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Old 22-01-2007, 15:43   #31
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Hi Sean, this is an article that explaines our strategy.

Buy and Hold is NOT an effective property strategy

It involves buying and holding the Mortgage, not the property, as most OZ stuff at least has gone up at Aprox 10%/year compounding from day dot.

I have actually looked at every property my parent's had since the 70's , they still have no investment property, and it show's the same or similar growth in areas that are in no way blue chip.

I have put it here if interested

If only they had held them.

Dave
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File Type: doc PROPERTY INCREASES FOR THE ONES I LIVED IN AS A KID.doc (26.5 KB, 115 views)
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Old 22-01-2007, 15:55   #32
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Quote:
Originally Posted by ssullivan
Question: I'm obviously an idiot when it comes to real estate, investing and anything else other than knowing how to keep a hold on the little money I do have. So is financing 95% to 100% of anything a good idea? I was under the impression that it isn't, as the interest chews you up and if the market dips, you go upside down quickly. What am I missing?
This is an intelligent question so it proves you're not an idiot.

Borrowing 95%-100% of an individual assets value is not in itself a bad thing.

Putting yourself into a situation where one slip could put you at risk of default is a risk you have to carefully assess.

When I lived in the Uk, I had no choice but to borrow high (and live low) to get onto the housing ladder. (Note - we owned our own home before we owned a car). When I came to the US, it turns out you get tax exemption from the loan payments on your primary residence. Given that loans secured against an asset have low rates, this combines to make home loans *very cheap money*. Rather than pay down my home loan, I invested in boring old indices (via 401k, etc.) which have done tremendously well in the last five years.

Going back to your case, the decision is ultimately yours. If you can afford the loan payments and could ride out a change in career, I see nothing wrong with 95%-100% loan on a home.

Most people I know who have made realistic amounts on real estate did so less through luck than through sacrifice and hard work selecting the right properties, saving the finance, improvements, etc. They also took on personal risk as if the bubble had of burst as the naysayers said it would, we would have been left carrying the debt. I congratulate all who have put the effort in and seen success - I'll pick out cat man do especially seeing as we've had a head bash recently. Congrats Dave.

To those who have enjoyed the return on your primary residence but have different feeling towards investors, this is a case of you can't have your cake and eat it. If it weren't for the investors willing to take the risks, you wouldn't have the fluidity in the markets and in turn you would not have made your own nest eggs. Not trying to take shots at anyone but this needs to be put into perspective.

Finally - to anyone looking to invest, the two primary (and most important) pieces of advice I can offer is start early and maximise your returns. (I don't mean take unnecessary risks but its a mindset - don't leave cash getting .5% in a current account when you can get 5% on a savings account - even for just a few days).

To see what I mean, set up a spreadsheet and model saving $5,000 per year for 30 years with a return of 6%. Reduce the saving period by 5 years - see what happens. Add a percentage point to your return and see what happens (clue - you get much better than 1/6 increase). If $5,000 is not realistic, use a number that suits you.

Finally - there happens to be some good advice on Fool.com: Investing, Stock Research, and Personal Finance. The reason I'm plugging this site is that they provide some very common sense advice (like pay off your credit card bills before doing anything else).

Steve
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Old 22-01-2007, 16:12   #33
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Quote:
Originally Posted by ess105
I'll pick out cat man do especially seeing as we've had a head bash recently. Congrats Dave.
Thank's mate, Good post.

P.S. what's a Credit Card???

Dave
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Old 22-01-2007, 16:17   #34
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A credit card is a piece of plastic that allows one set of people who don't like carrying cash to avoid doing so at the expense of a second set that do.

It's also a cunning trap that makes a third set of people huge amounts of money at the expense of a fourth set that feel they need to improve their lives with stuff that they currently can't afford to pay for.
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Old 22-01-2007, 16:40   #35
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Ess105
You forgot about the other use for a credit card. Frequent Flyer miles. I use my card for business and pay it off monthly and have accumulated 200k of frequent flyer miles for when I do go cruising.

