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SHELLY

SoWal Insider
Jun 13, 2005
5,770
802
The short answer is that it depends on what you buy.

Say you and I each have $100,000 to invest. You buy a single property and pay $100,000 cash. I buy 10 identical properties and put 10% down on each. I get great terms from my lender and my note on each property is $500/month. (I know, I know - just follow me - this is for illustrative purposes only and we're ALSO going to ignore all other expenses for this illustration.)

Searcher,

Two things:

(1) "Ignoring the expenses" is what is getting these folks in trouble now.
10 Properties = 10 Insurance Policies + 10 Property Tax Bills + 10 Closings + 10 RE Commission Charges

AND

(2) You forgot to start your illustration with "Once Upon A Time....."


.
 
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Bob

SoWal Insider
Nov 16, 2004
10,364
1,391
O'Wal
Searcher,

Two things:

(1) "Ignoring the expenses" is what is getting these folks in trouble now.
10 Properties = 10 Insurance Policies + 10 Property Tax Bills + 10 Closings + 10 RE Commission Charges

AND

(2) You forgot to start your illustration with "Once Upon A Time....."


.
Yes, in Florida the real estate commision is a charge to the buyer at closing. In addition, the buyer always pays the closing fee, and taxes are never pro-rated, right Shelly?
 

SHELLY

SoWal Insider
Jun 13, 2005
5,770
802
Yes, in Florida the real estate commision is a charge to the buyer at closing. In addition, the buyer always pays the closing fee, and taxes are never pro-rated, right Shelly?

Depends if you're talking about 2005 or 2007.


.
 

Searcher

Beach Comber
Mar 30, 2006
30
3
I should apologize for being sarcastic but I wasn't really asking. Leveraging like that is just asking for trouble in my opinion. - I agree, don't try this at home. I'm merely trying to illustrate a point. - What if the market slips further and renters shy away from the area? I still have 90k and the asset and you have lost 100k and might lose 10 properties. - No, you have your entire $100,000 tied up in the property - you paid cash remember. You have the asset only, at whatever its current value is but presumably you are still OK because you are collecting rent - The risk factor goes up by more than the leverage percentage. - Depends on the property. - If you have the million in the bank anyway why let someone else take away all of your appreciation with a loan? 5% apprciation is close to historic norms. - Indeed. Why not just put your cash in a CD? Forget RE. It is all calculated risk - If you don't have the cash why not buy 1 property and roll cashflow into more properties? - Confusion here. If you don't have cash, you must leverage to buy property to create cash flow? - Is there a tipping point when the market goes down? - Yes, if rents fall and/or costs rise and you can't break even, You are tipped right off a cliff. You bought the wrong property and should have stuck to CDs - RE is cyclical and prices/rents don't always go up. - Yes, it is a calculated risk - everything depends on the property you buy. - 95-100 percent loans contributed greatly to the explosion in prices in the area everyone complains about. - Agree -Think of how careful people would be if it was all their money going towards that investment. - If they are not even MORE careful with borrowed money they should stick to CD's - I prefer cash but leverage is smart at smaller percentages to make deals with fantastic returns work. - average return is OK too if you get it - I feel it shouldn't be used to make mediocre deals turn higher cash flow. - Absolutely agree - A beach rental rarely falls into the first category. - Absolutely agree -

I'm not trying to defend stupid speculation on beach RE. As I said in my earlier post IT DEPENDS. Sometimes leverage can work to to one's advantage. Cash purchase will usually work just fine but it is not the only way to make(or loose) money.
 
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Searcher

Beach Comber
Mar 30, 2006
30
3
Searcher,

Two things:

(1) "Ignoring the expenses" is what is getting these folks in trouble now.
10 Properties = 10 Insurance Policies + 10 Property Tax Bills + 10 Closings + 10 RE Commission Charges

AND

(2) You forgot to start your illustration with "Once Upon A Time....."


.


As always - thank you Shelly.

1 - Remember rule #1 "Crunch Thy Numbers"

2 - Amen - it is much harder now ...but not impossible.
 

egrp

Beach Lover
Sep 22, 2005
122
3
If a piece of real estate will not cash flow with 80% loan, then it isn't an investment.

Everything cash flows when you pay cash...but your returns suck.
 

Smiling JOe

SoWal Expert
Nov 18, 2004
31,648
1,773
Everything cash flows when you pay cash...but your returns suck.
I would be so sure about that. You must consider mgt fees, taxes and insurance, which could leave you at break even or negative cash flow, depending on the property.
 

Pirate

Beach Fanatic
Jan 2, 2006
331
29
If a piece of real estate will not cash flow with 80% loan, then it isn't an investment.

Everything cash flows when you pay cash...but your returns suck.

To each his own. A loan definitely takes a sizeable chunk of your return. I only buy deals that make sense to me with little risk. My returns do not suck I assure you and no matter what the market does I will be fine. It is a risk versus reward game to be sure. If you had bought those 10 properties a couple years ago I assume you wouldn't be so agressive. I don't feel like risking 100 percent of an investment to make a higher return. If you do then I wish you luck and prosperity in your gamble.
 

jimmyp5

Beach Lover
Mar 1, 2006
104
0
Seagrove
Litter on the "Scenic Highway"

It seems that that it is more important for people to advertise than it is to keep our area from looking like billboard row. Let's try to have a little more respect for area.


Thank you, Joe. Why do so many people insist on making this place just as trashy as so much of the rest of this country?
 

egrp

Beach Lover
Sep 22, 2005
122
3
its not about gambling...its about opportunity cost and diversification.

I would submit its more risky to own 1 property vs. 10 and its also more risky to have 100% equity in an investment than 10%, but you are rite to each his own. seems like your strategy has worked for u in the past and i hope it continues to do so.
 
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