The challenge of living within ones means

[RWebb]

I'm sorry to hear that, Zeke.

[LakeCleElum]

2Bone - Congrats to you for having all this figured out....

I did the same, bought my 1st house at 50% down while still in college (paid for for college myself).......Bought a new house 3 yrs later and had it paid off by the age of 26.....I was able to retire at age 52 and still take home as much money as I did when working....Keep the goal in sight!

[Evans, Marv]

Me too Milt. I hope things turn around for you. You seem to be a really great guy.
On another note, I did OK with real estate, but boy did I hate being a landlord the whole time.

[silverwhaletail]

Originally Posted by Porsche-O-Phile

The rules of the game have changed considerably. RE was a very stupid "investment" for the last few years however I see some benefit to tapping this asset class now.

Situations do change as do market conditions - there's no "one-size-fits-all" magic formula or point of view that'll work all the time.

And that is where you have it all wrong. again. as usual.

You cannot jump in and out of income properties. Broker/agent/loan/escrow fees will eat you alive.

When you have enough units, you can eventually completely mitigate any W2 income that you earn from your "real" job. And there is annual depreciation on the properties. And then when you decide to turn the property, the government forgives your depreciation when you 1031 Xchange. Buy a new Honda Lawnmower? Was it for your personal residence or was it for you rental "business?" Buy a new double compound miter saw? Was it for your woodworking hobby or was it for your rental "business?" Lease a new pickup? Was it to pull your racecar or is it for your rental "business?" and on and on and on.

RE does not come in and out of "style." It is a long term investment strategy.

The real "return" occurs ten to 30 years later, when the property is paid off and there is no mortgage.

That is what you stock market mutual fund guys cannot fathom. Instead you are always chasing the "latest" or "greatest."

Eventually, one apartment building will make your house payment for you. another building will make your shiny sports car payment for you. Another building will make your wife's car payment for you. Another building will pay your kid's private school tuition.....

Like the pool hustler infers above, landlording "aint for everybody." But if you are fascinated by the search for income producing properties, and you love to negotiate and hammer out deals, and you have the stomach to deal with $3,000 HVAC bills that just pop up with no warning at all, then it can be an extremely efficient income producing methodology.

The very best thing about it, is that it is simply repetition. After you "figure it out", it is simply a matter of doing the same thing again and again and again.

Simple.

p.s. I do stupid schit too, when it comes to money. I have a safe full of assault rifles that I have never fired. I bought a schit load of platinum, when I should have bought gold. I buy watches. Stupid schit.

[Porsche-O-Phile]

It is a long term strategy - I think you misread what I said earlier... The issue is that the RE market got so screwed up over the last 5-10 years as to make it completely untouchable. The capital/barrier-to-entry costs were absurd and more than negated any potential long term gain.

You're correct in saying that once positioned its not effective to dump/cut/run if market dynamics change but the problem up to now has been getting to that point. I did look at several multi unit buildings from 2004-2008 and not a single one made financial sense. They were simply far too overpriced/overvalued to make any kind of payback. Simply put, why "get in" to landlording if the capital price of the associated property (and the carrying costs you'll have to absorb for the next 15-30 years via the mortgage) are 150%-200% above what the historical market levels should be? Simple - you don't. It's utterly stupid to buy in during that kind of a market. There's simply no rationalization or justification for it. However if you were already "in" during the bubble years (i.e. you bought before it started) I can't see it being nearly as detrimental (though it might have been more nerve-wracking due to higher tenant turnover, etc).

The capital cost barrier has dropped considerably to the point where it might be viable now. And the overall demand for rentals is up over the last few years. That's a good combination. Add to that the foreseeable dynamics (a housing market that's going nowhere fast for the foreseeable future, threatened retirement account alternatives, likely high demand for rental properties continuing, etc) and it starts looking more attractive. Certainly not a cash cow or easy money maker, but far more importantly a place to park money for retirement where it's less likely to get destroyed by inflation or government meddling, which are two of the biggest risks with "conventional" retirement accounts going forward.

I actually think we're saying the same thing (its good to hear your perspective) with the exception that I am compelled to point out that the values/capital costs to doing this sort of thing have been ridiculous for the last few years; it makes a bit more sense now that one is looking at more realistic pricing (which will directly affect the carrying costs down the road) along with all the other variables. Foreseeable demand looks decent, as does cost of upkeep (construction costs are reasonably low as long as you stick to open shops and bid competitively), etc.

I'm considering this as strictly a leveraged inflation shelter - I really think the inflation rates are going to explode pretty soon and remain quite high for many years to come. In anticipation of this, there's some merit to having/holding a rental unit or two. I certainly wouldn't attempt to make it a sole-stream income source.

[Z-man]

Originally Posted by silverwhaletail

RE does not come in and out of "style." It is a long term investment strategy.

The real "return" occurs ten to 30 years later, when the property is paid off and there is no mortgage.

That is what you stock market mutual fund guys cannot fathom. Instead you are always chasing the "latest" or "greatest."