Sulli
I have enjoyed both your posts and your advice and I don't have near your education (I don't think my degree would get me in the door to be a janitor for NASA) but if I maybe so bold as to answer your question in regards to 95% or 100% finance. If you can finance something at a high LTV 95% or 100% financing you are going to look very clever if the house prices go up. (eg buy a house for $100k financed 100% LTV then the value goes up 25% ok so now your house is worth $125k) If the house value goes down you look well not so clever and you might be upside down on your debt. The key question is "What is your holding power?" If you have a stable high paying job and can afford the mortgage and wait out the Real Estate Cycle than the value of that home is going to go up again. This happened in So Cal in the 80's. People put down 20% on a house and then five years (and sometimes 5 moths) later they had to pay 5 or 10% to get out of the house. Then 15 years later the values had more than doubled. It is leverage. Proper use makes you rich. Improper use makes you poor.

A few simple rules that I go by on real estate are 1) Never buy a buidling I wouldn't be willing to live in. 2) Always buy in a place where people want to live, 3) Buy in locations where there is a geographic impediment to growth and 4) Don't over stretch (too much).

I'm 43 (If I had been born three months later and I would be a gen Xer)and have made a nice nest egg with Real Estate.

The people who bug me are those Gen Xers who wrote a little code put up a web site and then sold it for 10's of millions to Billions and the web site never has and/or never will make money.
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Old 22-01-2007, 16:50   #36
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Quote:
Originally Posted by Charlie
Ess105
This happened in So Cal in the 80's. People put down 20% on a house and then five years (and sometimes 5 moths) later they had to pay 5 or 10% to get out of the house. Then 15 years later the values had more than doubled. It is leverage. Proper use makes you rich. Improper use makes you poor.

.
But this would only have been a problem to the panicker's who thought they had actually lost money.

You only actually lose money when you sell, and have to buy back in at a later stage when prices are rising.

Or do the US Banks make them top up the loan to stay at the 80% LVR ?
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Old 22-01-2007, 17:25   #37
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Guys, I REALLY appreciate this advice. I'm a bit young and not very experienced as an investor. We have been working hard to put aside money (not too difficult when you live on a boat). I'm going to be completely 100% transparent here, in the hopes some of you more experienced folks would be willing to lend some wisdom. You guys obviously understand finance to a great degree. (I used to listen to the Motely Fool! Great radio show!)

Anyway, we have put aside $10K. By the end of this winter it should be maybe $20K. Obviously we don't eat out, don't spend money on anything but food and boat essentials and don't spend money at all on much of anything that isn't competely necessary. My newest shoes are 2 years old, next newest pair is 4 years. I'm wearing pants from the 90's as I type this.

Given that I have $10 or $20K, a boat loan staring me down at 7%, marginal credit from a business failure and very little else going on financially, would you:

1) Work toward real estate and building credit? I understand places in NY that would be ideal for investment because I understand the upcomming neighborhoods, couldn't afford a janitor's closet there.

2) Invest in something I understand, like the ups and downs of the DOW (index fund)?

3) Forget investing at all and just grab some gold to preserve my funds from inflation/crashes/depreciating dollar?

4) Pay off boat because it's more expensive than inflation?

5) Other?

Also, I need to move these posts off to the "off topic" forum. As a moderator, I do not want to hijack sneuman's thread about financing a boat. Anyone mind if I relocate the relavant threads off to that area?

Thanks!
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Old 22-01-2007, 17:32   #38
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Also, I need to move these posts off to the "off topic" forum. As a moderator, I do not want to hijack sneuman's thread about financing a boat. Anyone mind if I relocate the relavant threads off to that area?



No arguments from me

Dave.
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Old 22-01-2007, 17:33   #39
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Sean-
The world's best investment advice? Write a book, start selling seminars and courses on investing. Doesn't matter if it works or not, folks have been paying $1000 a seat for decades now. Such a big business that even The Trump is doing it, although HE claims that he's the only one who's for real, since he made his money in real estate, not in seminars.<G>
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Old 22-01-2007, 18:54   #40
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What I would do:
Start a managed fund with your $10k and aim to contribute 10k per annum. Tell your manager that you want 12% net gain per annum (this is kinda middle of the road - not aggressive, not conservative). Your annual growth will look like this:
Yr Balance
0 10,000
1 21,200
2 33,744
3 47,793
4 63,528
5 81,151
6 100,899
7 123,007
8 147,768
9 175,500
10 206,560
11 241,347
12 280,309
13 323,946
14 372,819
15 427,557
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Old 22-01-2007, 20:30   #41
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Let us know where to move this thread. In the meantime ....

