VMCAffiliate
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| Advice on Investing |
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Hi All,
I'm 23 years old and I am thinking about Investing in property. I'm getting married next year and need some advice on what to do. What me and my fiance want are to buy some sort of a co-op/Duplex to live on 1 side and rent out the other side. We eventually want to get our own house and then rent our both sides of the duplex. Anybody have experience with this or have any advice on the best way to pursue this?
Jason
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Wed Jun 29, 2005 1:01 pm |
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MattL
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| Re: Advice on Investing |
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quote:
Originally posted by VMCAffiliate
Hi All,
I'm 23 years old and I am thinking about Investing in property. I'm getting married next year and need some advice on what to do. What me and my fiance want are to buy some sort of a co-op/Duplex to live on 1 side and rent out the other side. We eventually want to get our own house and then rent our both sides of the duplex. Anybody have experience with this or have any advice on the best way to pursue this?
Jason
You can get a real estate agent and go about this as you would normally.
There is a good chance that you will find a place that comes with tenants. If both sides are currently rented you can buy anyway and wait it out until one tenant moves. That may be easier than trying to find a place with one or two vacancies.
I know many people that started off this way and moved on to a bigger place and now have two rentals.
Good Luck!
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Wed Jun 29, 2005 5:58 pm |
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VMCAffiliate
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Thanks for the info.
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Wed Jun 29, 2005 6:14 pm |
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xboxundone
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Yes this is a great way to make soem cash and have a roof over your head I wish you luck!
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Wed Jun 29, 2005 10:01 pm |
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bigp
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Jason - you're thinking about this in a great way! At 23 you've decided to take things into your hands and invest instead of renting. Great strategy. Duplexes are a great way to experience landlording while living right there!
Talk to local agents and find someone you're comfortable with. They will be able to help you locate what you're looking for.
Let us know how things go, and if you have more questions.
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Wed Jul 13, 2005 5:47 am |
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forexdaytrading
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Jason, bigp is right; duplexes are a great way for you to start investing in real estate and at the same time lower your risk by providing some kind of cash flow. The problem is that lately, prices have increased much faster than rents in most part of the US and in many other coutries. This has caused rents to fall behind. From this, we can conclude two things:
1) It is probably much cheaper for you to rent right now than buy (unless you manage to find a property at a much lower price than its market value because of some unique situation).
2) If your goal is to eventually make money from this duplex, given the disparity between rents and prices, it will be tough for you to do so. More than likely, when you factor in all your costs, your cash flow will be negative even after renting both units of the duplex. The reason people continue to buy duplexes right now regardless of a negative or flat cash flow situation is that they expect housing prices to keep rising at a high rate to make the end result a profitable one. This might not continue for very long.
I have provided a link below to an article from The Economist (May 2005) titled "Still want to buy?" to help you make an informed and intelligent decision. The last thing you want to do when making any investment is to get desperate.
http://www.economist.com/finance/displayStory.cfm?story_id=3722894
Dan
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Mon Jul 18, 2005 1:48 pm |
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VMCAffiliate
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Thanks for the Info guys. Yes prices on housing are going up but, I still think that someone in my shoes would make out good. It would be a nice place to live, while the other side is helping you pay your mortgage. I find that better than throwing away money for rent. After So many years, I can rent out both sides and make even more income. I think no matter what, anybody in my shoes should make out well in the future.
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Tue Jul 19, 2005 7:22 pm |
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forexdaytrading
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Jason, why are you so convinced that you will make out well in the future?
How about if prices drop or stay flat for a prolonged period of time? Read my last post on this thread:
http://www.money-talk.org/viewtopic.php?t=1643&start=15
Managed Alternative Investment Accounts uncorrelated to stocks, real estate and other economically sensitive investments.
http://www.forex-day-trading.com
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Wed Jul 20, 2005 9:57 pm |
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bigp
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Jason - when you buy property and pay off principal on a mortgage, you build equity. Over time, the value of your investment grows, even if your propertydoes not go up in value, from the principal alone
As for Forex's comments, you have to analyze your purchase. If you're buying an income property, you want to get it for a price that will allow you income. Yes prices are high. Rates are low, though. And since you're only 23, if you decide to buy and hold (GREAT IDEA), you'll have a cash cow, no matter what in a few decades.
Be wise, be careful, and you'll do fine.
.
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Thu Jul 21, 2005 10:13 pm |
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forexdaytrading
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True; even if the property does not go up in value, equity will be accumulated over time; but this does not make a good investment.
