Living on 100k

[Montanaland]

This is a pretty interesting article:

http://www.roadjunky.com/guide/263/how- ... 000-200000

Making 2k teaching etc. a month while having 100k-150k locked away while earning interest wouldn't be a bad existence.


Also, this discussion thread is pretty interesting in regards to cheap locations. One guy's lives in Morocco for 500 a month while another says he's living Albania @300mo

http://opentravel.com/blogs/the-cheapes ... a-month/3/

[ladislav]

Who is paying 5-7%?

[Rock]

Who is paying 5-7%?

Some moderate risk bond funds pay this or better. Also, there are synthetic products which can beat that rate. But its tougher to find than before. I'm always scouting for 8% or better and its not easy to find.

Also, he wrote that in 2006.

[momopi]

If you have 100k, it's not difficult to find real estate in CA today that'd pay ~12% in gross returns from rental income. Just look along the I-15 FWY.

If you have 50k, look in Las Vegas. Go north from downtown area and look along the I-95.

This short article was written by Larry Roberts:
http://www.irvinehousingblog.com/blog/c ... al-estate/

I know him personally and I think many of you would enjoy his writings.


If you can qualify for a mortgage, the rates are just insane right now. GF bought a 4 bedroom house for $300k with 20% down and rest with 4.5% 30 year fixed rate loan. Monthly mortgage payment is something like $1,200/month. >_< That's like, way cheaper than rent. I think her tenant is paying her $1800/mo.

[globetrotter]

If you have 100k, it's not difficult to find real estate in CA today that'd pay ~12% in gross returns from rental income. Just look along the I-15 FWY.

If you have 50k, look in Las Vegas. Go north from downtown area and look along the I-95.

This short article was written by Larry Roberts:
http://www.irvinehousingblog.com/blog/c ... al-estate/

I know him personally and I think many of you would enjoy his writings.


If you can qualify for a mortgage, the rates are just insane right now. GF bought a 4 bedroom house for $300k with 20% down and rest with 4.5% 30 year fixed rate loan. Monthly mortgage payment is something like $1,200/month. >_< That's like, way cheaper than rent. I think her tenant is paying her $1800/mo.

Rates are incredibly low right now.

What happens to the value of RRE when rates go up, as they most certainly will?

It drops...

Wait until 2015.

[Rock]

If you have 100k, it's not difficult to find real estate in CA today that'd pay ~12% in gross returns from rental income. Just look along the I-15 FWY.

If you have 50k, look in Las Vegas. Go north from downtown area and look along the I-95.

This short article was written by Larry Roberts:
http://www.irvinehousingblog.com/blog/c ... al-estate/

I know him personally and I think many of you would enjoy his writings.


If you can qualify for a mortgage, the rates are just insane right now. GF bought a 4 bedroom house for $300k with 20% down and rest with 4.5% 30 year fixed rate loan. Monthly mortgage payment is something like $1,200/month. >_< That's like, way cheaper than rent. I think her tenant is paying her $1800/mo.

Rates are incredibly low right now.

What happens to the value of RRE when rates go up, as they most certainly will?

It drops...

Wait until 2015.

Globetrotter

The relationship you talk about normally holds. As I'm sure you understand, the decline in interest rates charged to borrowers through most of the 2000s and the unprecedented level they hit was one of the key drivers of the housing bubble. If and when rates start moving north, you would expect house prices to start falling.

But, we've already suffered quite a fall even though interest rates recovered very little last year and have once again dipped to unprecedented low levels. And some markets have absolutely crashed - Vegas being the prime example. Ditto for many markets in Florida - Cape Coral / Fort Meyers, and to a lessor extent downtown Miami / Aventura / Golden Beach / Hollywood. Once decent properties (good building quality and neighborhood but not luxury, or condos in a stable and solvent association) hit a certain level, they tend reach a fairly stable bottom. That level might be based on the rental market or replacement cost depending on certain variables. For example, Fort Meyers condos built in the last 5 years which are part of stable associations charging reasonable fees, tend to bottom at about 60% of replacement cost. In SW Florida, replacement cost for good quality construction runs about $100 / sq. ft. A quick calculation tells you that a 1,000 sq. ft. condo meeting the above specs. could be owned for as little as $60,000. Keep in mind, some of these very same condos were being bought for well over $200,000 just a few years ago. That is what I mean by market crash.

Now even prices in the most depressed US markets will likely not begin ticking-up for many years given the massive inventory overhang. Its just that at these levels, I believe downside risk is quite limited for decent quality (not low-end but not high-end either) real esate. By decent quality, I am referring to neighborhood, construction quality, rental market, etc.

The trick is to find decent quality properties which:
1. Are located in strong rental markets
2. Are located in a district and lot with low property taxes, association fees (if any), and fire / hurricane / flood / earthquake insurance rates.
3. Are priced at insanely distressed levels

If all 3 conditions are met, and the buyer has good credit, it should be possible for him to plunk down a small down-payment, lock-in a very low monthly payment for 20-30 years, secure good tenants, and generate a nice positive cash flow; all with limited downside risk to principal. The cash return on investment could easily reach 10% or more under this scenario and you would slowly be building equity.

Much easier explained than done though. I'm sure finding qualified properties would require a lot of work and research.

[momopi]

It'd be easy for me to generalize and claim "Riverside County has hit bottom in 2009". But in the grand scheme of things, I can't really predict what will happen in 2012 or 2015. If I could accurately predict such things, I'd be rich already and not shopping for condos.

When I first started in RE, I bought properties based on perceived future growth in value and not cash flow. Worked great in theory but sucked not having money. I owned properties with negative $500/month in cash flow, didn't take many to eat up your paycheck. Those were the crazy days when I flipped from $12,000 in savings to several properties with combined value (assets not equity) of over $1.2 million, before the market imploded in a roller coaster ride. All that wealth was like virtual toilet paper and I couldn't even afford a fishing trip to Alaska. *POOF*!

