Investing 102

[GregWeld]

I would add to this strategy of investing that there are a couple very nice perks to owning/managing rental real-estate!

Depreciation

Expenses that can be offset onto the property... I shouldn't have to say anything more here.

[Rybar]

Don't forget the value of the property your purchasing should increase over time if you are buying at a low point in the market. As long as you can hold for say 10 years it should increase for sure. Where I am things are sky high so it's tough to get get a good return on your investment. Rent basically covers expenses if that. But prices have been appreciating like mad over the last 10 years. (Basically more than doubled, I'd say 250% growth realistic)

The one main difference between property and stocks is property is illiquid, meaning you cant sell it quickly and get your equity out, stocks are liquid so you hit the sell button and they are gone the next day.

Maybe take Greg's advice and diversify. Have some income property and some stocks in your portfolio is a good idea if you can.

[realcoray]

Originally Posted by Rybar

Don't forget the value of the property your purchasing should increase over time if you are buying at a low point in the market. As long as you can hold for say 10 years it should increase for sure. Where I am things are sky high so it's tough to get get a good return on your investment. Rent basically covers expenses if that. But prices have been appreciating like mad over the last 10 years. (Basically more than doubled, I'd say 250% growth realistic)

The one main difference between property and stocks is property is illiquid, meaning you cant sell it quickly and get your equity out, stocks are liquid so you hit the sell button and they are gone the next day.

Maybe take Greg's advice and diversify. Have some income property and some stocks in your portfolio is a good idea if you can.

Yeah, appreciation can vary (and you can be bit by it as I'm sure some were during the downturn), and while you can probably anticipate it to increase by about inflation (3%), I just consider it a bonus. I effectively bought equity as a house immediately next door sold for 190k, and a week after I closed a house right across the street sold for 220k. I seriously considered turning and flipping the house for an instant profit.

Good point about the liqudity of property. Another subtle distinction is that if you have an investment account and are re-investing your dividents (which you should be if that's your thing), it's all automatic. I may be getting 10% returns but the real power of investing is in the re-investing your profit. When I get 300$ in a month, I can't do anything real estate related with that money itself, so it's a good spot where the ideal would probably be to have it in some sort of higher yielding liquid account.

That being said the money will probably just go into finishing my car or building a shop, but I do save a lot of what I make in order to pursue things like this.

[ErikLS2]

Ok, I'm not going to dump all kinds of money in this but I stumbled on this just looking around. Seems like an interesting way to invest in gold which I'm leary of but I think a lot of inflation is a given in the future.

http://finance.yahoo.com/echarts?s=F...rce=undefined;

[Rybar]

Originally Posted by realcoray

Yeah, appreciation can vary (and you can be bit by it as I'm sure some were during the downturn), and while you can probably anticipate it to increase by about inflation (3%), I just consider it a bonus. I effectively bought equity as a house immediately next door sold for 190k, and a week after I closed a house right across the street sold for 220k. I seriously considered turning and flipping the house for an instant profit.

Good point about the liqudity of property. Another subtle distinction is that if you have an investment account and are re-investing your dividents (which you should be if that's your thing), it's all automatic. I may be getting 10% returns but the real power of investing is in the re-investing your profit. When I get 300$ in a month, I can't do anything real estate related with that money itself, so it's a good spot where the ideal would probably be to have it in some sort of higher yielding liquid account.

That being said the money will probably just go into finishing my car or building a shop, but I do save a lot of what I make in order to pursue things like this.

2 Ways to re-invest that rent money:

#1 use it to pay down your principal faster, in turn saving you interest. The sooner that house is paid off the sooner you can collect 100% of the rent as income.

#2 use to renovate the house (if needed) this increases the value of the home and/or makes it easier to sell.

Personally that's what I'd do with the rent money, and the use the greater rent profit later on for cars etc like Greg mentioned.

[Flash68]

Originally Posted by Rybar

But prices have been appreciating like mad over the last 10 years. (Basically more than doubled, I'd say 250% growth realistic)

150% growth = more than doubled

250% growth = more than tripled

Just sayin...

[realcoray]

Originally Posted by Rybar

2 Ways to re-invest that rent money:

#1 use it to pay down your principal faster, in turn saving you interest. The sooner that house is paid off the sooner you can collect 100% of the rent as income.

#2 use to renovate the house (if needed) this increases the value of the home and/or makes it easier to sell.

Personally that's what I'd do with the rent money, and the use the greater rent profit later on for cars etc like Greg mentioned.

I'm in a good spot where I don't need the money now to pay for my car stuff, but I do intend to pay down the house faster even though on paper it's a terrible investment move. I am risk adverse so less debt feels better for me and I think everyone has their own risk/reward point that affects what they feel comfortable doing.

If I was trying to maximize my return, what I would do is leverage the house I just bought, cashing out my down payment and the equity, netting probably 65k, and buying two more similar houses. The current house would be completely break even with the higher payment, but I would double my cash flow and returns from the other two.

[Bucketlist2012]

Originally Posted by realcoray

I'm in a good spot where I don't need the money now to pay for my car stuff, but I do intend to pay down the house faster even though on paper it's a terrible investment move. I am risk adverse so less debt feels better for me and I think everyone has their own risk/reward point that affects what they feel comfortable doing.

If I was trying to maximize my return, what I would do is leverage the house I just bought, cashing out my down payment and the equity, netting probably 65k, and buying two more similar houses. The current house would be completely break even with the higher payment, but I would double my cash flow and returns from the other two.

We have discussed the Paid off House vs. Investing, and you are right. It is a personal choice for peace of mind..All the math and pencil and paper saying it may be better to invest the money with today's mortgage rates, means nothing if it doesn't feel comfortable.. What ever you do, it will be the right thing for you..

[Flash68]

Originally Posted by Bucketlist2012

We have discussed the Paid off House vs. Investing, and you are right. It is a personal choice for peace of mind..All the math and pencil and paper saying it may be better to invest the money with today's mortgage rates, means nothing if it doesn't feel comfortable.. What ever you do, it will be the right thing for you..

Right on. I go back and forth with this decision based on cash reserves and my confidence in a variety of things.... the economy in general, business projections, Camaro needs...

[Bucketlist2012]

Originally Posted by Flash68

Right on. I go back and forth with this decision based on cash reserves and my confidence in a variety of things.... the economy in general, business projections, Camaro needs...

Yes Dave, I am 52, and about to re-finance another 30 year loan at 3.5%. I own approx 50% of my home, but I am a guy that doesn't need to own my Home..A good chunk, yes, but 100%, nope, not me.

I don't see property going up very much for years, and I know I will do better Investing, for sure, even if/when , we take another nose dive in the Market, long term, it's where I plan to keep my money.

As far as "Camaro needs", that is my only "Money Pit". With interior, and HP needs, and then 28 years old paint, I will never be done, and I will never get out what I put in..

You would think I would know better, but the need for my car is just too strong, and my Investment Brain gets cloudy.