Real estate and gas

[AnesthesiaLogs]

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everytime i see people talking about stocks, i have to either sit quietly or I have to chime in. in this case I have to chime in: real estate blows away stocks!

All the talk about this or that stock, this stock up an amazing 1-year return of 20%, or that stock down 5 points because they stopped our future blockbuster drug torcetrapib, always seems moot to me. Wouldn't you rather have a guaranteed 100-200% return the moment you buy a below market-price property, rather than a buy-and-hope attitude as in with stocks?

think about this:
$80k house
Purchased with 10% down or $8000
Market value: $110,000
Equity = $110,000 - $80,000 = $30,000
Rehab $5000 + closing costs $3000 = $7000
Total invested = $8000 + $7000 = $15000
Return on Equity = $30,000 / 15,000 = 200% return on equity

Plus you get cash flow:
$200 / month or $2400 / year
$2400 / $15,000 = 16% cash return on investment

go to http://www.gcproperties1.com

The properties we have pay for more than half my residents salary, plus I've more than doubled my equity. Plus there's tax benefits and appreciation too!

I'm telling you all because we had this discussion in the OR today, and I had to chime in on two surgeons arguing about two stocks. Real estate blows away stocks! (And your favorite financial planner or stock broker will never recommend this to you, and I'm sure you can figure out why!)

 

[sallyjoe]

everytime i see people talking about stocks, i have to either sit quietly or I have to chime in. in this case I have to chime in: real estate blows away stocks!

All the talk about this or that stock, this stock up an amazing 1-year return of 20%, or that stock down 5 points because they stopped our future blockbuster drug torcetrapib, always seems moot to me. Wouldn't you rather have a guaranteed 100-200% return the moment you buy a below market-price property, rather than a buy-and-hope attitude as in with stocks?

think about this:
$80k house
Purchased with 10% down or $8000
Market value: $110,000
Equity = $110,000 - $80,000 = $30,000
Rehab $5000 + closing costs $3000 = $7000
Total invested = $8000 + $7000 = $15000
Return on Equity = $30,000 / 15,000 = 200% return on equity

Plus you get cash flow:
$200 / month or $2400 / year
$2400 / $15,000 = 16% cash return on investment

go to http://www.gcproperties1.com

The properties we have pay for more than half my residents salary, plus I've more than doubled my equity. Plus there's tax benefits and appreciation too!

I'm telling you all because we had this discussion in the OR today, and I had to chime in on two surgeons arguing about two stocks. Real estate blows away stocks! (And your favorite financial planner or stock broker will never recommend this to you, and I'm sure you can figure out why!)

That is great advice you are giving out.😱 The real estate market is down many think it will soon be in free fall. When all of the the speculators like yourself see the light and start getting out and all of the interest only loans and other excess of the recent real estate bubble unwind and or go into default.


Before residents risk what little money and time the have in real estate they might want to read some thing like this web site.

http://iamfacingforeclosure.com

Casey Serin: I'm a 24 yr old real estate investor from Sacramento CA. After going to a few seminars I bought 8 houses in 8 months in 4 states with no money down looking to fix 'n flip. I made some mistakes and fell flat on my face - millions in debt and facing foreclosure on 6 4 houses. Trying to avoid foreclosure, sell quickly, repay everyone, and blog my lessons to help others in trouble. Comments appreciated!

Or read about the real risk of investing in real estate.

From;
http://www.fool.com/news/commentary/2005/commentary05102606.htm

Real Estate Bubble? You Bet!
By Buck Hartzell (TMF Buck)
October 26, 2005

The total value of residential property in developed countries rose by more than $30 trillion over the past five years to more than $70 trillion, according to The Economist. That increase is equivalent to 100% of those countries' combined gross domestic products (GDPs). Ponder the magnitude of that statement.

To be fair, it's difficult to grasp exactly how amazing that is without historical context. Those numbers dwarf any previous housing boom, the global stock market bubble of the late 1990s (a GDP increase of 80% over five years), and America's stock market bubble of the late 1920s (55% of GDP). We're looking straight into the eyes of the biggest bubble in history.

