All Forum Posts by: Tom NA

Wow - that's a great post and great perspective Ryan! I couldn't agree with you more that it seems people gravitate to REI (and this and other websites) because they think of it as a way to make easy money, and that's the answer to life's problems. Indeed, determine if you have a passion for it before building up debt and mortgaging your future. As I've said before, for me personally, I very much enjoy my full time job and this is just a hobby and investment diversification strategy. Even if I could make ten times in REI what I make in my job, I wouldn't make the switch because it's less about the money and more about day-to-day satisfaction. Too many people seem to ask "I want to get into Real Estate, where should I focus?" which I translate into "I don't have any idea what I might like, if anything, but I don't care because I've heard there's lots of money to be made in Real Estate which will obviously make me happy". If your passion is *Making Money*, my suspicion is that you will flounder and most likely fail as you'll put out the minimum effort to get there. If your passion is *Real Estate*, I think you are much more likely to succeed as you will be more likely to pour your full heart and energy into it.

Actually, I didn't see Jon addressing any of those issues but that's fine - I made my point. Obviously you don't get it... RE prices in California have *never* been in sync with the midwest and *never* will be. This isn't a recent phenomenon. There's no magical unemployment or rising gas prices that are going to make prices converge across the country. Yes, we have already seen and may see more price drops just like the rest of the country but in general, current prices are a reflection of what the market will bear out here.

Now, I can't argue with you that things are overpriced (I also grew up in the Midwest) but it's all relative and a tradeoff that some of us choose to make. I'm very secure knowing that my house won't be losing value any time soon.

As an aside, I will note that the few RE investments I have made are not out here and I would never buy a rental out here - there's absolutely no way to cash flow it.

Sounds to me like the answer is no, you should not expect to make a profit in 2-3 years. If prices declined 10% over the past year, what factors are going to make them go up over the next couple of years and even if they do go up slightly, is it even enough to cover your commissions, closing costs, etc? If you're buying to put a roof over your head, that's fine, but you need to find a bargain if you want to turn a profit in such a short time frame and I see nothing indicating that you are buying at anything but retail.

So obviously I'm not going to argue with data you looked up so we'll just have to agree to disagree on this one. I can guarantee you that in my field of engineering, where salaries for anyone with any significant experience out here is commonly in the 6-figure range, that there is a difference between here and Ohio. I could be wrong but from my experience, there is definitely a difference in this field and this is the industry that contains the bulk of the jobs. The demographics are different than Ohio - we have less blue collar more professional positions which means higher wages. Something has to explain the ability for most professionals to be able to afford not just $500k houses but $1mil and up. Two simple examples: 2 houses went up across the street from me last week - they each were open Saturday and Sunday, had roughly 150 people through each of them and both are now pending with multiple offers. $1mil asking for 1200 sqft. and $1.1mil asking for just over 1000 sqft. and I suspect each will go for over asking price. These are not investors buying, these are people like you and I who have normal jobs and are just looking for a place to call home.

Salaries aside, you didn't even address any of the other issues that I mentioned also play into the cost of housing. Sorry, but a 1500 sqft. house in Ohio will never cost the same as coastal California nor will it cost the same as a condo in New York City. There are many factors beyond salaries and you need to consider those all together in understanding prices not just now but in the future. I guarantee you that any smart investor would pay $500k for just a 6000 sqft. plot of land without a house in some of the better neighborhoods around here or even other areas of the country. Yes, many parts of California bubbled just like the rest of the country but some areas will always be able to hold a minimum value due to the many factors I mentioned. Show me a $500k house in my neighborhood and I'll show you the best investment you'll ever make.

So I can't speak to any "Flip" episodes as I don't generally watch that show but I can speak a little to the CA house prices. Prices were sky high here well before the dot com boom and bust and depending on neighborhood, not only are those prices still supported but they continue to rise. I used to rent a 2-bed house in middle class San Jose 10 years ago and the owner at the time sold it for around $450k. That same house today probably could fetch $700-$800k. It's not speculation - it's a shortage of land (and thus housing) in an area that is desirable to live due to weather, culture, etc. with a highly skilled and well-paid workforce. There's no shortage of people that can easily afford $500k with the "average Joe's" being the ones who tend to rent in the area, double and triple up in apartments, commute from far away where prices are cheaper, live in the more dangerous parts of town. Remember, pricing is really set based on what the market will bear in an area - and all areas of a city or regions of the country are not created equal. Of course the same house in Ohio is worth less than in California - the weather is different, the pay scale is different, the amount of available land is different, and on and on.