A good investment will be determined by a combination of positive cash flows (monthly income minus expenses) and capital gains. At this point, your cash flow from your properties will be low (price to rent ratio is at a historic high) and the probability of obtaining an attractive capital gain is very low because of the extreme overvaluation of real estate.
Jason, even if you are young, making an investment at the wrong time will lead to below average performance over time. For example, if you buy long term government bonds when interest rates are low (like now), when rates go up the price of your bonds will plummet - Then you have to wait many years for the prices of bonds to get back to where they started. Why would you do this? It doesn't make any sense. When interest rates are low, bond prices are relatively high. Why would you buy bonds at such high prices? Isn't it better to look for other investments that are priced attractively relatively to their intrinsic value? This is also true for real estate. Why buy at overvalued levels? Do you think that real estate will continue becoming more and more overvalued forever?
The key to making a successful investment is return. Even if in 50 years your real estate property is a lot higher, your return might be very unattractive. When you compare the Home-Price Index (Robert Stiller, "Irrational Exuberance") since 1890, the inflation adjusted home prices are way over their average. In fact, US housing prices have increased parabolically in the last few years for no fundamental reason other than the fact that interest rates have been low and people are afraid of stocks. This will not last. When rates start going up, all hell will break lose.
If you decide to buy, good luck.
Managed Alternative Investment Accounts uncorrelated to stocks, real estate and other economically sensitive investments.
http://www.forex-day-trading.com
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Fri Jul 22, 2005 12:34 am |
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bong12187
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| Re: Advice on Investing |
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quote:
Originally posted by VMCAffiliate
Hi All,
I'm 23 years old and I am thinking about Investing in property. I'm getting married next year and need some advice on what to do. What me and my fiance want are to buy some sort of a co-op/Duplex to live on 1 side and rent out the other side. We eventually want to get our own house and then rent our both sides of the duplex. Anybody have experience with this or have any advice on the best way to pursue this?
Jason
Good job and good thinking. I am currently living in a duplex (2.5 sq ft just for my side). I am having the other one rented. Been doing this since 95. I can buy a bigger house but I like the fact that someone is paying my mortgage since 95. Since you are just starting out, I recommend for you to buy a 4plex instead of a duplex (although duplex is just as good). The reason for this is because bank will treat a 4 plex (and a duplex) as a residential loan like you are buying a single house. You get more bang for your money on a 4plex (duplex is just as good). Please ensure that you teach yourself by reading books on landlording/real estate. Here is the best part. After 2 years, if you decide to sell the property, all of your profit is tax free (I believe up to 600k but I think it went up). You can then use this as down payment to buy another rental property or a house of your dream. Just a thought...
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Mon Aug 01, 2005 6:28 pm |
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VMCAffiliate
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Bong thanks for the info. Forex, your thinking way past me. I'm looking to buy either a duplex or 4-plex to start off with a place to live, roof over my head, to begin with. I will not be looking at this as an investment yet because all of the money I receive from the renters will go towards the mortgage until it is paid off. Thereafter, I will have a home all paid off with rent coming in as all profit. Now your trying to tell me forex that I'm better off renting to pay off someone elses mortgate and that in the future, I will probably make out less rather than ahead. I highly doubt that. 1st if all I;m planning on purchasing only in a location where values are going up and not down. 2nd, I don't know how you can really consider investing while living there, not a good thing. You have renters paying your monrtgage for you so how could you make out as a loss? I dont think its possible.
Jason
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Tue Aug 02, 2005 3:21 pm |
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tss4
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quote:
Originally posted by VMCAffiliate
Bong thanks for the info. Forex, your thinking way past me. I'm looking to buy either a duplex or 4-plex to start off with a place to live, roof over my head, to begin with. I will not be looking at this as an investment yet because all of the money I receive from the renters will go towards the mortgage until it is paid off. Thereafter, I will have a home all paid off with rent coming in as all profit. Now your trying to tell me forex that I'm better off renting to pay off someone elses mortgate and that in the future, I will probably make out less rather than ahead. I highly doubt that. 1st if all I;m planning on purchasing only in a location where values are going up and not down. 2nd, I don't know how you can really consider investing while living there, not a good thing. You have renters paying your monrtgage for you so how could you make out as a loss? I dont think its possible.