Some signs
Consider these bubble indicators:

Compensation. Robert Toll, CEO of Toll Brothers (NYSE: TOL) is No. 13 on the Forbes list of most highly compensated CEOs. His total compensation for 2005 is estimated to be more than $50 million, including a $30 million bonus.


Media. "Flipping" properties has become so popular that there's even a new television show called Flip This House. It's nearly impossible to pick up a newspaper or magazine without reading about the riches to be made in real estate.


Cocktail-party barometer. Remember a few years back, when the only thing people wanted to talk about was their latest IPO highflier? Well, listen closely at your next party and see how many of your friends are talking about how much they've made in real estate.


New risky mortgages. The Washington Post recently reported that Fed Chairman Alan Greenspan warned that "home prices seem to have risen to unsustainable levels" in certain local markets. An Economist article stated that "42% of all first-time buyers and 25% of all buyers made no down payment on their home purchase last year."


Consumer debt levels. Consumer spending accounts for approximately 70% of our GDP. That's well above the 75-year average of 65.5% (covering the period 1929 to 2004) as described in a report (link opens a PDF file) provided by famed value investor Arnold Van Den Berg of Century Management. This spending level is not sustainable, especially now that consumer debt is approximately $10 trillion, or almost 80% of total GDP ($12.3 trillion). The bulk of that consumer debt? Yep, you guessed it: Approximately $8 trillion is mortgage debt.
Don't know much about history
Leverage -- particularly buying stocks on margin (with little or no money down) -- played a big part in the Great Depression. We're doing much the same thing today with interest-only or negative amortization loans.

Remember Black Monday in October 1987? How about the savings and loan failures that followed? From the late 1980s to the late 1990s, real estate was not a particularly great investment. My wife and I bought a home here in Virginia in 1998 for the same price the previous owners had paid way back in 1989. That's nine years and zero appreciation.

But wait, there's more. One of Warren Buffett's early partner letters (with updated numbers) provides a great example of the irrational returns of today's real estate market. Back in 1636, the Dutch purchased Manhattan Island for $24 worth of glass beads. In 2004, the assessed value of all the properties on Manhattan was $186 billion. What a steal, right?

Well, hang on a minute. Do you have any idea what kind of annualized return you'd need if you wanted to turn that measly $24 into $186 billion? Just 6.37%. Real estate, or any other investment for that matter, will not increase at 20% per year for very long. Eventually, reversion to the mean kicks in.

Did you know the housing market in Hong Kong saw a "real decrease" in housing prices of 57% from 1997 to 2002?

It's safe to say that people's expectations are out of whack and that real estate investments won't increase at the same rate they have in the past five years. As a matter of fact, in some markets, I don't think it's out of the question for some properties to lose 20% to 30% of their value in a given year or to see no increases for a decade or more.

 

[Conflicted]

Smart advice.

Now i have a question for you since yer obviously very knowledgeable in this area. If one was to sell a house after living in it for 3 years what is the tax due there? No capitol gains i understand, but is it included in income?

How about if one was to refi a house and have someone move in lease to own. Even tho there is a contract to buy the house do i pay taxes on the mortgage they pay monthly? Also, if i refi where ive pulled out equity, will i have top pay taxes on that when they finally assume the ownership of the house?

seems complicated

everytime i see people talking about stocks, i have to either sit quietly or I have to chime in. in this case I have to chime in: real estate blows away stocks!

All the talk about this or that stock, this stock up an amazing 1-year return of 20%, or that stock down 5 points because they stopped our future blockbuster drug torcetrapib, always seems moot to me. Wouldn't you rather have a guaranteed 100-200% return the moment you buy a below market-price property, rather than a buy-and-hope attitude as in with stocks?

think about this:
$80k house
Purchased with 10% down or $8000
Market value: $110,000
Equity = $110,000 - $80,000 = $30,000
Rehab $5000 + closing costs $3000 = $7000
Total invested = $8000 + $7000 = $15000
Return on Equity = $30,000 / 15,000 = 200% return on equity

Plus you get cash flow:
$200 / month or $2400 / year
$2400 / $15,000 = 16% cash return on investment

go to http://www.gcproperties1.com

The properties we have pay for more than half my residents salary, plus I've more than doubled my equity. Plus there's tax benefits and appreciation too!

