Hey guys I'm trying to decide if I should take the step of getting into real estate investment. I'm 23 with a good job and very little expenses. I'm figuring if its a good thing than getting in early will help me. Anyone have any experience or advice about real estate investing???
Real Estate Investment... good or bad...
- Thread starter krwell
- Start date
- Oct 28, 1999
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Really depends. What sort of real estate? How well(or bad) real estate in your area is appreciating. How much you initially purchase the property for. Ect. ect. ect.
Generally, you can't really go "wrong" in real estate. In most places it is an appreciating investment. How much it value goes up depends greatly upon local markets though.
Generally, you can't really go "wrong" in real estate. In most places it is an appreciating investment. How much it value goes up depends greatly upon local markets though.
when i get enough money i will buy a home to rent out. my parent make a good amount of money doing it.
the house prices are appreciating at like 8% in my area. I'm thinking about getting a duplex or triplex to live in and then rent the rest out. Then save and get another place.
If you can afford it .......... do it 
Just make sure that the property that you buy makes money from the get go...... ie. the rental income covers the mortgage payment and you don't have to put much money into repairs etc.
Cheers,
Aquaman <<<<<<<<<<, Accountant & 'Slum Lord' real estate owner
Just make sure that the property that you buy makes money from the get go...... ie. the rental income covers the mortgage payment and you don't have to put much money into repairs etc.Cheers,
Aquaman <<<<<<<<<<, Accountant & 'Slum Lord' real estate owner
Vi, this just shows that you are young. Suppose you bought in the mid to late 1970's in Denver, Dallas or Houston and tried to sell in the early to mid 1980's. You most likely lost your shirt.
The same thing happened on the east coast if you bought in the mid 1980 and sold in the early 1990's.
Currently foreclosures are increasing so my guess is that prices will level out or fall in some locations. Last week I saw an interesting chart in the WSJ that showed housing price increase it looked alot like the stock market charts of the late 1990's.
What ever you do you don't want to be in the position of having to sell. I know lots of people that either walked away from their homes or sold for less than their mortage.
What you might want to look into is buying either a duplex or fourplex and living in one of the units and renting out the others. This way you have a someone subsidising your housing costs.
real estate is not a no-brainer people.... many people have lost their shirts and homes.
My parents invested heavily in real estate in the mid to late 80's and they almost got wiped out in the early 90's. From 91 to 93 my parenst racked up about 40K in credit card debt and another 20K from relatives to prevent themselves from going under. They really could not sell since some of their properties had tanked 40%.... They rode it out and sold a small investment in '93 which allowed them knock out the 60K in "other" debt they accumulated.
Those 2 years sucked. In the late 80's we would be eating steak every night for dinner, then the real estate market hit and my parents started feeding my sister and I chicken thighs... kind of funny in retrospect
My parents invested heavily in real estate in the mid to late 80's and they almost got wiped out in the early 90's. From 91 to 93 my parenst racked up about 40K in credit card debt and another 20K from relatives to prevent themselves from going under. They really could not sell since some of their properties had tanked 40%.... They rode it out and sold a small investment in '93 which allowed them knock out the 60K in "other" debt they accumulated.
Those 2 years sucked. In the late 80's we would be eating steak every night for dinner, then the real estate market hit and my parents started feeding my sister and I chicken thighs... kind of funny in retrospect
Mister T has given good advice.
If we are headed into a double dip recession, this may not be a good time to buy. Values can go down when the economy is in rough shape. There were a lot of properties selling here in new england for less than their purchase price in the early ninties.
I would wait and see what happens with economy, with a war with Iraq coming up, etc. Interest rates may still go down as well.
Probably the best time to buy is when the economy is coming out of recession. If you think that is now, go for it.
If we are headed into a double dip recession, this may not be a good time to buy. Values can go down when the economy is in rough shape. There were a lot of properties selling here in new england for less than their purchase price in the early ninties.
I would wait and see what happens with economy, with a war with Iraq coming up, etc. Interest rates may still go down as well.
Probably the best time to buy is when the economy is coming out of recession. If you think that is now, go for it.
Originally posted by: Mister T
real estate is not a no-brainer people.... many people have lost their shirts and homes.
My parents invested heavily in real estate in the mid to late 80's and they almost got wiped out in the early 90's. From 91 to 93 my parenst racked up about 40K in credit card debt and another 20K from relatives to prevent themselves from going under. They really could not sell since some of their properties had tanked 40%.... They rode it out and sold a small investment in '93 which allowed them knock out the 60K in "other" debt they accumulated.
Those 2 years sucked. In the late 80's we would be eating steak every night for dinner, then the real estate market hit and my parents started feeding my sister and I chicken thighs... kind of funny in retrospect
I am with Mister T on this one. You can lose your ass in real estate if you dont know what you are doing. I just had a 3 hour conversation with my parents why I want to buy a house and rent it. They've talked SOME common sense into me, but I still have a lot of confidence in the project. I give them another week to talk me out of it compleltely.
