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It's a straightforward and generally more equitable basis to account for the capital costs.
The costs of capital in hand are what it isn't currently out there earning for you.
Quote:
Originally Posted by MrRational
If only 50% of the purchase costs were leveraged by a mortgage the other 50% would 1) have to made up by a cash outlay and 2) still need to earn a yield. Without the 30year amortization that would need to be at an even higher rate.
No, whether from rents or appreciation or filming rights, returns on an investment are also earned independent of the means of financing.
Quote:
Originally Posted by MrRational
1) The bottom line number of operating expenses would rise.
2) The tenant would pay a higher rent.
No, try again. Operating expenses are determined by the state of the physical plant of the property in question, not by how its acquisition was financed. And rents are loosely detemined in a market that in most competitive situations will lead to something on the order of half of one percent of the market value of the property per month. There are actually much more elegant formulas to turn to, but the half a percent rule typically provides a decent estimate. As a landlord, of course, you will simply charge the highest amount that you think you can get away with at the moment.
to much in theory and hypothetical crap here . go out there do your own properties with real world dynamic expenses , tenant interactions , legal costs and periods of down time and all the wild cards of life and report back. this hypothetical stuff is bull-sh*t.
the reason most small business fail in the early years is just because of this type of hypothetical bull and not enough capital for when life laughs at all those little numbers you wrote down.
as i said, to many opinions here on what should be in theory.
with no practical experience doing any of it and just shooting from the hip in theory can be a dangerous combination.
Last edited by mathjak107; 06-29-2013 at 05:39 AM..
LOL! The up-front, closing day outlay for a $100,000 property is $100,000. It doesn't matter how it's financed -- all debt, all equity, some combination of the two -- the up-front outlay is still $100,000. Of course, with your all-debt model, you have purchased a property plus a whole bunch of negative cash flow. What percentage of the outflows anticipated in your back-of-the-envelope chicken-scratching arose from debt service again? Now, unlike some one-man-band type operators, your typical small group of individual investors would arrive on the scene with something called capital. These are currently free funds that the investors are looking to find a good use for. Their judicious use in well-considered acquisitions of rental properties can result in a situation defined by both positive cash flow and annual profits. Imagine that. I assume you'll have to.
Can you show how this works with a numerical example? With 100% financing, no cash is due from the buyer at closing (except for closing costs). With 50% financing, the buyer shows up with a check for $50,000 plus closing costs (on the hypothetical $100,000 property). This is a severe, negative, short-term cash flow.
Quote:
Originally Posted by oaktonite
Apparently at a higher level than what any of the small fry have known to this point.
Please tell us about your actual experience as an investor (not a tenant) in rental property. It would help if you would include some specific numerical examples.
Quote:
Originally Posted by oaktonite
Stumbling, fumbling, and bumbling down the low-road of feeble aspersion-casting. Have you always been an anti-intellectual? Did the smart kids steal your lunch money back in grade school or something?
My PhD committee didn't think so, so I guess that I will answer "no." But I was in a real mathematical science, not economics.
Quote:
Originally Posted by oaktonite
The 2003 image of the Iraqi Defense Minister fits your recent posts to a T.
No, actually I am Fleet Admiral of the United States Navy, to the same extent that you are an "actual economist" of any standing or accomplishment.
No, try again. Operating expenses are determined by the state of the physical plant...
not by how its acquisition was financed.
No, try again.
Financing and debt service are absolutely a part of operating expenses.
Which is also why 100% financing is preferred ...when it can be achieved. LINK
(that straightforward and equitable thing again)
As to the rest? Get a job.
You'll surely never make it in business.
Last edited by MrRational; 06-29-2013 at 06:54 AM..
Interesting thread, but why is everybody being so judgmental based on the car payments? A $500 car payment on a new car is not "luxury". 25k for a brand new car is probably pretty average and I have found having a decent modern car even with a higher payment tends to be cheaper or similar in cost to driving something older and having it in the shop several times a year needing $1000s of dollar in repairs not to mention lost of work etc dealing with a less predictable or reliable car.
Some of you need to live a little and be fiscally responsible at the same time. We save, we have no credit card debt (at one time we did), but we also enjoy life and don't put away every dime we make for "retirement".
I guess I am in the minority of people who simply does not look forward to retirement and generally put away just enough and hope the for best. I don't get the mentality of eating rice and beans till you are 55-60 years old and then going out and getting that 2020 Ford Tarsus Show.
Enjoy life while you are young and you can and be as fiscally responsible in the process.
If the OP still cares about this topic, I would say they are in good shape so long as they don't accumulate any revolving credit card debt. Get your school loans paid off and try to buy a home while prices and interest rates are low. In a high cost of living area like CT, you probably should take advantage of the market now or the window of owning may close for you.
Please tell us about your actual experience as an investor (not a tenant) in rental property. It would help if you would include some specific numerical examples.
My PhD committee didn't think so, so I guess that I will answer "no." But I was in a real mathematical science, not economics.
No, actually I am Fleet Admiral of the United States Navy, to the same extent that you are an "actual economist" of any standing or accomplishment.
I have asked similar questions to "Mr. Know-it-all Economist Oaktonite", and he has yet to produce anything. He bashes others and talks in circles, and that's about it. Oh yeah, and he said he doesn't even pay his own bills lol.
i don't really care who pays his bills. he just has strong opinions about stuff he knows little about and runs off his own perception of things. he is a smart guy but his know it all attitude is keeping him from actually learning about what he does not know.
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I have asked similar questions to "Mr. Know-it-all Economist Oaktonite", and he has yet to produce anything. He bashes others and talks in circles, and that's about it. Oh yeah, and he said he doesn't even pay his own bills lol.