I would pay $500k in a heartbeat if a house in my neighborhood was available for that and turn a big profit in short order. It's not that it's an especially nice neighborhood - just average ranch houses on small lots - but the market will bear prices anywhere between $800-$1000/sqft all day long. Most people don't buy for speculation at these prices but rather for a place to live which tends to keep prices stable and in fact rising - at least where I am.

I'm gonna pick apart your post a little to give my response.

If the 11k pays "down" your consumer debt and doesn't even pay it "off", my guess is that is where your focus should be. I would always recommend that someone get their own house in order (which means elimination of all but low-interest consumer debt or personal mortgage) before throwing money into investment RE.

Going in with a friend does not minimize expenses, it just shifts who is paying those expenses, as well as who is reaping any benefits. Will half of the pie in a flip or rental really be moving you toward your end goal? Perhaps it could if you buy right but that's a big if.

This seems to be the best option in my opinion. It requires very little money so you can put your existing funds toward a better use such as paying off that debt. Having never done wholesaling, I can't speak to this firsthand but my suspicion is that this requires a lot of time and effort to find and execute even a single deal so be prepared that it may not be as easy as advertised.

Finally, the question I would make sure you ask yourself is "why?" Why do you feel compelled to invest in RE? You've made it clear that you want to but haven't made it clear why. It seems that this is a question that a lot of people on and off this board should be asking themselves as I get the sense that people have this vision that RE is *the* place to make money. The uncertainty of your post makes it seem that you want to invest in RE because you have an idea that it's a good place to make money but with all that uncertainty, should you really be convinced that RE is the place for you? Is your 401k maxed out? What about IRA? What rate is your consumer debt at? Any stock or mutual funds? Basically my point, while far from an being expert, RE is not necessarily an easy place to make money so make sure you are looking at it for the right reasons and make sure that it is the best place to put your money. For me personally, l'm a marginal RE investor at best but I'm very clear what my motives are: diversification to go along with all my other investments. Certainly no money goes toward RE until my 401k is fully funded, I set aside money in my kids' 529 plans, I pay off my monthly CC bills, etc.

Even though you said we can be harsh, hopefully I wasn't. As much as anything, your post provided me the impetus to encourage people to make smart financial decisions vs. chasing the dream of RE riches which are oftentimes hard to bring to fruition.

Hey Newbie,

Are you sure that the properties you are buying for $20k and renting really have at least $50k in equity? Frankly, I'd be surprised if you were able to actually sell these properties for $70k or more. If so, seems to me you'd be much better off just flipping than buying and holding - run the numbers and honestly it would be a no-brainer. $50k profit now vs. maybe $100 per month - not even a decision to be made it seems. Especially in a market where appreciation will not be seen for a long time. At one per month which you seem to think you can easily find, that's $600k pre-tax per year. Where do I sign up?

I'd have to agree with Wheatie here. You will never get your money from them without taking them to court and getting a judgment and even then, they'll only consider paying if they care about their credit rating.

I had someone who owed me much more than that (not a tenant) and I decided to hire a lawyer to get a judgment against them. After a few thousand more on legal fees, I got my judgment but have not collected anything to date. I'm in the midst of hiring a collection agency to go after my money at a 50/50 split as I don't have the time or capability to find out where he is, what assets he has, or how to legally lay claim to what I find. He had no credit rating to begin with so he doesn't fear the black mark and my guess is that I'll be lucky if I ever see anything back.

The one thing you do have going for you is that it seems that this ex-tenant of yours must make some good money if they built up that much debt in only 3 months so they may be more able to pay their debt than my deadbeat. If you get a judgment, you can legally garnish their wages (if they're employed) or take other property they own such as vehicles in order to satisfy the judgment.

Good luck!

Not my primary source of income and never will be. Just an investment diversification strategy and side interest.

This is true to an extent. It depends upon whether RE is a full-time or part-time activity for you and it also depends upon your overall AGI. Owning rental property provides zero tax benefit for me and I think people don't always understand that these writeoffs have limits, caps, and phaseouts. In my case, the writeoffs can only offset my rental income so it's a wash, no tax benefit whatsoever except I guess that my meager cash flow can stay in my pocket. My main home is what provides the real tax benefit.