Also, consider every realtor has thought of what you are doing. If the market is so good, everyone would already be doing it.
-PAB
I agree.......... you can lose lots of money if you don't research your market. When investing in real estate........... don't overextend yourself............ just like in the stock market don't invest in real estate unless you can afford to lose that money and don't over leverage yourself.
Also this small article from Money Sense Magazine is quite helpful (or at least it has been for me):
Cliff's notes on real estate
Cliff Brown has developed his own formula for rating rental properties. Now you can use it, too
Cliff Brown's No. 1 rule when it comes to buying investment real estate is that the property must generate money from the day he takes ownership. Over the past three years, as he and his wife Marilyn have built their real estate empire (see main story), Brown has devised a complicated but useful formula to help him determine whether a property is a good buy. Here's how it works:
Step 1: Get the basic numbers: the property's list price, its annual gross rental income, and its annual electricity and heating bills.
Step 2: Take the gross income figure and multiply it by 0.98, to factor in an allowance for a 2% vacancy rate.
Step 3: Take the result from Step 2 and subtract the annual electrical and heating costs to get an approximate estimate of the building's cash flow potential.
Step 4: Multiply the result from Step 3 by 10.
Step 5: Divide the list price by the result from Step 4. Say you're looking at a $250,000 property that generates $36,000 in annual rental income. Multiplying by 0.98 whittles the $36,000 rental figure down to $35,280. Assume heating and electricity amounts to just over $5,000 a year. That leaves you with $30,000. Multiply by 10 and you have $300,000. Dividing the list price of the property ($250,000) by $300,000 gives you a final figure of 0.83.
The lower this final number, the better, at least from a property buyer's viewpoint. "If the answer comes out to 0.73 or lower, I know a property is worth looking at," says Brown. "if I took it to a bank, they're going to look at the numbers, and the income is going to be such that half of the income will pay the mortgage. A bank will feel comfortable about that, because they'll know you can have up to a 30% vacancy rate, and they're still going to have their payments coming in regularly."
Of course, not everyone will be looking for an investment that self-qualifies for a mortgage, as Brown does. But the formula remains a good rule of thumb for anyone looking for a cash-generating property.
If the number is less than 0.73 (and Brown says he's looked at buildings with numbers as low as 0.59) it may indicate the property needs repairs and the owner is anxious to sell. "That number says, 'This is a problern,' says Brown. "It warns me that I better allow for a turnover period when I will be working with tenants and doing repairs on the property, when I may have higher vacancy rates because the place hasn't been maintained!
On the other hand, if the number creeps up around the 0.90 range, you're looking at a building that has limited cash flow potential. "That doesn't make it a bad building," says Brown. "What it will do is limit the number of buildings you can buy. You get to a point rather quickly when the bank says there's not enough money coming in to warrant acquiring more debt.'
What you should beware are buildings that score a 1.0 or higher, because that means they'll have negative cash flow. In other words, they'll be losing money right from the start-and that's not the way to make your fortune in real estate.
If you want to get into the real estate market but don't want to buy property and deal with tenants, I suggest that you buy a REIT (Real Estate Investment Trust). You get the benefits of an income stream from real estate rental income but you don't get the headaches of tenants & repairs.
Good Luck.
Cheers,
Aquaman
Also this small article from Money Sense Magazine is quite helpful (or at least it has been for me):
Cliff's notes on real estate
Cliff Brown has developed his own formula for rating rental properties. Now you can use it, too
Cliff Brown's No. 1 rule when it comes to buying investment real estate is that the property must generate money from the day he takes ownership. Over the past three years, as he and his wife Marilyn have built their real estate empire (see main story), Brown has devised a complicated but useful formula to help him determine whether a property is a good buy. Here's how it works:
Step 1: Get the basic numbers: the property's list price, its annual gross rental income, and its annual electricity and heating bills.
Step 2: Take the gross income figure and multiply it by 0.98, to factor in an allowance for a 2% vacancy rate.
Step 3: Take the result from Step 2 and subtract the annual electrical and heating costs to get an approximate estimate of the building's cash flow potential.
Step 4: Multiply the result from Step 3 by 10.
Step 5: Divide the list price by the result from Step 4. Say you're looking at a $250,000 property that generates $36,000 in annual rental income. Multiplying by 0.98 whittles the $36,000 rental figure down to $35,280. Assume heating and electricity amounts to just over $5,000 a year. That leaves you with $30,000. Multiply by 10 and you have $300,000. Dividing the list price of the property ($250,000) by $300,000 gives you a final figure of 0.83.
The lower this final number, the better, at least from a property buyer's viewpoint. "If the answer comes out to 0.73 or lower, I know a property is worth looking at," says Brown. "if I took it to a bank, they're going to look at the numbers, and the income is going to be such that half of the income will pay the mortgage. A bank will feel comfortable about that, because they'll know you can have up to a 30% vacancy rate, and they're still going to have their payments coming in regularly."