Jason
Jason, Forex has made some points that you do need to listen too. First, I know this is hard to believe given the current market, but houses can go down or at the very least stop appreciating for a while. And given the huge gains they have made recently and the possibility of rates going up, there's a very real possibility that home prices are due for a correction. No one knows what will happen but this is a risk you need to take for real. Now if you plan on living there for at least 10 years, then I would say that your exposure to that risk is reduced because you can ride out any down periods. Also, I recently looked at renting out my current townhouse and buying a new house to live in. Rent prices are quite low in my area compared to the increase in house prices, so I couldn't make this work in a way that allowed me to cover the mortgage from the rent I would be recieving (negative cash flow).
As long as you seriously sit down and calculate the mortgage payment, insurance, fees, etc. and then look at the rent comparable properties are getting and yet still end up positive then I would say go ahead (as long as you plan on living there for a while). You should also look and see given those positive cash flows and any equity paid for by the renter, what you rate of return is on your investment. That might not be as high as you expect. (Possibly lower than the 10% you could aim for in the stock market). Just go into it educated that's all.
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Tue Aug 02, 2005 4:17 pm |
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bong12187
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quote:
Originally posted by forexdaytrading
True; even if the property does not go up in value, equity will be accumulated over time; but this does not make a good investment.
I agree that accumulated equity should never be the main factor if you are investing in real estate. Your main goal should be passive income. Equity and phantom income are icing in the cake that day traders will never get.
A good investment will be determined by a combination of positive cash flows (monthly income minus expenses) and capital gains. At this point, your cash flow from your properties will be low (price to rent ratio is at a historic high) and the probability of obtaining an attractive capital gain is very low because of the extreme overvaluation of real estate.
I totally disagree with your assessment that capital gains are factored in for getting a good investment in real estate. It should be positive cash flow and phantom income (depreciation, tax deductions, insurance expense, etc). Capital gains should only be used when you are a buy and sell or flippers. Even then, you can defer the capital gains tax through 1031 exchange. Additionally, those who stayed in their property as their primary residence (lets say up to a 4 plex) do not get capital gains tax if they live there for two years. Another way to go around capital gains tax is to remortgage with a cash out. You don't get tax for refinancing once you build enough equity that your tenants have paid for.
Jason, even if you are young, making an investment at the wrong time will lead to below average performance over time. For example, if you buy long term government bonds when interest rates are low (like now), when rates go up the price of your bonds will plummet - Then you have to wait many years for the prices of bonds to get back to where they started. Why would you do this? It doesn't make any sense. When interest rates are low, bond prices are relatively high. Why would you buy bonds at such high prices? Isn't it better to look for other investments that are priced attractively relatively to their intrinsic value? This is also true for real estate. Why buy at overvalued levels? Do you think that real estate will continue becoming more and more overvalued forever?
Anyone can buy real estate anytime and make money whether there is a boom or a bust (however, you make more money during a bust). Just like in stocks, some people have made tons of money whether the season is bearish or bullish. What people need to understand is they have to be knowledgeable about the thing they want to invest in. Hence, an education is a must before anyone should proceed to investing in real estate. It took me awhile but I can now walk into a house with the seller's asking price and I would know if the investment will make money for me or not. And I am able to do this in an up or down market. Many people buy through their emotion which is the wrong thing to do. If the cash on cash return is not there, I wouldn't touch the property even if it is dirt cheap.
The key to making a successful investment is return. Even if in 50 years your real estate property is a lot higher, your return might be very unattractive. When you compare the Home-Price Index (Robert Stiller, "Irrational Exuberance") since 1890, the inflation adjusted home prices are way over their average. In fact, US housing prices have increased parabolically in the last few years for no fundamental reason other than the fact that interest rates have been low and people are afraid of stocks. This will not last. When rates start going up, all hell will break lose.
This statement only makes sense for those who buys property to live in. If you are into passive income arena, it is a totally different scenario since tenants are supposed to be paying for the monthly mortgage, putting money in your pocket, and utilizing those phantom income. The return can be quite enormous. Try factoring in equity for a 50 year rental house + all the passive income + phantom income vs. someone who bought a similar house to live in. If you put them in an excel worksheet, you'll find that there will be a big difference between the two.
If you decide to buy, good luck.
Please only buy when you feel that you have received enough education in real estate. Take some real estate classes later + some income tax classes. They go hand in hand.
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Tue Aug 02, 2005 7:26 pm |
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VMCAffiliate
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Guess what???? I just hit the lottery. $20,000,000. Guess I dont need to worry about this anymore. THanks guys.
Jason :)
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Thu Aug 04, 2005 1:50 pm |
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