I'm telling you all because we had this discussion in the OR today, and I had to chime in on two surgeons arguing about two stocks. Real estate blows away stocks! (And your favorite financial planner or stock broker will never recommend this to you, and I'm sure you can figure out why!)

 

[AnesthesiaLogs]

I only have two answers here to the naysayers:

1. We don't flip; we rent out our properties earning cashflow and building equity long-term while avoiding short term capital gains taxes only to do a 1031 exchange in 2-3 years. No, you will not get rich overnight. But I bet you will do better than in the stock market.

2. We buy below market value, which are typically foreclosures, but not always. Meaning - we've already made money the moment we buy. This, of course, is the secret. How do you get these deals?! Go to an agent that know what he/she is doing.

None of what we do is new. People have been preaching this for years. In fact, our true competition when we bid for a property is actually other bidders who also know the property is $30,000 below market. (we once bid $5000 over the asking price, only to miss out to someone who bid $8000).

When you buy below market you significantly increase your chances of winning. If this does not make sense, then stay with your 401k financial planner. Investment real estate is not for you. But if you can balance your checkbook, crunch numbers quickly, and say "no" to your tenants, you can do rental real estate.

The other thing is that I'm in Texas where the housing market has never entered a bubble. In fact, buying when prices are globally depressed makes good investment sense. Of course, we are buying way below market because we buy foreclosures (usually).

If you can make it to med school, you can most certainly have the skills to be successful in real estate. How hard is it to put a sign in the yard that says, "For Rent"? How hard is it to crunch numbers using an Excel program?

Real estate is easy. People are difficult!

http://www.gcproperties1.com/lastpurchase.asp Here are the details of our last purchase.

http://iamfacingforeclosure.com

Casey Serin: I'm a 24 yr old real estate investor from Sacramento CA. After going to a few seminars I bought 8 houses in 8 months in 4 states with no money down looking to fix 'n flip. I made some mistakes and fell flat on my face - millions in debt and facing foreclosure on 6 4 houses. Trying to avoid foreclosure, sell quickly, repay everyone, and blog my lessons to help others in trouble. Comments appreciated!

Thank you, I really appreciate the above link. I am always a student of learning, and there's a lot to learn from his mistakes. But wow, this guy made a lot of mistakes!

 

[AnesthesiaLogs]

Smart advice.

Now i have a question for you since yer obviously very knowledgeable in this area. If one was to sell a house after living in it for 3 years what is the tax due there? No capitol gains i understand, but is it included in income?

How about if one was to refi a house and have someone move in lease to own. Even tho there is a contract to buy the house do i pay taxes on the mortgage they pay monthly? Also, if i refi where ive pulled out equity, will i have top pay taxes on that when they finally assume the ownership of the house?

seems complicated

No. no taxes if you live in your personal residence for at least two years. I believe is up only up to $500,000 though.

First, don't re-fi if you're going to cash flow negative from this lease to own deal. If you will cash flow positive, go ahead and refi, pull the equity out to do another deal. But make sure you're certain you'll cash flow positive. This is very important. It's hard to answer the rest of your question. Is this a personal residence or an investment property?

By the way I wouldn't do a lease to own. There's no benefit. I'd either sell it or 1031 it, or I'd rent it out and get the cash flow and appreciation (depending on where you live). But no lease to own. Keep it simple.

 

[Conflicted]

Hey

Its a personal residence as we are leaving the state and moving to an apartment for a short period of time.

Im basically doing a favor for a friend so he can purchase my house and i save relator fees as well. Over all its a god economic deal for me.

 

[AnesthesiaLogs]

Hey

Its a personal residence as we are leaving the state and moving to an apartment for a short period of time.

Im basically doing a favor for a friend so he can purchase my house and i save relator fees as well. Over all its a god economic deal for me.

I don't recommend it. Sell it to him. Or you will basically be owner financing it. I don't recommend this even if it's at a high interest rate (but he is your friend). Do what we do: rent it out, get the cash flow, tax benefits (it's A LOT - why do you think lawmakers all have rental property? They know!), and appreciation and equity build-up.