Of course, not everyone will be looking for an investment that self-qualifies for a mortgage, as Brown does. But the formula remains a good rule of thumb for anyone looking for a cash-generating property.
If the number is less than 0.73 (and Brown says he's looked at buildings with numbers as low as 0.59) it may indicate the property needs repairs and the owner is anxious to sell. "That number says, 'This is a problern,' says Brown. "It warns me that I better allow for a turnover period when I will be working with tenants and doing repairs on the property, when I may have higher vacancy rates because the place hasn't been maintained!
On the other hand, if the number creeps up around the 0.90 range, you're looking at a building that has limited cash flow potential. "That doesn't make it a bad building," says Brown. "What it will do is limit the number of buildings you can buy. You get to a point rather quickly when the bank says there's not enough money coming in to warrant acquiring more debt.'
What you should beware are buildings that score a 1.0 or higher, because that means they'll have negative cash flow. In other words, they'll be losing money right from the start-and that's not the way to make your fortune in real estate.
If you want to get into the real estate market but don't want to buy property and deal with tenants, I suggest that you buy a REIT (Real Estate Investment Trust). You get the benefits of an income stream from real estate rental income but you don't get the headaches of tenants & repairs.
Good Luck.
Cheers,
Aquaman
I would wait a bit longer on this. Even though Greenspan says there is no housing bubble, I'm not with him on that. Already I have seen prices coming down in my area and we're just now going into the second dip on this. For many areas, sellers outnumber buyers by 5 to 1. That's a pretty big number. And the layoffs haven't slowed down. Almost everywhere you look, the numbers are bad. Just remember when you buy, many people have been in similar situations have had to wait a decade or more just to recover. Some never did. An example, I know of one apartment that sold in 1996 for 54% of the price for which it sold in 1986. There was a massive rolling depression that went through America in the 80s, starting in the Oil Patch and proceeding throughout the country. Prices in the Boston Area peaked in early 1989, not to recover to that level until seven or eight years later, and prices for apartments in New York peaked in 1986/87, not to recover to that level until 10 years later. Whatever you do, research it very carefully.
Huh? It's a sellers market right now in the real estate market. People are fighting left and right trying to buy houses. At least that's how it is in my area. I got outbid by numerous people with big pockets. Finally, my agent had to pull some strings to get the house I am living in right now.
The price of realestate has inflated due to the weak stock market. This happened in the late 80s and as soon as the market starts climbing the prices for property may take a hit.
There is no money in single family homes. The duplex or triplex route is a great way to start. Just make sure you can afford the payments if it remains vacant.
Bruce Williams is a great resource on this subject.
Do you wanna be a Landlord? Ask yourself if you desire to deal with the assholes in society on a daily basis.
Here is my take on the subject. I definitely believe there is a real estate bubble forming in most of the US (remember not all areas will experience the same growth etc.), this bubble is being formed by the lack of faith in the stock/mutual fund market which results in less money invested there, as well as money taken out of those investments. The investment money is being turned towards real estate as it looks to be a solid investment and all the talking heads are saying to do it. The real estate investment is made more attractive by the abnormally low interest rates on loans. Voila, a huge surge of money into real estate driving the prices higher, making the market look more attractive b/c of the excessive growth and return.
However. Statistics are showing that the ratio of debt/net is increasing among Americans, and is perhaps even at unstable levels. If the economy improves, and interest rates rise (as they will) many, many, people who invested recently in real estate will face rising payments on already exorbitant prices, basically forcing them to liquidate. An underperforming economy may actually be beneficial to the current real estate investor.
This is purely my take and I may be wrong I think that the best real estate investment you can make at this point is to buy a duplex/triplex and to live in part of it, while letting others pay off your mortgage.
However. Statistics are showing that the ratio of debt/net is increasing among Americans, and is perhaps even at unstable levels. If the economy improves, and interest rates rise (as they will) many, many, people who invested recently in real estate will face rising payments on already exorbitant prices, basically forcing them to liquidate. An underperforming economy may actually be beneficial to the current real estate investor.
This is purely my take and I may be wrong
I think that the best real estate investment you can make at this point is to buy a duplex/triplex and to live in part of it, while letting others pay off your mortgage.It's smart that someone your age is looking to invest his/her money for the future, rather than waste in on frivilous stuff. However, as many people here have already pointed out, real estate can be as risky as stocks or any other high-growth-potential investment. If you're still interested in real estate, you might want to check out REIT's (real estate investment trusts) - sort of like a mutual fund for the real estate market. I know very little about them personally, but I'm sure you can find out more on the web. Good luck!!
FeathersMcGraw
Diamond Member
- Oct 17, 2001
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I don't think you realize what sort of effort goes into being a landlord. You may have legal obligations for maintenance on the property, you will almost certainly need property and liability insurance, and you're going to have to deal with any headaches from fussy (or worse, negligent) tenants.
Now, those sorts of service issues might interest you, but if you're expecting to just put your money into a rentable space and start generating income without any additional effort, you're going to be disappointed.
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