Investing 102

[Fluid Power]

Originally Posted by GregWeld

We bought a 3 bedroom condo in Tempe for our son to live in while at ASU -- figured "why pay rent for 4 years" -- we should be able to get a couple roommates and sell this place for what we paid for it and at least break even...

WRONG -- #1 the girlfriend moved in for the 'summer' between sophomore and junior year - and never left - so NO RENT -- good news is his GPA went up a full point so we figured it was worth it!

He graduates and Adrienne transfers down there to the warmth.... okay now we have another 3 years before we need to sell the dump... WRONG she moves out to a house with AJ (boyfriend).... so I just spent 10 grand on rehab to get it pristine and ready to sell... for ----- Drum roll -----

100K if I'm lucky --- on a 307K purchase price.

We own it outright -- so it's just a loss pure and simple. Oh well.... But even if we had a mortgage -- I'd just be making the payments and sucking up the loss.... because that is the RIGHT THING TO DO. I bought it - I own it - it is what it is.

Anyone need a beautiful 3 bedroom - 2 full garage - condo in Tempe? Just off the 101 on E. Broadway. I'm going to list it with Bob Reams wife Bev who is an agent there. He owns Imagine Injection where I get all my stuff from... a super - better than super - guy.

Greg,

Why not rent it and play landlord for a while? Just curious...

Darren

[GregWeld]

Originally Posted by Fluid Power

Greg,

Why not rent it and play landlord for a while? Just curious...

Darren

Great question -- and I hope I don't come off as sounding arrogant or like a smart ass with my response.

#1 -- I don't need the money so I'm okay taking the capital hit.

#2 -- I live in Seattle - this place is a zillion miles away in Phoenix

#3 -- Running the numbers - the rent is $1250 (other 3 bdrms there) so after I pay $250 month HOA - Insurance - Property taxes etc - Utilities etc... my net might be $700 a month or less. Less if I hire a "professional" property manager cause they take their share. $700 a month to me is about like most people picking up a dollar... it just isn't the kind of money I think about.

Now -- IF I had a mortgage - and needed to cover "most" of it -- and didn't want to ruin my credit by walking away (or doing the morally correct thing of actually paying my bills)... then that would be one thing... and especially if I thought the market might come back within the next 3 to 5 years. Remember that the market would have to TRIPLE for me to get my money to break even - and then if you calculate time money line -- I'd own the dump for 10 years and still probably take a capital loss.

If I sell it for 100K --- net -- I can invest that and MAKE 5K per year tax free in Muni bonds and have absolutely no worries or hassles.... like when the renter fails to pay or pays late - or goes bankrupt and it takes me 6 months to evict - or runs off after trashing the place.... and it costs me everything I "made" for the year plus to rehab it (again).

So for me -- I'm not in a positon to have to cover my arse... I'm in a position to just be able to make decisions on what I "want to do" not what I should or could do.

It's why our boat was called "Options".... everyone thought I was a stock trader -- but it was really because the boat was just another "option" for how we wanted to spend our time. If I was a trader - and the boat named Options -- I'd have named the dingy 'Puts and Calls".

[Flash68]

I check into this thread from time to time. I think it's a great one and glad it has legs.

I just want to comment quickly that I completely disagree on the matter of strategic default. I have encouraged several friends to do it in recent years (some have). I got out of RE in 2007. Yes, I saw the crash coming. I am close to getting back in.

Regarding this strategic fault matter..... It is a financial and business transaction, not a moral one, IMO. I read this little paragraph recently and it sums up my thoughts nicely:

--------------
"Strategic default has been portrayed as immoral by lenders. This is wrong. Lenders were immoral when they abdicated their responsibility to sound lending practices that ensured their borrowers could remain solvent. It is outrageous after such irresponsible lender behavior that lenders have the nerve to chastise borrowers for being immoral when borrowers fail to repay their debts."
--------------

It's a 2 way street. Don't "sell" or finance an asset-backed/collateralized asset if you aren't willing to take it back.


Greg, again, great thread and it's obvious this is helping many here either directly with data, or indirectly, with the motivation and stimulation to get working on investments and retirements.

[GregWeld]

Some people work that way -- I never have - never will.

I had a mortgage on the place when I bought it (Tempe place) but paid it off... it was at 6+%... and I don't like to make payments. Regardless of that it is still my obligation - not anyone else's, I don't care what anyone else says.

[bdahlg68]

Originally Posted by GregWeld

Some people work that way -- I never have - never will.

I had a mortgage on the place when I bought it (Tempe place) but paid it off... it was at 6+%... and I don't like to make payments. Regardless of that it is still my obligation - not anyone else's, I don't care what anyone else says.

Same here. Bought a place that has gone down 30%+ since purchase in 2005. Over the last 7 years, we've gotten right side up through persistence and low interest rates. Although it would have been easy to just make minimum payments and walk away now that we're buying a new place, but that is not us. We made the conscious decision to buy and got caught in bad timing. We've been lucky to be in a position to pay it down and still save for a new place. We're now moving into a great place and we are looking forward to separating ourselves from this poor investment we currently call home!

[Bucketlist2012]

Originally Posted by bdahlg68

Same here. Bought a place that has gone down 30%+ since purchase in 2005. Over the last 7 years, we've gotten right side up through persistence and low interest rates. Although it would have been easy to just make minimum payments and walk away now that we're buying a new place, but that is not us. We made the conscious decision to buy and got caught in bad timing. We've been lucky to be in a position to pay it down and still save for a new place. We're now moving into a great place and we are looking forward to separating ourselves from this poor investment we currently call home!