Just give him a considerate price. 6% is a typical listing/buyer agent fee (total) so sell it at market price minus 3% to split the difference. If not, I bet you could find someone else to buy it because that would be a fair, retail deal.

My point is this: The more units you have that you rent out, the more cash flow you have. 10 units at $200/month/unit is $2000 a month (tax free due to depreciation)! That's almost my residents salary! Now think further, what if you had 100 units and a professional management company running it for you??? Would you need you social security or a 401k? This is what I'm trying to let everyone know - you can do better in real estate than in stocks.

 

[badgas]

I don't recommend it. Sell it to him. Or you will basically be owner financing it. I don't recommend this even if it's at a high interest rate (but he is your friend). Do what we do: rent it out, get the cash flow, tax benefits (it's A LOT - why do you think lawmakers all have rental property? They know!), and appreciation and equity build-up.

Just give him a considerate price. 6% is a typical listing/buyer agent fee (total) so sell it at market price minus 3% to split the difference. If not, I bet you could find someone else to buy it because that would be a fair, retail deal.

My point is this: The more units you have that you rent out, the more cash flow you have. 10 units at $200/month/unit is $2000 a month (tax free due to depreciation)! That's almost my residents salary! Now think further, what if you had 100 units and a professional management company running it for you??? Would you need you social security or a 401k? This is what I'm trying to let everyone know - you can do better in real estate than in stocks.

I was just wondering what the costs are to you for maintenance? And how much would a professional management company cost you? Legally, what happens when someone leaves the stove on and burns down one of your properties? I'm pretty new to this so any and all details are helpful. Thanks for the post!

 

[sallyjoe]

By the way I wouldn't do a lease to own. There's no benefit. I'd either sell it or 1031 it, or I'd rent it out and get the cash flow and appreciation (depending on where you live). But no lease to own. Keep it simple.


2. We buy below market value, which are typically foreclosures, but not always. Meaning - we've already made money the moment we buy. This, of course, is the secret. How do you get these deals?! Go to an agent that know what he/she is doing.

When you buy below market you significantly increase your chances of winning. If this does not make sense, then stay with your 401k financial planner. Investment real estate is not for you. But if you can balance your checkbook, crunch numbers quickly, and say "no" to your tenants, you can do rental real estate.

The other thing is that I'm in Texas where the housing market has never entered a bubble. In fact, buying when prices are globally depressed makes good investment sense. Of course, we are buying way below market because we buy foreclosures (usually).

If you can make it to med school, you can most certainly have the skills to be successful in real estate. How hard is it to put a sign in the yard that says, "For Rent"? How hard is it to crunch numbers using an Excel program?

Real estate is easy. People are difficult!

I do not know why you are not recommending a lease to own arrangement. If they are structured right they can be very profitable to the seller or leaser. I was about to buy a property on a lease to own arrangement until I could refinance the place. The contract the lesser gave me was a piece of crap that allowed him to essentially at any time cancel the lease and take all of me equity including my 20% down payment. (If a single payment was late he could call the loan without notice or allowing me to make up that payment and take my equity, so all he had to do was toss one of my payments in the trash and claim I missed a payment and take back his property along with my equity.) I was blown away when I saw this from a man who claimed to run a non profit religious charity, I pointed this clause out to him but he refused to change it so I walked. If you are buying below market value you are either taking advantage of the less fortunate, I.E. foreclosure or lying in the case of direct purchase so I do not see why you would not advocate setting up a lease to own arrangement especially since so many of the private lease to own arrangements take advantage of people by hoping they default so you can take their equity and cancel the lease. A lot of the hard money loans are made by investors looking to get property when the barrower defaults.

How hard is it to put a sign in the yard that says, "For Rent"?

I am a land lord and it is a royal pain. Last month my tenant's check bounced. I have wasted untold hours sending letters and working on evicting him but an eviction can take months. http://iamfacingforeclosure.com has a good story about his problems evicting a tenant who paid the deposit and first months rent but never sent another payment. You can pay a management company to handle that but good real estate management companies are not cheap.