Quote:
Originally Posted by ssullivan
Anyway, we have put aside $10K. By the end of this winter it should be maybe $20K. Obviously we don't eat out, don't spend money on anything but food and boat essentials and don't spend money at all on much of anything that isn't competely necessary. My newest shoes are 2 years old, next newest pair is 4 years. I'm wearing pants from the 90's as I type this.
This is all a very good start. The dollars you have today have the most buying power in your future. They're very expensive to use for non-essentials while you're young. Although this is a good time to enjoy them - have a little fun along the way.
Quote:
Originally Posted by ssullivan
Given that I have $10 or $20K, a boat loan staring me down at 7%, marginal credit from a business failure and very little else going on financially, would you:

1) Work toward real estate and building credit? I understand places in NY that would be ideal for investment because I understand the upcomming neighborhoods, couldn't afford a janitor's closet there.
Knowing the area you're buying into is essential. Look for an angle that sets your investment apart. I think someone mentioned buying a property in an area that was deindustrialising. That's the sort of thing to look for.
Quote:
Originally Posted by ssullivan
2) Invest in something I understand, like the ups and downs of the DOW (index fund)?
If you can - do this as well. Your 401k is a great vehicle, especially if you get employer matches. Tax free contributions and tax free gains are hard to beat. Personally, I'm more inclined towards the S&P500 right now as the large caps have posted a strong recovery recently.[/quote]

Quote:
Originally Posted by ssullivan
3) Forget investing at all and just grab some gold to preserve my funds from inflation/crashes/depreciating dollar?
Look at the history of gold prices. Nose bleeds at the top and freefall when market confidence returns. Not my cup of tea.

Quote:
Originally Posted by ssullivan
4) Pay off boat because it's more expensive than inflation?
If the 7% is tax deductable then it's really costing you less than this. Compare this to tax free returns you'd get socking the principal repayments into an index. Ok - paying off your boat loan is risk averse - but you're young - you've got time ahead to ride the ups and downs and, in particular, take advantage of the downs. Dollar cost averaging into an index instead of paying down principal is real simple.

Quote:
Originally Posted by ssullivan
5) Other?
Do something sooner rather than later. Waiting is not good.

You mentioned you had marginal credit. You don't want to pay through the nose for your leverage so I'd find out what it will take to restore that. That may help you decide which way to go near term.

Steve
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Old 22-01-2007, 20:54   #42
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Do you have Lo-doc , No-doc loan's in the US ?

ANZ steps up drive for low-doc loans - Business - Business - smh.com.au

These have allowed me, with no income, and no credit history for the past 15 year's, to purchase a couple of investment properties .

Interest rate is about .5% higher than standard variable.

Dave
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Old 23-01-2007, 04:38   #43
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When we first came to the US, getting our first mortgage was very difficult. Even though we'd pulled out the equity in our UK home and had it sitting in a bank account, we had no credit history. We were able to find a company that would lend to us (based on proof of US job, etc.) but we were ripped off. As soon as we could, we refinanced and brought the rate down. From our experience 7 years ago, I'd say there is no equivalent here.
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Old 23-01-2007, 08:00   #44
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No, we definitely don't have the no-doc loans. Credit is very tight here. It takes about 7 years to rebuild credit, and lenders will reject you (as ess105 said) even if you have the cash sitting in the bank in the amount of the purchase you are looking to make.

I'm reading the posts and absorbing. Thank you very VERY much for opening my eyes to some other ways of looking at things. It turns out I can't cut the thread apart and move it as I thought I could (without access to the database that houses the forum). SO... I have ruined sneuman's thread. Sorry about that. Very bad form for a moderator. It won't happen again.
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Old 23-01-2007, 13:55   #45
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Nobody has ruined the thred. the thread is not ruined at all. All of the posting regarding your own situation, Sean, could be seen as useful advice or, at worst, background information for the original question.
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