When the RE market was on its way to the peak, I was like this:

"OOOH! MOTHRA!"



Then when it came crashing down, I was like this:

"ACK! GODZILLA!"


Ah well, easy come, easy go. It was a fun ride while it lasted! Wheeeeeeeee!

After taking large losses and being slightly wiser, now I look for cash-flow positive properties only. In this strategy you maximize net income instead of net worth. The property must never be sold to obtain its "value" in income, appreciation is less important than future cash-flow. So far it's worked pretty well and I don't have to work full time anymore, though I still need a job to qualify for mortgages.

Right now there are so many properties on the market at below rental parity, it's really not hard, but only if you have $$ and lenders are tightwads. This is the time when all the cash investors come out from their hiding places with their pot of gold and start buying up everything. Competition for desirable properties is fierce, you snooze you lose. I saw this great lake front property that was worth >$600k at peak. Didn't have all my ducks in a row and someone else nabbed it within days for $360k. F#$%!@#$^$#@^!


p.s. Here's another good article from Larry:
http://www.irvinehousingblog.com/blog/c ... om-irvine/

[globetrotter]

"Return on investment could easily reach 10% or more under this scenario and you would slowly be building equity."

I question whether anyone will be building equity for a generation in the USA and I am completely serious. A large slice of the middle class paper-pushing class of jobs just disappeared forever. House prices have collapsed, unemployment appears to be a chronic 9.5% to 10.o%, food stamp usage is at 43million Americans (14% or 1-in-7 !!!) and the middle class is dying. Retirement plans, SS and pensions are next to take a hit of -15% to -50%.

How things were from 1977-2007 are not coming back for a long, long time.

A house is a place to live, not an investment. Only in a massive bubble where hot money seeks the greatest return, hopping from one asset class to the next, do you see longterm price growth. Tech Stocks-->>RRE-->>Stocks-->>Bonds-->>??? Sure, if you bought a condo in Shanghai in 1999, lived there for 10 years and cashed out right now you would make huge profits of 500k USD or more. Unfortunately not everyone is that brilliant or that lucky and tens of millions more end up being the ones who bought high and gave that 'genius' the money that they made in profit.

[Rock]

"Return on investment could easily reach 10% or more under this scenario and you would slowly be building equity."

I question whether anyone will be building equity for a generation in the USA and I am completely serious. A large slice of the middle class paper-pushing class of jobs just disappeared forever. House prices have collapsed, unemployment appears to be a chronic 9.5% to 10.o%, food stamp usage is at 43million Americans (14% or 1-in-7 !!!) and the middle class is dying. Retirement plans, SS and pensions are next to take a hit of -15% to -50%.

How things were from 1977-2007 are not coming back for a long, long time.

A house is a place to live, not an investment. Only in a massive bubble where hot money seeks the greatest return, hopping from one asset class to the next, do you see longterm price growth. Tech Stocks-->>RRE-->>Stocks-->>Bonds-->>??? Sure, if you bought a condo in Shanghai in 1999, lived there for 10 years and cashed out right now you would make huge profits of 500k USD or more. Unfortunately not everyone is that brilliant or that lucky and tens of millions more end up being the ones who bought high and gave that 'genius' the money that they made in profit.

I ain't no flipper. Never have been, never will be. Just not in my blood. And I don't buy houses and condos to live in, I buy them as cashflow investments. That's worked well for me in some countries, typically where rental yields are high. But where I reside in Taipei, it makes no sense to purchase. There is very little chance for any capital appreciation in my neighborhood and buildings here tend to depreciate fast. And here's the clincher. For $1,000 a month give or take, I can rent a property in my area which sells at nearly $1 million on the market and entails an annual property tax liability to boot. Instead of plunking down that kind of cash (can't get mortgage here) to buy, I could invest that $1 million, generate say 6% for a $5,000 per month return, and have $4,000 left over after I paid my $1,000 rent bill.

By building equity, Here's what I mean by way of an example. You purchase a 100K house, put down 20K as a down-payment, and borrow 80K from bank at let's say 4.7% for a 30 yr. term. Your total monthly mortgage payment is $415. Now assume other costs (taxes, insurance, fees) are $350 per month. Now if you can manage to generate a net average rent of $931 (vacancy period and repair reserves subtracted), your cash return on investment would be 10% and you would be building equity to boot.

Annual Cash ROI: 931 - 415 - 350 = 166 ; 166 * 12 = 1,992 ; 1,992 / 20K = 10%
Equity: Each year, part of your mortgage payment goes to interest and the remainder goes to principal which is secured by equity in the property. You start out with a 20% equity stake and each year, this goes up by the amount of principal which gets paid off. After 30 years, you will be entitled to 100% equity in the property whatever its worth. Now you may argue that that value may fall dramatically (say 70%) and that's possible. And anyway, you can still rent it out and since you no longer have mortgage payments, your cash flow will have increased by $415 per month. But I still believe this risk is much lower for value properties sold at distressed levels.

Even if the property was worth nothing in 30 years, I would still be happy as long as I got my 30 years of 10% cash. I think a 30 year annuity with a 10% interest rate and zero terminal value is attractive in the current climate and will remain so as long as interest rates do not rise too sharply. Thus, the biggest risk I see for such an investment besides dramatic interest rate increases, would be failure to secure stable occupancy by desirable tenants.

[Adama]

I called a banker a couple of months ago. He said with a FICO score of 680 that I can qualify for a mortgage easily. And with FHA, I can still qualify for the 5% down. If not, it will be FICO 700 and 20% down. This is for a four family house.

As soon as I save enough cash, this will be the route I will take.