Well Done Guys... Kinda my rant and point from earlier.

I sat down with my in-laws way before they lost, or excuse me, WALKED, away from their home..

They pulled money out to fund the remodel, hot tub, private college for the BMW boy, Europe, and on, and on....

In the end , they gave up their HOME, for all this.And with 40K in a 401K, and they are 50 plus..Had they followed my plan, they would have never been in this mess.

I am in California , in an Area of fancy cars, and High end remodels, all done on the bubble equity..

so much of what is around me is built on Leverage and not ownership..I am the consumer debt free guy..kinda a rare breed here..

The survivor I told you about earlier, one left out of 9 homes. She bought in 2000, made all the payments, and NEVER took out any FALSE equity.

Her house is still worth what she paid for it, 10 years later, not under water, and she will be fine. All the other houses,eight of them including mine, went to foreclosure and were resold.

It was scary to buy when i did...Am i buying into a ghost town ??? so many for sale signs on ONE street. now everything has changed and the homes have been resold to more qualified buyers and the area is beautiful.

Big Banks are as immoral as it gets, But I went old school when i went to get a Loan.. FICO, Healthy Down payment, ect..., and I read the contract..

And I had lost a home in 1993 due to non payment and foreclosure... that was another housing Dive, So i know the drill. no pay...go away...Also I was going through a divorce, so no strategic default there...

The bubble had people relying on a quick buck and unrealistic views of the equity that was being built on thin air..

Rather than talk morality, since this is Investing102, we can say that for some, it was bad investment decisions that led to personal decisions that i will not Judge.

I would think that just going through the experience would make people make better decisions..

[CRCRFT78]

Whether or not this is a moral vs. immoral decision, I too lost my house about 9 months ago. The wifes company was sold and the whole staff layed off. She had 11 years with the company. All I asked for was a little help on my monthly. I made it clear I had no intentions of walking away, didn't care that the house was now worth -50%, didn't ask for my loan to be changed, I just wanted some help with my monthly payment until she was able to get back into another job. They strung me along for 5 months before they basically told me tough ****. The house sat vacant for 6 months before it finally sold again. Do I have a little resentment towards the banks, yes I do. Not everyone decides to just walk away because of a loss. I did everything I could to keep it and still got stiffed. Or at least everything I could with the knowledge I had at the time. This is why I'm taking this Investing 102 thread so serious, NEVER AGAIN will they play me for the fool.

[lmnop]

Hey Greg*
*You just have to buy down your loss on your condo. By three more at 100k. Total investment on 4 units 600k or $150k per condo. Net rent per unit $700 so on 4 units that is $2800 per month. That is 5.6% on the 600k or $33,600 a year until the market comes back. I know you know this and don't care for the hassle but $1200 a month on $100k condo is really good rent for the landlord. Plus I learned about buying down a loss a couple of pages ago.*
Ray

[GregWeld]

Originally Posted by lmnop

Hey Greg*
*You just have to buy down your loss on your condo. By three more at 100k. Total investment on 4 units 600k or $150k per condo. Net rent per unit $700 so on 4 units that is $2800 per month. That is 5.6% on the 600k or $33,600 a year until the market comes back. I know you know this and don't care for the hassle but $1200 a month on $100k condo is really good rent for the landlord. Plus I learned about buying down a loss a couple of pages ago.*
Ray

Good info -- and for this forum is very good information for OTHERS.... as this can and does work. I'll "average down" a stock investment - which I've discussed in previous posts.

I have owned LARGE (300 plus units per building) class A apartment complexes... so I understand the rent reward capital depreciation etc. BUT -- big BUTT -- they are professionally managed and I just collect a check every 6 months. Again -- the risk/reward/work factor just isn't worth the 6 tenths of a percent differential of owning McDonalds or Annaly Capital Management. $600K in Annaly (NLY) gets you 35,000 shares of dividend paying stock - it pays .57 per share per quarter... or a total of $79,800.00 per year.

Do you see why I'm rich and you're not?

[Bucketlist2012]

Originally Posted by GregWeld

Good info -- and for this forum is very good information for OTHERS.... as this can and does work. I'll "average down" a stock investment - which I've discussed in previous posts.

I have owned LARGE (300 plus units per building) class A apartment complexes... so I understand the rent reward capital depreciation etc. BUT -- big BUTT -- they are professionally managed and I just collect a check every 6 months. Again -- the risk/reward/work factor just isn't worth the 6 tenths of a percent differential of owning McDonalds or Annaly Capital Management. $600K in Annaly (NLY) gets you 35,000 shares of dividend paying stock - it pays .57 per share per quarter... or a total of $79,800.00 per year.

Do you see why I'm rich and you're not?

LOL

I never wonder why you are rich...I am just here to learn some skills to grow my nest egg even more..

Your words and your knowledge tell me why, and Go Greg go..

We can all learn and put the knowledge to work, all be it, at a smaller scale..

My wife and I were talking over coffee this morning, and we are so Glad we put as much money as we did to work, when we did.

Keep sharing knowledge with us... There are some hardcore few of us that are willing to comment, good or bad..

But I know that many more are reading and not commenting.. Also maybe overwhelmed..

i know we talked about a recap, and you did, but among your other millions of things you have going, could you think of the guys not commenting, and see what we can do to get them commenting.

Many successful car guys, that are still overwhelmed with Investing..

Maybe a 101 Generalization of the whole concept.. Better you do it than i do it..Newbie and all..

Thanks .. Too many are reading and not commenting, and i know they have questions ..

Thanks,

Mike V.