Eventually, one apartment building will make your house payment for you. another building will make your shiny sports car payment for you. Another building will make your wife's car payment for you. Another building will pay your kid's private school tuition.....

Absolutely spot on - at least from my experience.

When I was still in grade school, my dad bought property in Florida, and had a home built on it. From day one, it was rented out. After the rent paid for the mortgage on the house, my parents used that money to save up for my sister's and my college education. To supplement that money, they bought a 'fixer-upper' in PA for dirt cheap. Every week, my folks went to that home and worked on fixing it up -- doing everything from electrical, some plumbing, putting on a deck in the back...etc. They sold it and actually mortgaged it privately -- allowing them to get the interest vs. the bank. (Note: this is risky, but offers a greater ROI in the end.)

My dad has done very well with RE -- buying houses, fixing them up, and either renting them or selling them for a profit. He's only had one RE investment that went bad -- his first investment was literally some desolate land on the west coast of Florida -- he was told that area would become a huge development. I think that area is still 'under development.'

But RE takes a long time before you see any significant gains -- so patience is the key. But it is not for everybody.

-Z

[wdfifteen]

Originally Posted by Tim Hancock

I HATE dealing with/worrying about financial matters.

(snip)

Yeah, I should be more involved, but I enjoy life most when I am spending my time thinking about hobby projects vs how to make more money.

That's a kindred spirit right there. I hate dealing with/worrying about financial matters too. I've improved myself financially by doing things that interested me and then finding out I could make money on them. At that point I turn it over to someone else to run. I've spun three hobbies off into businesses that make money for more hobbies. It could happen to you too Tim.

[Baz]

Originally Posted by Z-man

---snip---He's only had one RE investment that went bad -- his first investment was literally some desolate land on the west coast of Florida -- he was told that area would become a huge development. I think that area is still 'under development.' ---snip---

Z - do you know if that area was called "Country Club Estates in Lehigh Acres" in Lee County (located just east of Ft. Myers)?

If so, that's where I bought my first home. Out in the country and a huge subdivision laid out with paved roads but only filled with 40% actual homes! Looks like they were expecting a frenzy of development but it never really happened.

One thing...it was really great for cycling....long and straight for miles paved roadways with NO traffic!

I moved back to the east coast in '95 in a corporate lateral transfer...surfing WAY better on this side of Florida!

[Z-man]

Originally Posted by Baz

Z - do you know if that area was called "Country Club Estates in Lehigh Acres" in Lee County (located just east of Ft. Myers)?

If so, that's where I bought my first home. Out in the country and a huge subdivision laid out with paved roads but only filled with 40% actual homes! Looks like they were expecting a frenzy of development but it never really happened.

One thing...it was really great for cycling....long and straight for miles paved roadways with NO traffic!

I moved back to the east coast in '95 in a corporate lateral transfer...surfing WAY better on this side of Florida!

Close -- it was between Port Charlotte and Englewood Beach. But the same thing - only a scattering of homes, and roads for miles.

-Z

[Christien]

We take a bit of a different approach. I'm not all for saving everything for "later". I don't mean blow everything today and have nothing left over, but I'm not at all opposed to cutting down the savings if the money is being spent on good things. That of course is extremely subjective.

You mentioned specifically vacations - IMO, travel is one of the best things we spend money on. It's strengthened our bonds with each other and with our kids and given us priceless memories that we wouldn't have anywhere else. Unfortunately, being married to a teacher, we don't have a choice but to travel at peak times. So instead of paying $2500 on flights to Florida later this month, we're driving. We hope to turn what could be a long and boring 22-hour drive into another family bonding experience. But the trip will still cost us close to $4k. Money well spent, IMO.

We don't buy fancy stuff to impress friends. We don't have a flat screen TV. In fact, our TV is my folks' old one. We have a decent sized house, but we can afford it pretty easily. I guess what we don't have is "conspicuous consumption" type stuff. But if it's something that will "enrich" our lives, we buy it. Like a Porsche. Seriously, that's money well spent, IMO. I appreciate it every day I drive it (or look at it, in the winter time...). My wife spent $150 today to take our eldest to see the Nutcracker. Again, money well spent. We don't really cheap out on food - we eat well, and healthy. Good wine (well, decent at least).

We save for our kids' college fund, major purchases (like home reno stuff - right now it's for new windows) and just in general, but it's not a huge warchest, and probably won't be for a few decades.

As for retirement, being self-employed my aim is to have the business be able to provide a decent income while not really working too much at it by that time. It's already most of the way there. But one of the upsides of being married to a teacher is the pension - I don't think there's any danger there, even after selling off MLSE.

I suppose what I'm getting at is don't live for tomorrow, live for today. Just don't neglect tomorrow. We'll never again have these days while we're young and energetic, our kids are young and still like hanging out with their parents, all that kind of stuff. If we don't take advantage of it, we'll never have it back, and we'll regret it.

[Seahawk]

Nothing to find fault with...well done Christien.

