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Apr 11, 2006 2:35 pm

EZ,

From your math, it doesn't seem that holding the cash out and investing it makes you anything, and that you basically net zero by doing so.  She is in a low tax bracket, so the deduction isn't all that valuable either.

Unless you hold out the cash because really think the insurance company might not pay up in case of a hurricane (which then wouldn't it be your debt anyway?) I would just pay cash, and either rent it, keep it, or flip it, based on whatever you and your mom wants to do. 

Apr 11, 2006 3:54 pm

EZ,

If it's a long term purchase just to keep it, and mom can cover collection and vacancy losses, and any other deficit between cash flow and debt service, then go for it, just don't plan on making quick money on it.  It'll eventually be profitable.

Ace

Apr 11, 2006 5:01 pm

[quote=joedabrkr] ROFL…no it certainly isn’t Hicksville. For one thing

the train service in Boca SUCKS from what I understand!I lived about 10

minutes from Hicksville until last summer.[/quote]



Now I’m the one on the floor! Sometimes I amaze myself. I nailed

you down within 10 minutes just from what I now about you on this

forum. I used to live in Glen Cove (talk about lousy train service). Moved

to Miami in '92.



But seriously, you and MikeB do make very good points. I fixed my

mortgage a year and a half ago and I am pleased about that. No

question, there will be a few casualties in real estate, but nothing like the

internet bubble.   



Take care.



Apr 11, 2006 9:17 pm

[quote=ezmoney]Waterfront property is gold. not making anymore of it.[/quote]

Are you sure about that EZ?  Louisiana has a bunch of new waterfront homes...

Apr 11, 2006 10:26 pm

yea , yea, yea. Ocean front property will always do well. Where do you think all these babyboomers are heading? That’s right the Florida coast and they have the jack to keep prices going up. 

Apr 12, 2006 2:24 am

[quote=ezmoney]yea , yea, yea. Ocean front property will always do
well. Where do you think all these babyboomers are heading? That’s
right the Florida coast and they have the jack to keep prices going
up. [/quote]



This is an interesting perspective.  Makes sense in theory. 
I remember similar discussions about the tech stocks in 1999. 
What is the difference EZ?

Apr 12, 2006 2:47 am

I’m not fully agreeing with EZ (hence my previous post) but you have to admit there is a difference in a 2000 sf waterfront condo in Naples (obviously has a value) and some tech company that lost 37 million last year and has a P/E ratio of 3 gobzillion/1.

That’s the difference. 

Apr 12, 2006 8:14 am

The difference is unlike stock and new issues that have an endless supply. God only made so much coastline to be developed. Babyboomer demand will continue to drive up prices.

My father bought a waterfront condo that was built back in 1975 about 7 years ago for 100k today it is worth 400k. In 1975 they were selling for 17k. Do the math. That's over 30 years of history.

It does make me nervous to put so much cash upfront, but by doing so my mother saves about 25k/yr in interest cost.

Apr 12, 2006 6:10 pm

[quote=ezmoney]

The difference is unlike stock and new issues that have an endless supply. God only made so much coastline to be developed. Babyboomer demand will continue to drive up prices.

My father bought a waterfront condo that was built back in 1975 about 7 years ago for 100k today it is worth 400k. In 1975 they were selling for 17k. Do the math. That's over 30 years of history.

It does make me nervous to put so much cash upfront, but by doing so my mother saves about 25k/yr in interest cost.

[/quote]

You keep thinking that.....Your investment will do fine over the long run but it's not quite the layup you might think.

For starters, your father bought the condo during a rather low point in the real estate cycle from what I recall, and we've had a pretty big bull market in real estate since 2000-01.

According to my HP 12C the return on your  Dad's property from  1975-2006 is approximately 10.5%  assuming your numbers are accurate.  Keep in mind that the condo is only "worth" what your Dad could actually sell it for TODAY.  It is 'common' that real estate investors have unrealistic expectation as the the real value of their properties at market tops.  Either way, that return is pretty good, but not much different than one could make in equities over a similar time frame.

A good quality stock(or stock mutual fund) will NEVER be destroyed by a hurricane.  You don't have to pay property taxes to hold it(although there may be other carrying costs.

Good companies (hopefully) have earnings growth, which should lead to higher dividends and prices.  The only 'earnings growth' you get in real estate is higher rents, which tend to grow in line with inflation.  At some point the 'P/E' multiple that your beloved baby boomers are willing to pay will stop going up.  What will you do then?

I'm not predicting doom and gloom, just playing devil's advocate.
Apr 12, 2006 7:14 pm

Well, my daddy bought Microsoft in 1986, Cisco in '92 (and sold Jan '00), Google in Aug '04, GE in 1982, and Starbucks in '95.  "Do the math."  Good thing he wasn't wasting his money in Floriday real estate with those low returns.  Why don't you go buy those stocks now?; even better, borrow to do so!  NOTHING "will always do well."  That's just a dumb statement.

If and when people realize the prices are ridiculous or they really can't afford an area, they decide somewhere else is the next cool place and the reasonable real estate draws people in.  Basic stuff.

Apr 12, 2006 9:46 pm

Who knows which is better. Both produce very good results. I only know in trying to look out for mom’s money water front real estate seemed to be a pretty good bet.

Apr 12, 2006 10:06 pm

They’re both good. The difference is…you can’t take a shower with your

stock certificates.

Apr 12, 2006 11:26 pm

nor can you sit on your certs and catch a nice buzz while over looking the beach.

Apr 13, 2006 12:44 am

It’s a nice addition to her assets for diversification…just giving you grief for sh and grins.

Apr 13, 2006 12:45 am

PS hopefully it was clear I made up the stock purchases of my father; if he was that smart (and/or lucky), I think I’d be much brigther.

Apr 13, 2006 12:12 pm

If it were my money I would have invested it in a diversified port. However, I felt better putting it into real estate. no doubt the start up costs are a bit more, since I could have invested her at nav using funds.

I also thought about a VA with a living benefit, however my deceased father's trust would own it. I elected real estate. A VA owned by the trust would have been a good choice as well I think, and if I had to do it over I might have thought more about the VA option. Any negatives about he VA you can think about vs. real estate ??

Apr 13, 2006 3:07 pm

[quote=skeedaddy]They're both good. The difference is...you can't take a shower with your
stock certificates. [/quote]

Then again, unlike rental property, no stock cert is evr going to;

1) call you at 1AM about a stopped up toilet

2) Cause a negative cash flow due to vacancies

3) Cost you bundles in up-keep, taxes, mortages, and surprise condo assessments