Investing 102

[sik68]

Greg!

I am now on my 4th audiobook on $Money$, and the Rich Dad/Poor Dad guy reminds me so much of you and this thread. It's like having GW in this thread and GW in my ear for an hour each day...is that a good thing? Haha

Here are the points from this thread and the book that I'm really eating up right now:

1) Learn to Make Decisions With Rationality As Well As Emotions - All of us make decisions emotionally, but the smartest people recognize and harness their emotions and learn to use rationality to make decisions. (I have started to do this and it changes your whole perspective on life, money, relationships, etc).

2) Don't Work For Money - Working for money keeps you desperate, and unable to think and be creative. Work for knowledge that experience brings.

3) Let Your Money Work For You - THINK and act on ways you can generate cash flow outside of the 'rat race'

4) Don't Play It Safe, Play It Smart - Most of us 'play it safe' and fear taking a loss. Making money requires not avoiding risk, but staying focused, and managing risk.

I KNOW that's not all, but my dimmer switch is sliding up.



GW I'm still doing more research on your post about housing prices vs. rates and I see what you're saying...in reality it's more complex than just an inverse relationship. I'll post about this soon too.


Thanks,
Steven

[GregWeld]

Originally Posted by sik68

Greg!

I am now on my 4th audiobook on $Money$, and the Rich Dad/Poor Dad guy reminds me so much of you and this thread. It's like having GW in this thread and GW in my ear for an hour each day...is that a good thing? Haha

Here are the points from this thread and the book that I'm really eating up right now:

1) Learn to Make Decisions With Rationality As Well As Emotions - All of us make decisions emotionally, but the smartest people recognize and harness their emotions and learn to use rationality to make decisions. (I have started to do this and it changes your whole perspective on life, money, relationships, etc).

2) Don't Work For Money - Working for money keeps you desperate, and unable to think and be creative. Work for knowledge that experience brings.

3) Let Your Money Work For You - THINK and act on ways you can generate cash flow outside of the 'rat race'

4) Don't Play It Safe, Play It Smart - Most of us 'play it safe' and fear taking a loss. Making money requires not avoiding risk, but staying focused, and managing risk.

I KNOW that's not all, but my dimmer switch is sliding up.



GW I'm still doing more research on your post about housing prices vs. rates and I see what you're saying...in reality it's more complex than just an inverse relationship. I'll post about this soon too.


Thanks,
Steven

I could say "I feel sorry for you" -- but then I'd be lying...



I like the Rational/Emotional discussion with regards to investing. I've said it many times here -- that you MUST invest in things you feel good about... so that's "emotional". I've also said - invest in things you understand -- and that's "rational".

So when I hear a news story - let's say it's about "rising rates".... and that triggers -- "what do I have that is interest rate sensitive"? So the emotional side says "Holy crap! I've got a lot invested in that space!" and I jump to check.... THEN I try to suppress the emotional side -- search around -- read other opinions - gather some data - I go back to myself and discuss "WHY I BOUGHT THIS"... and "Where does this fit in my portfolio" etc. IF -- IF -- I decide to pull the trigger on either a buy or sale ---- I do so lightly. I may sell a 1/3rd -- or a half. I would do the same on a buy. This gives you time to settle down - think - and take the emotion out of it.

[Vegas69]

Investment Property #Deuce

Purchase Price: $155,000
Loan Amount: $124,000
30 Year Fixed/3.75%
Initial Investment: $39,520(Down Payment, Closing, Repairs)

Exterior Paint
Interior Paint
New Flooring
New Appliances
Misc....

Rent: $1295 (1 year Lease)
Monthly Payment:$734

Gross Mo. Cash Flow: $561
Principal Reduction(Mo. 1st year):$175
Monthly Appreciation(3% Yearly): $387.50

Gross Monthly Financial Gain: $1123.50

Now you know why I no longer own a 1969 Camaro. With all the costs, it ROI's 100% back in just under 4 years. I've decided to add $218 a month to reduce principal which pays off the mortgage in 18 years. Still cash flowing every month along the way. Yes, I'm building in 3% yearly appreciation along the way. I bought it for late 90's prices at 3.75% interest. Hell yes!

I fix them up NICE. I have the fringe benefits of being in the business. I received a 6% commission and manage my own properties. I had tenants beating down the door. I ended up with 5 that wanted it and picked a couple in there late 50's that had to short sale their home bought in the boom.

