MD, I follow the leverage principal, and I won't tell you that I didn't make money in real estate, but I don't think it's the panacea that everyone makes it out to be.  Repair costs (I'm getting ready to write a $20,000+ check for repairs and remodeling to property worth about $80,000), insurance, property taxes (currently 2.5% of FMV annually), interest, etc. all add up and cause significant dilution to all of that leverage, and for my part, the headaches I've experienced over the years make it not worth it.  By the time I hit 60, I'll have amassed considerably more wealth in this business than virtually all of the local landlords in my market and I'll have done it doing something I love...not something I've come to resent.

Incidentally, my realtor, who has 40+ properties is singing the blues about how crappy the business has become with high property taxes, etc.  He told me last month that the property market is so crappy, he feels like he has to hang on for better times to avoid taking a beating.

Interesting...a professional who's been investing in real estate for longer than I have (15+ years) wants out...hmmmmm...

One more random thought...some of the worst loan losses I ever saw when I was at the bank back in the 90's was rental home loans.  Often the bank would get 10-20 houses at a time and they were just disasters...some no longer habitable.  I remember the loan guys really clamping down on the easy money after that.  Unfortunately, it appears that this lesson will one day be repeated as the real estate cycle has not been repealed...

Speaking of buying foreclosures, don't make the mistake my ex-friend made: buying foreclosures from finance companies. Mortgage loans that originated through finance companies are typically based on overvalued property. The reason for this is that appraisers for finance companies are encouraged to inflate the value of the appraisal (if necessary) to make the loan. If they don't, the finance company finds an appraiser who will.

I guess my philosophy is that debt can hurt you. I had a rental that I sold before the increase in the RE market. I owned it for 10 years and sold it for a 4000 dollars profit. That was ok, except I depreciated for 10 years and had to recapture the capital gains. I have no real estate holding except my house, which is paid off. Some people say that is stupid. I tell them that the only people who tell me that paying off my house is stupidis people that don't have their houses paid for. I put money in the market when I made 20k and I do it 200k. I believe in what I do for a living and am living proof that saving money can make you affluent, maybe not ultrahigh net worth, but what is high net worth. AT MS, my former company, my account would be considered platinum. I listen to all these people that have moved into larger houses with no money down and libor rate loans and they are now crying the blues. What will happen if the real estate market drops 10% or 20%? I has happened before. What about a tax law change, that can happen also. Many people have used their houses as ATM's for years, this is scary. When I bought my current house, in 1993, you had to put10% down. whatever happend to that? Just read the forclosure pages and them tell me everyone makes money in Real Estate. Also I just did a hypo for a client who say Real estate in the only investment.

500 a month into ICA for 20 years =480k.

50k with no additions was about the same

50k adding 500 a month was about 900k.

and your saying dollar cost averaging does not work?

I guess I’ll take you seriously when you say that you opened an account with

someone who has DCA’d ICA for 20 years. Until then, let’s stay on

point…shall we?



DCA (thank you Suzy Orman) is a device originated by the mutual fund

industry to convince the “average joe” to keep sending a portion of their

earnings to Boston, NY or San Francisco.



The bottom line is: most (90%) HNW clients have become HNW by either

liquidating real estate or cashing-in stock options.

[quote=Indyone]

MD, I follow the leverage principal, and I won’t tell you that I didn’t make money in real estate, but I don’t think it’s the panacea that everyone makes it out to be.  Repair costs (I’m getting ready to write a $20,000+ check for repairs and remodeling to property worth about $80,000), insurance, property taxes (currently 2.5% of FMV annually), interest, etc. all add up and cause significant dilution to all of that leverage, and for my part, the headaches I’ve experienced over the years make it not worth it.  By the time I hit 60, I’ll have amassed considerably more wealth in this business than virtually all of the local landlords in my market and I’ll have done it doing something I love…not something I’ve come to resent.

Incidentally, my realtor, who has 40+ properties is singing the blues about how crappy the business has become with high property taxes, etc.  He told me last month that the property market is so crappy, he feels like he has to hang on for better times to avoid taking a beating.

Interesting...a professional who's been investing in real estate for longer than I have (15+ years) wants out...hmmmmm...