Real estate has some advantages but investing in stock is much less difficulty. I can make good returns in stock and do not have to deal with tenants, repairs, insurance, property taxes, realtors commissions and liquidity issues.

For the typical resident with only a few thousand and little time a well managed low cost mutual fund like some of those offered by Vanguard or Fidelity seems like a much better choice.

 

[PGY2]

I think real estate in general is a good long term investment. But the time commitment required to manage and maintain property can make it a real pain in the butt. I own three properties and invest in the stock market. I am realizing 30-400% yearly gains (I do some high risk trading) in the stock market. My properties, two of which are now worth twice what I paid for them, have been a royal pain. The amount of time I spent maintaining them could have been spent doing other things. Only invest in real estate if you have the time and interest in long term returns. I can walk away from most of my stocks with the touch of a button and never look back (I wont though... capital gains taxes would kill me!).

Good luck.

 

[swpm]

Would a mod please move the real estate get-rich-quick drivel to another forum?

Seriously, it's been about as hard to make a buck flipping houses over the last 5 years as it was to make a buck on tech stocks in the late 90s. The worst part of both has been listening to the guys lucky enough to luck in on the right lucky era to pick a lucky mode of luc^H^H^Hinvestment chatter on about how great they are and how obviously superior real estate is because "real estate never goes down" ...

 

[AnesthesiaLogs]

Would a mod please move the real estate get-rich-quick drivel to another forum?

Seriously, it's been about as hard to make a buck flipping houses over the last 5 years as it was to make a buck on tech stocks in the late 90s. The worst part of both has been listening to the guys lucky enough to luck in on the right lucky era to pick a lucky mode of luc^H^H^Hinvestment chatter on about how great they are and how obviously superior real estate is because "real estate never goes down" ...

This is not a get rich quick thread. We do not advocate flipping at all.

What I am arguing is that our compensation as anesthesiologists has to be well invested for our families and our futures. Real estate, when done the right way, that is - purchased below market and rented out, never flipped, offers returns greater than 130-300% plus cash flow, tax benefits, and never worrying what the markets are doing (except for as it applies to interest rates and macroeconomics). Even if you were to put it into an LLC and thus have to do commercial loans requiring 80% LTV, you'd still have around 70-110% ROI upon buying. I still laugh to myself when I hear people say they made 20% in a month or comment that "the market is down today." Although in real estate, you won't make 1000% like a qualcomm, etc., I will always settle for 130%. Heck even GOOG from IPO $80 to $500 now is only a little over 600% return. That can be done with about 4 single-family houses, but the houses give you cash flow and tax benefits! I don't know, does GOOG even have dividends?

Folks, all the answers in this post are free on our website, so read How it works and the http://www.gcproperties1.com/faq.asp. To the above posters: MANAGEMENT IS EASY. First, make sure your tenants pay you in ***MONEY ORDER NEVER CHECK!*** Second, put a $150 deductible in the contract such that if anything breaks down during the lease, the tenants are responsible for the first $150. This makes them take care of your property and can bring your calls down to sometimes zero per month!

Concerning a management company, you need to have around 20 units to have a PART-TIME manager and still cash flow well (in Houston that is - the area in which you live determines a lot). As we only have 12 units rented out, we have to manage them ourselves. I put a FOR RENT sign from Lowe's (the white one, no color. Just $7.00!), show the unit to the serious ones (2-3 couples), and credit and criminal check them with ntnonline (using the prospective tenant's application fee plus some). Because we do this during the last TWO WEEKS before the previous tenant moves out, we have only a few days before the unit gets rented out again.

In addition, we have cash to support our properties for AT LEAST SIX MONTHS if no one ever rents (which is rediculous as we have only had at the most 1 unit not rented at a time, and only briefly for the make ready. Hondurans, very good and professional!).

Please note, that Casey Serins if you read his website http://iamfacingforeclosure.com has done NONE of the above. Instead he has done the OPPOSITE what we are doing - flipping, taking checks, not credit/criminal checking, not having enough cash, etc.

Folks, if you got into anesthesia residency, I promise you can do real estate because it is really just a bunch of common sense. What I mentioned above is exactly what we do. Is it really so difficult or time intensive?