It's a prime location, backs to the community trail system with a private gate to the trail, two blocks to the community center, library, 3 blocks to one of the best elementary schols in town, walking distance to the hottest hang out spot in Henderson.

Four more to go.......

[GregWeld]

AWESOME BUDDY!!!


That's INVESTING!! Right there.

[Vegas69]

Thank you sir... As I said in my healthy 101 thread.... The pain of discipline weighs ounces, while the pain of regret weighs tons. I can play with cars later, it's time to set myself up for the future.

[GregWeld]

Originally Posted by Vegas69

Thank you sir... As I said in my healthy 101 thread.... The pain of discipline weighs ounces, while the pain of regret weighs tons. I can play with cars later, it's time to set myself up for the future.

THAT is exactly what this thread is all about....

[XLexusTech]

Originally Posted by GregWeld

THAT is exactly what this thread is all about....

Vegas... I wouldn't ask this is the answer was not really important to me... did you get an investment or Traditional mortgage? I have a rental that is underwater and just about even..(income to expense annually). I cant refi because I haven't lived in in 3 of the last 5 years... Well I can but only as in investment loan which is not favorable... so if you know a way out i would love to learn...
I thought about putting the property into an LLC and letting it go.. I doubt it will ever be very heavy cash positive without a favorable refi...

[sik68]

That is a sweet deal. It's impressive to be so cash flow pos. without a lot of money down.

Is it common to find houses where the mortgage is significantly less than the rental market price? Do the renters of these places tend to be those that were put out by the housing crash?

[Vegas69]

Originally Posted by XLexusTech

Vegas... I wouldn't ask this is the answer was not really important to me... did you get an investment or Traditional mortgage? I have a rental that is underwater and just about even..(income to expense annually). I cant refi because I haven't lived in in 3 of the last 5 years... Well I can but only as in investment loan which is not favorable... so if you know a way out i would love to learn...
I thought about putting the property into an LLC and letting it go.. I doubt it will ever be very heavy cash positive without a favorable refi...

I purchased the property with an investment loan. I did pay 2 points to get that rate. Your Loan to Value is your biggest problem. The higher LTV, the more risk the lender assumes. What type of loan do you have currently? FHA, VA, Conv (Fannie/Freddie or Private?) Does it adjust or have a balloon?

Depending on your financial position and negative equity, a short sale may be beneficial. I'd certainly do that before suffering a foreclosure. A talk with an asset protection attorney and cpa would be your first steps. The laws are different than Nevada. The LLC won't protect you as the loan is in your personal name. You can only change how you hold title. Then research an agent that has a proven track record of closing short sales.

Originally Posted by sik68

That is a sweet deal. It's impressive to be so cash flow pos. without a lot of money down.

Is it common to find houses where the mortgage is significantly less than the rental market price? Do the renters of these places tend to be those that were put out by the housing crash?

It's really a unique recipe. Our market over corrected due to the bubble burst. Team that with all time low interest rates and displaced homeowners that have suffered a foreclosure/short sale and this is the result.

The margin between ownership and leasing can't be this wide forever. Our prices are increasing rapidly(21.5% in one year) and rates have been inching up. That will do two things: Reduce investor ROI and primary residence affordability. The margins will shrink and vacancy will rise as investors decide to move their money out of our market. I expect a rent decrease down the road but I have lot's of insulation and my properties are always at the top of the heap. I'll have then rented as long as the lights are on downtown.

I really feel like it's a once in a lifetime opportunity to capitalize on low prices AND interest rates at the same time. Investors agree as we(our market) have many hedge funds picking up 50 properties at a time all cash. While I feel our market is getting investor heavy, a majority of the sales over the last 2-3 years have been all cash, heavy down, or highly qualified. The foundation of ownership will be solid this time around. I do see a hiccup coming in 6-12 months when sale inventory increases and interest rates rise. I do see the individuals that have suffered short sales/foreclosures getting back in the market as buyers about the same time the investors start to wane.

I've been wrong before but these investments are no brainers over a lifetime.

[XLexusTech]

Vegas.. I have 2 loans the ole 80/20 from the BS loan days... 80% conventional which is likley 90 LTV on itself.. 20% HELOC which I would consider paying off... if i did the Net cash flow would be about 300/month and the initial outlay would be about 35K.

I thought a short sale is as bad for you credit as a foreclosure? and since the HELOC would have to be paid in full it would be tough to impossible.

Thanks for any help... the advice is appreciated.