One more random thought...some of the worst loan losses I ever saw when I was at the bank back in the 90's was rental home loans.  Often the bank would get 10-20 houses at a time and they were just disasters...some no longer habitable.  I remember the loan guys really clamping down on the easy money after that.  Unfortunately, it appears that this lesson will one day be repeated as the real estate cycle has not been repealed...

[quote=aldo63]

Also I just did a hypo for a client who say Real estate in the only investment.

500 a month into ICA for 20 years =480k.

50k with no additions was about the same

50k adding 500 a month was about 900k.

and your saying dollar cost averaging does not work?[/quote]

Client invested $50k with no additions.  Comes to around $450k in ICA.

Instead of this, client takes same $50k and buys a $500,000 house.  RE market anually averages 6% (national historical compounded average). 

1st year - client makes $30k
2nd year - client makes $32k
3rd year - client makes $34k
4th year - client makes $36k
5th year - client makes $38k  (house valued at $670k now)
6th year - client makes $40k
7th year - client makes $42.5k
8th year - client makes $45k  797.50
9th year - client makes $48k
10th year - client makes $50k (house valued at $895.5k now)

And this is just 10 years with the national average appreciation rate of 6 percent. 

SUMMARY
------------------------

Client invested $50k.  Lowest return client ever made on $$ was in first year (60%).  After just TEN years (not TWENTY), client has made $495,000 PLUS gets back the original $50,000 upon sale of the house PLUS, as long as they did not have an interest only mortgage, a lot of principal was paid down as well.

That, my friends, is the power of leveraging.  For fun, you could take it to 20 years.  Like I said, give me THREE percent a year in the RE market over 12 percent in the stock market.  I believe in what I do - but only for the right clients...young clients that have SOME money, understand the risk and are willing to learn, I will point them in this direction.

http://money.cnn.com/2006/03/28/news/economy/millionaires/

"Although real estate is not their sole source of wealth, it remains a staple for many. Forty-six percent of those surveyed own investment real estate like a second home or rental properties.

Seventy percent of the households, meanwhile, owned stocks and bonds, and 68 percent owned mutual funds."

...doesn't exactly support the 90% assertion.

"The growth we've seen this year is largely due to measured planning and active reinvestment," Luhr said in a statement. "When asked about their investment approach over the past year, 61 percent of millionaires said their approach has changed very little, indicating they have a strategy and they are sticking to it."

That includes maintaining and monitoring a diversified portfolio, Luhr said, and also taking advantage of low interest rates to refinance and pay down debt."

That's from this related link:

http://money.cnn.com/2005/09/27/news/economy/millionaire_sur vey/index.htm

Note that only 46% even owned investment real estate and nowhere does it say that the majority of even these folks made their fortunes in real estate.

Many of the millionaires in my market own their own business(es) and beyond what's in the company and their personal residence, own very little real estate.  Many more have had long tenures in high-paying jobs (although I see little in the way of stock options as very few local companies are publicly traded).  Sorry, guys...I'm just not seeing it here...

[quote=Indyone]Repair costs (I'm getting ready to write a $20,000+ check for repairs and remodeling to property worth about $80,000), insurance, property taxes (currently 2.5% of FMV annually), interest, etc. all add up and cause significant dilution to all of that leverage...[/quote]

Again...I repeat myself...

[quote=ManDate]

[quote=aldo63]

Also I just did a hypo for a client who say Real estate in the only investment.

500 a month into ICA for 20 years =480k.

50k with no additions was about the same

50k adding 500 a month was about 900k.

and your saying dollar cost averaging does not work?[/quote]

Client invested $50k with no additions.  Comes to around $450k in ICA.

Instead of this, client takes same $50k and buys a $500,000 house.  RE market anually averages 6% (national historical compounded average). 

1st year - client makes $30k
2nd year - client makes $32k
3rd year - client makes $34k
4th year - client makes $36k
5th year - client makes $38k  (house valued at $670k now)
6th year - client makes $40k
7th year - client makes $42.5k
8th year - client makes $45k  797.50
9th year - client makes $48k
10th year - client makes $50k (house valued at $895.5k now)

And this is just 10 years with the national average appreciation rate of 6 percent. 

