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Downtown Ventura, that's a silly argument. Le roi doesn't have the option of being himself or the landlord. He only has the option of paying $3500 or $1800 for the same place. Now if Le roi wanted to become and landlord himself, that's a different situation and the decision would come down to cash-flow/opportunity-cost/risk-exposure/etc. issues.
Downtown Ventura, that's a silly argument. Le roi doesn't have the option of being himself or the landlord. He only has the option of paying $3500 or $1800 for the same place. Now if Le roi wanted to become and landlord himself, that's a different situation and the decision would come down to cash-flow/opportunity-cost/risk-exposure/etc. issues.
Just trying to point out that people compare present costs to evaluate what is better, buy or rent. His landlord has had over 10% growth for 20 years plus able to collect rent and/or provide his own housing for 20 years.
As to Le Roi's options, if he started now developing/buying property, where would he be in 20 years vs. renting? This question comes up often on this and other forums with all sorts of variables used. Looking at this one example, this landlord did quite well. No one today would assume they could get 10%+ growth a year but Le Roi demonstrated it did happen. I say, this landlord did better than if he rented an equivalent unit 20 years ago through now.
Looking at the various markets buying seems to still be up in the air. I read some projections that expect housing prices to drop another 15% this year.
The tax credit ends and I read that interest rates are expected to rise in the second half of 2010. At the same time apartment rentals have dropped $40/month over the past six months. I would like to know what others who can afford to wait are thinking.
It depends where you live. For nothern VA price hit the bottom last year and it is rising now. I saw one single house was selling at 500k in Jan this year. The same model in that community was closed at 580k in May. 15% increase already. Other townhomes' price in that area has even gone up 20% and they are all under contract. The market turns fast. Townhomes appreciate faster than single houses in DC area.
It depends where you live. For nothern VA price hit the bottom last year and it is rising now. I saw one single house was selling at 500k in Jan this year. The same model in that community was closed at 580k in May. 15% increase already. Other townhomes' price in that area has gone up 15% too and they are all under contract. The market turns fast.
Median price for the Phoenix area is up from a year ago. SFH rental prices are also rising.
Just trying to point out that people compare present costs to evaluate what is better, buy or rent. His landlord has had over 10% growth for 20 years plus able to collect rent and/or provide his own housing for 20 years.
As to Le Roi's options, if he started now developing/buying property, where would he be in 20 years vs. renting? This question comes up often on this and other forums with all sorts of variables used. Looking at this one example, this landlord did quite well. No one today would assume they could get 10%+ growth a year but Le Roi demonstrated it did happen. I say, this landlord did better than if he rented an equivalent unit 20 years ago through now.
right. you could say that this guy did well by buying real estate.
or more accurately, you could say that this guy did well by buying real estate in 1990. (actually he started in the early 80's, and owns several dozen properties, but that is not the issue)
i don't have the option to buy real estate at 1990 prices -- not even in real, inflation-adjusted dollars. I do, however, have the option to rent from someone who DID buy in 1990, and save myself a bundle comparing to buying myself, or renting from a less fortunate landlord.
not too far from my $1800/mo unit, there is a very similar $3000/mo unit that is owned by a local real estate agent. it has been sitting vacant for two years, because renters cannot afford to support that 2007-vintage mortgage. If I wanted to "buy and develop property", like you mention, I'd be like that R/E agent. I'd be trying to pay off a HUGE debt, while competing with older people, with older mortgages, who have a far lower cost basis. I'd get eaten alive by the soft rental market.
while I can't produce numbers to back it up, I'd be willing to bet that in 1990 there wasn't such a daunting gap in equity between the 'old mortgages' and the 'new mortgages'.
a lot of these older folks live in la-la land in terms of real estate pricing. they look at $300k like it is a starter home, when in reality, only the top 5% of earners in my metro area could afford that size mortgage. this is due to (A) an absolute increase in the money supply and (B) an increase in credit as a % of the money supply
It's so true... timing the bubble (dumb luck for many of those folks) made them look brilliant. It boggles the mind to think that people look at this market and think anywhere is near bottom. Well maybe the 150k price point is leveling out. But anything above that is still being propped up artificially big time.
Money is being printed at a heart stopping rate and Govco is floating almost all the debt... Just to keep things looking good, yet it's the wizard behind the curtain. I'm not certain how long it can be sustained, but I suspect we'll soon find out.
Actually his GROSS return was closer to 6.5%/year over the last 20 years and you are not including his carrying costs. If he took a standard 30yr loan, his total cost would be around 2x157K or 350K PLUS 20 years of property taxes and maintenance (another 100k maybe). So his net gain over 20 years is probably closer to 114K (600K - 350K - 36K selling cost). This would be a net return of 2.5%/year which (surprise) is roughly the normal rate of return for real-estate over a long period of time.
This assumes that he was living in the house most of the time and wasn't renting it until later. If you own rental properties the numbers change a lot BUT many parts of the US are still WAY overpriced from a business perspective.
Actually his GROSS return was closer to 6.5%/year over the last 20 years and you are not including his carrying costs. If he took a standard 30yr loan, his total cost would be around 2x157K or 350K PLUS 20 years of property taxes and maintenance (another 100k maybe). So his net gain over 20 years is probably closer to 114K (600K - 350K - 36K selling cost). This would be a net return of 2.5%/year which (surprise) is roughly the normal rate of return for real-estate over a long period of time.
This assumes that he was living in the house most of the time and wasn't renting it until later. If you own rental properties the numbers change a lot BUT many parts of the US are still WAY overpriced from a business perspective.
I don't want to go through all the numbers as I feel it would be futile but I will point out that he indicated 1 of the 2 units is now worth $600k, I used $1,200k for the total present value.
Actually his GROSS return was closer to 6.5%/year over the last 20 years and you are not including his carrying costs. If he took a standard 30yr loan, his total cost would be around 2x157K or 350K PLUS 20 years of property taxes and maintenance (another 100k maybe). So his net gain over 20 years is probably closer to 114K (600K - 350K - 36K selling cost). This would be a net return of 2.5%/year which (surprise) is roughly the normal rate of return for real-estate over a long period of time.
This assumes that he was living in the house most of the time and wasn't renting it until later. If you own rental properties the numbers change a lot BUT many parts of the US are still WAY overpriced from a business perspective.
to clarify,
he bought the land in 1989 for $15,500, built a 2-unit condo for $160,000 - in 1997, not 1990.
current rents are $1800 and $2000, respectively, for the two units.
i'm not sure what its est. market value is. tax value is $1.1m for both units combined.
anyway, a much simpler way to look at this is that i can afford to (A) rent high-end property at the beach or (B) buy low-end property in a subdivision in town. beach wins out.
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