices correspondingly go down???) then it is better to pay cash. Your thoughts?

Thanks again for all the great advice and posts on this site.

Tony.

Thanks Jon,

Next one we are planning to minimize our time, hire out labor where the cost vs time differential is beneficial for us, and we will do the high cost items. And we plan to sell it. Fast.

Just wondered if anyone had a good example / lesson for making it black and white for my wife (and some others in the same situation) that having that much equity locked up in a potential bubble market does not make sense.

I guess that I have the basics to make the argument, and will see how it plays out...

Thanks.

Ok, some background. I watch my parents go through the housing bubble. My dad wanted to sell, my mom liked where they are. Now the kids are gone, and they have a big house, and would like to sell, but...

My wife is falling in love with the house we are building. I have explained to her the history of housing, and that we are likely in a bubble here as well. I have explained that if it does not make sense to buy a house to rent, then prices are likely too high, we can sell and buy a cheaper house somewhere.

So just trying to be proactive and look ahead.

Hello, first post here. Thanks to all who have contributed and made this such a valuable resource.

Situation:

Property is not in US, am building a SFR, 85% complete.

Land is a rental lot (owned by city), 65 year lease, 3200 per year, indexed to inflation (slow rate of increase), these are quite common here. Comp land value is 120-140k if buying similar sized lots instead of renting. Not a problem with selling house on rental lot, city transfers lease to new owner, it is common here and does not seem strange to these folks.

Building cost: ~150-160K (doing it all myself, so lots of sweat equity), market value around 350-400k.

This is intended for primary residence.

Rents for similar units are around 2000/month.

Looking at a return on cash invested if I rent it this looks good, however there is a ton of equity locked up doing nothing...

Now have option to do this again. Same numbers. Have option to build. Running numbers and planning to make a quasi-duplex, like a house with mother-in-law apartment.

Similar numbers, lot is about 3600 yearly rent, comp land price is 120-140k. House value is around 350-400k when finished, rent will be around 2000/month.

Taxes on gains 28% with exemption if living as primary residence for more than two years.

Thoughts: Live in the first, build the second, sell both to release the equity (around 300-400k after taxes if values do not slump) and put that to work on multiple properties at higher LTVs.

Thoughts, advice, etc please.