SUMMARY
------------------------

Client invested $50k.  Lowest return client ever made on $$ was in first year (60%).  After just TEN years (not TWENTY), client has made $495,000 PLUS gets back the original $50,000 upon sale of the house PLUS, as long as they did not have an interest only mortgage, a lot of principal was paid down as well.

That, my friends, is the power of leveraging.  For fun, you could take it to 20 years.  Like I said, give me THREE percent a year in the RE market over 12 percent in the stock market.  I believe in what I do - but only for the right clients...young clients that have SOME money, understand the risk and are willing to learn, I will point them in this direction.

Astute investors would never limit themselves to only one type of asset… They would own Real Estate, Stocks, Munis at the very least…

Are you people just plain fools? Or are you high on the Kool-Aid?



Can anyone please site an example of a HNW client that rented their whole

life and made their fortune trading stocks or bought a VA when they were 12

years old?



Okay children, now back to bed

[quote=joedabrkr] [quote=ManDate]

[quote=aldo63]

Also I just did a hypo for a client who say Real estate in the only investment.

500 a month into ICA for 20 years =480k.

50k with no additions was about the same

50k adding 500 a month was about 900k.

and your saying dollar cost averaging does not work?[/quote]

Client invested $50k with no additions.  Comes to around $450k in ICA.

Instead of this, client takes same $50k and buys a $500,000 house.  RE market anually averages 6% (national historical compounded average). 

1st year - client makes $30k
2nd year - client makes $32k
3rd year - client makes $34k
4th year - client makes $36k
5th year - client makes $38k  (house valued at $670k now)
6th year - client makes $40k
7th year - client makes $42.5k
8th year - client makes $45k  797.50
9th year - client makes $48k
10th year - client makes $50k (house valued at $895.5k now)

And this is just 10 years with the national average appreciation rate of 6 percent. 

SUMMARY
------------------------

Client invested $50k.  Lowest return client ever made on $$ was in first year (60%).  After just TEN years (not TWENTY), client has made $495,000 PLUS gets back the original $50,000 upon sale of the house PLUS, as long as they did not have an interest only mortgage, a lot of principal was paid down as well.

That, my friends, is the power of leveraging.  For fun, you could take it to 20 years.  Like I said, give me THREE percent a year in the RE market over 12 percent in the stock market.  I believe in what I do - but only for the right clients...young clients that have SOME money, understand the risk and are willing to learn, I will point them in this direction.

[/quote]

Mandate-

Your rosy scenario is lovely, but you forgot to include a few minor items like real estate taxes and repairs.

Also-just curious how that leverage works out if the home drops in value by 10% per year for the first 3-4 years?
[/quote]

Repairs are covered by home warranties, for the most part...$25k/month/house ($300/year/house).  Just to be on the safe side, though (so the warranty company doesn't try to back out) I get yearly A/C and roof inspections ($220/year/house).

Taxes are not an issue as they are part of the debt service that is more than covered by the rent checks.  As taxes (and insurance) go up, so do the rent payments (and yes, they will be going up for sometime around here---all real estate is local---because we had over 5000 condo conversions in the last 5 years -- no I am not in SE Florida). 

The area of the country I am in has NEVER experienced even one year of 10% loss in RE values.  The worst was a little over 5%.  The next year it recovered to positive 1% and then back on track again.  Those were the anomalies.

Then go into the real estate business full time.  A guy like you is far too smart for the securities business anyway.

[quote=ManDate][quote=joedabrkr] [quote=ManDate]

[quote=aldo63]

Also I just did a hypo for a client who say Real estate in the only investment.

500 a month into ICA for 20 years =480k.

50k with no additions was about the same

50k adding 500 a month was about 900k.

and your saying dollar cost averaging does not work?[/quote]

Client invested $50k with no additions.  Comes to around $450k in ICA.

Instead of this, client takes same $50k and buys a $500,000 house.  RE market anually averages 6% (national historical compounded average). 

1st year - client makes $30k
2nd year - client makes $32k
3rd year - client makes $34k
4th year - client makes $36k
5th year - client makes $38k  (house valued at $670k now)
6th year - client makes $40k
7th year - client makes $42.5k
8th year - client makes $45k  797.50
9th year - client makes $48k
10th year - client makes $50k (house valued at $895.5k now)

And this is just 10 years with the national average appreciation rate of 6 percent. 