Living within ones means is easy, always has been if a family follows basic percentages of income to specific expenditures.

Always save more, however.

Originally Posted by Christien

We take a bit of a different approach. I'm not all for saving everything for "later". I don't mean blow everything today and have nothing left over, but I'm not at all opposed to cutting down the savings if the money is being spent on good things. That of course is extremely subjective.

You mentioned specifically vacations - IMO, travel is one of the best things we spend money on. It's strengthened our bonds with each other and with our kids and given us priceless memories that we wouldn't have anywhere else. Unfortunately, being married to a teacher, we don't have a choice but to travel at peak times. So instead of paying $2500 on flights to Florida later this month, we're driving. We hope to turn what could be a long and boring 22-hour drive into another family bonding experience. But the trip will still cost us close to $4k. Money well spent, IMO.

We don't buy fancy stuff to impress friends. We don't have a flat screen TV. In fact, our TV is my folks' old one. We have a decent sized house, but we can afford it pretty easily. I guess what we don't have is "conspicuous consumption" type stuff. But if it's something that will "enrich" our lives, we buy it. Like a Porsche. Seriously, that's money well spent, IMO. I appreciate it every day I drive it (or look at it, in the winter time...). My wife spent $150 today to take our eldest to see the Nutcracker. Again, money well spent. We don't really cheap out on food - we eat well, and healthy. Good wine (well, decent at least).

We save for our kids' college fund, major purchases (like home reno stuff - right now it's for new windows) and just in general, but it's not a huge warchest, and probably won't be for a few decades.

As for retirement, being self-employed my aim is to have the business be able to provide a decent income while not really working too much at it by that time. It's already most of the way there. But one of the upsides of being married to a teacher is the pension - I don't think there's any danger there, even after selling off MLSE.

I suppose what I'm getting at is don't live for tomorrow, live for today. Just don't neglect tomorrow. We'll never again have these days while we're young and energetic, our kids are young and still like hanging out with their parents, all that kind of stuff. If we don't take advantage of it, we'll never have it back, and we'll regret it.

[SeanPizzle]

Silverwhaletail, do you have any books you recommend for getting started in rental properties? I am 43 and in my peak earning years. My IRA and 401k have returned fawkall. I can see having a stream of income from rental properties, but it is a bit daunting to become a landlord.

Thanks

[Christien]

I did neglect to mention that my philosophy does include living within our means, and like Vash said earlier, never buy anything on credit because you need to.

My father always told me the only debt you ever take on is a mortgage. Nothing else. I've always lived by that, maybe with a few slips along the way when I was younger, but nothing more than a few hundred dollars worth, and I always knew to cut back a bit and pay it off.

[silverwhaletail]

Originally Posted by SeanPizzle

Silverwhaletail, do you have any books you recommend for getting started in rental properties? I am 43 and in my peak earning years. My IRA and 401k have returned fawkall. I can see having a stream of income from rental properties, but it is a bit daunting to become a landlord.

Thanks

I know of no "RE as Income Producing Investments" books that were not written in order to sell the book and make the author $$$$ from selling the book.

I've thumbed through some books that sounded like they had something to offer, but never really read anything useful. In the final analysis, they are all "no money down !!! " books, more or less.

The only "No Money Down!!!" properties that I was ever able to buy were so undervalued that I was able to increase the purchase price to cover my down payment and then included in the escrow instructions that the 25% that I "overpaid" would be disbursed back to me at close of escrow as a an additional commission. My Broker then cuts a check for the 25% back to me.

But even at that, I have to front the money for the "down payment" myself.

So to answer your question, No. No good RE Investment books.

[john70t]

Sean, one good book is "Real Estate Principles" by Charles Jacobus. Best thing I ever did was take a brief RE class at a local community college. I could have even gotten a brokers licence and paid myself a few extra $$$.
There is a lot of terminology and strategy involved, but final decisions can be highly dependant on local experience and personal goals. Search Trulia or Realtor dot com on a regular basis and get familiar with where home values are now and where they are headed.

People scrimp and save with small daily purchases and habits, then make the major decisions with property quickly based on how "cute" it is or out of panic. There will always be other opportunities. Always.

[Normy]

Edited - inflamatory post removed. -Z-man

[twobone]

It struck me on Friday when I was getting a Xmas tree.

The guy was asking $90 for his best tree. Wasn't it $80 last year and $65 three years ago and $55 ten years ago???

It made me think....how much higher is my real income than when I first got a real job?

I checked the historical inflation rates....

Even though my wife and I make 3.25 times what we earned 20 years ago, when you factor inflation into it, we are only making 2 times the real income.

When you factor in the higher personal income tax rate, our real disposable income is probably only 1.85 times higher.

Are we living a lifestyle that is only 1.85 times as extravagant at aged 43 versus 23? My property taxes are 4 times higher, my xmas bills are 4 times higher, my utilities are 3 times higher. Scary statistics


It really makes you think....you are NOT richer than you think