SUMMARY
------------------------

Client invested $50k.  Lowest return client ever made on $$ was in first year (60%).  After just TEN years (not TWENTY), client has made $495,000 PLUS gets back the original $50,000 upon sale of the house PLUS, as long as they did not have an interest only mortgage, a lot of principal was paid down as well.

That, my friends, is the power of leveraging.  For fun, you could take it to 20 years.  Like I said, give me THREE percent a year in the RE market over 12 percent in the stock market.  I believe in what I do - but only for the right clients...young clients that have SOME money, understand the risk and are willing to learn, I will point them in this direction.

[/quote]

Mandate-

Your rosy scenario is lovely, but you forgot to include a few minor items like real estate taxes and repairs.

Also-just curious how that leverage works out if the home drops in value by 10% per year for the first 3-4 years?
[/quote]

Repairs are covered by home warranties, for the most part...$25k/month/house ($300/year/house).  Just to be on the safe side, though (so the warranty company doesn't try to back out) I get yearly A/C and roof inspections ($220/year/house).

Taxes are not an issue as they are part of the debt service that is more than covered by the rent checks.  As taxes (and insurance) go up, so do the rent payments (and yes, they will be going up for sometime around here---all real estate is local---because we had over 5000 condo conversions in the last 5 years -- no I am not in SE Florida). 

The area of the country I am in has NEVER experienced even one year of 10% loss in RE values.  The worst was a little over 5%.  The next year it recovered to positive 1% and then back on track again.  Those were the anomalies.

[quote=ManDate][quote=joedabrkr] [quote=ManDate]

[quote=aldo63]

Also I just did a hypo for a client who say Real estate in the only investment.

500 a month into ICA for 20 years =480k.

50k with no additions was about the same

50k adding 500 a month was about 900k.

and your saying dollar cost averaging does not work?[/quote]

Client invested $50k with no additions.  Comes to around $450k in ICA.

Instead of this, client takes same $50k and buys a $500,000 house.  RE market anually averages 6% (national historical compounded average). 

1st year - client makes $30k
2nd year - client makes $32k
3rd year - client makes $34k
4th year - client makes $36k
5th year - client makes $38k  (house valued at $670k now)
6th year - client makes $40k
7th year - client makes $42.5k
8th year - client makes $45k  797.50
9th year - client makes $48k
10th year - client makes $50k (house valued at $895.5k now)

And this is just 10 years with the national average appreciation rate of 6 percent. 

SUMMARY
------------------------

Client invested $50k.  Lowest return client ever made on $$ was in first year (60%).  After just TEN years (not TWENTY), client has made $495,000 PLUS gets back the original $50,000 upon sale of the house PLUS, as long as they did not have an interest only mortgage, a lot of principal was paid down as well.

That, my friends, is the power of leveraging.  For fun, you could take it to 20 years.  Like I said, give me THREE percent a year in the RE market over 12 percent in the stock market.  I believe in what I do - but only for the right clients...young clients that have SOME money, understand the risk and are willing to learn, I will point them in this direction.

[/quote]

Mandate-

Your rosy scenario is lovely, but you forgot to include a few minor items like real estate taxes and repairs.

Also-just curious how that leverage works out if the home drops in value by 10% per year for the first 3-4 years?
[/quote]

Repairs are covered by home warranties, for the most part...$25k/month/house ($300/year/house).  Just to be on the safe side, though (so the warranty company doesn't try to back out) I get yearly A/C and roof inspections ($220/year/house).

Taxes are not an issue as they are part of the debt service that is more than covered by the rent checks.  As taxes (and insurance) go up, so do the rent payments (and yes, they will be going up for sometime around here---all real estate is local---because we had over 5000 condo conversions in the last 5 years -- no I am not in SE Florida). 

The area of the country I am in has NEVER experienced even one year of 10% loss in RE values.  The worst was a little over 5%.  The next year it recovered to positive 1% and then back on track again.  Those were the anomalies.

[quote=aldo63]

500 a month into ICA for 20 years =480k.

50k with no additions was about the same

50k adding 500 a month was about 900k.

and your saying dollar cost averaging does not work?

[/quote]

I'm not sure I'm understanding your nums,

$120,000 invested over 20 years = $480,000 (BTW can we all agree to call them M's? K's are so "Metric System, scientist geek" M's are Roman!)

$50M invested for 20 years = $480M

$50M + "$120M over the 20 years" ($170M) = $900m (60M LESS than 100M invested for the 20 yrs.)

Doesn't sound like DCA did any big favors!

BUT I DIGEST:

The original posit to this thread (which I did not read in it's entirety, so this might have been raised before) pointed out the dirty little secret of that business (wirehose brokerage). That secret is that many don't retire rich from this bidness. Well, you might if you own the shop. Brokers stand around the coffee machine and brag to each other all day, "I just landed a $3MM account!" "Where'd he get the money?" "Sold his business." "Oh, lucky bastidge."

Second, I don't think that Warren Buffet would be the man he is without the stock market. Similarly, I've landed more than one IRA rollover in the million dollar range (granted, these people are savers and had been since they were young). Overall, the stock market has made more than it's fair share of multimillionaires (and ruint my than one of them too!)

Mr. A

My gosh, I am surprised that we have such stong opinions here...(dripping with sarcasm)

Real estate is definately not a "can't lose" proposition.  Not many things are.  But there is no denying the wealth building potential of real estate.

Someone on here predictably cited their American Funds mountain chart of ICA.  For the passive investor who doesn't want to think for themselves (I am being rather harsh I suppose) and would rather let a mutual fund company make all the decisions, then by all means, plug away your savings into the almighty ICA (or whatever fund), and cross your fingers and hope 30 years from now you can retire. 

Seriously, how many investors could even name the top ten holdings in ANY of the funds they hold???  They can't, that is the whole reason they own FUNDS in the first place.

We are a country of sheep, and mutual funds work well for sheep. 

I have never been a sheep, and that is what drew me to this career I suppose.  Regardless, I for one have decided, sink or swim, to be responsible for my own wealth, and not put it in the hands of anyone else as best I can.  Not to say I won't take advantage of IRA's and 401K matches when available, but I will not RELY on some mystical mutual fund company to carry me into retirement.

I will create my own wealth, and the area of investment that has the greatest ratio of REWARD to RISK in my opinion is real estate.

I like to think in simple terms, and I heard something simple the other day that really resonated with me.  Donald Trump and Robert Kiyosaki were on Larry King Live promoting their new book, and Larry King asked both of them which they thought was a better investment, real estate or the stock market?

Of course The Donald said real estate.  Predictable.  Robert Kiyosaki agreed, and made this simple statement.

Banks won't lend you money to buy mutual funds.  Why is that?

"Banks won't lend you money to buy mutual funds.  Why is that?"

Little thing called Reg T.

Yikes!

Mr. A

Definition of Reg T from Investopedia:

"The Federal Reserve Board regulation that governs customer cash accounts and the amount of credit that brokerage firms and dealers may extend to customers for the purchase of securities."

So you're saying you can walk in to your local bank, and they can/will give you up to 50% margin on your securities to buy more securities?  I don't think so.

No my friend, Reg T regulates brokerage firms and securities dealers, not banks.  Banks want no part of securities lending, except to take on AS COLLATERAL to shore up a deal to lend money for something other than securities, say real estate.

[quote=BankFC]

Definition of Reg T from Investopedia:

"The Federal Reserve Board regulation that governs customer cash accounts and the amount of credit that brokerage firms and dealers may extend to customers for the purchase of securities."

So you're saying you can walk in to your local bank, and they can/will give you up to 50% margin on your securities to buy more securities?  I don't think so.

No my friend, Reg T regulates brokerage firms and securities dealers, not banks.  Banks want no part of securities lending, except to take on AS COLLATERAL to shore up a deal to lend money for something other than securities, say real estate.

[/quote]

Nice rebuttal. (though I think Kiyosaki is a big time flake and Donald, while he has done very well, is not everything he proposes to be).

In regards to controlling your destiny.  I agree...another reason I like RE...no one is going to make shady decisions behind my back (in a corporate boardroom) to drive the value of my investment to zero.  Additionally, while I have taxes (capital gains & dividends?), they are paid by my renters.

As far as leaving this business?  Nah, too many sheep that need a shepherd.  The best of both worlds.