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Old 05-02-2017, 11:06 AM
 
Location: Denver CO
23,285 posts, read 14,546,245 times
Reputation: 35937

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Quote:
Originally Posted by Jobster View Post
Why do you think Sam Zell sold all of his properties in the Denver area? Maybe he's an idiot.

Why Is Sam Zell Selling $6 Billion Worth of Apartments? - Income Investing - Barrons.com

Looks like his timing for South Florida was pretty good. Not sure about Denver, but if you listen to the slime coming from realtors, this market will go up forever.

What an idiot Sam Zell must be.
His timing back in 2015, you mean? Since that's when your link is from. Not to mention that it was apparently part of a larger plan to pare down ownership of mid-rise and garden style apartments to focus on higher density units in a smaller number of markets.

And of course as browndog noted, Starwood purchased them because they felt that they would appreciate.

Quote:
"The two largest markets in this new portfolio - South Florida and Denver - are both seeing very impressive and sustainable indications of growth, driven by compelling demographics, affordability and fundamentals," said Christopher Graham, senior managing director and head of real estate acquisitions for the Americas at Starwood Capital Group.
http://www.costar.com/News/Article/Starwood-Capital-To-Buy-$537-Billion-Suburban-Multifamily-Portfolio-from-Equity-Residential/176649
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Old 05-02-2017, 12:24 PM
 
Location: Denver
1,330 posts, read 540,034 times
Reputation: 1269
Quote:
Originally Posted by 2bindenver View Post
"Every person who invests in well-selected real estate in a growing section of a prosperous community adopts the surest and safest method of becoming independent, for real estate is the basis of wealth."

– Theodore Roosevelt,
26th President of the United
States of America
Maybe, maybe not.

If I were to take the $75k I have for my downpayment and closing costs and using the market average of 7% returns, by the end of 30 years, I have $533k. That means my initial 75k investment will have increased 7.1x from when I started.

Meanwhile, my $330k house I just purchased will not have increased 7.1x from the current value.

Also, while long-term your mortgage payment will remain more stable, short term, many people (especially in the Denver metro) have a large increase in payments + upkeep from renting. Our payment is going up $130/month (plus higher utilities, maint, etc).

There's also huge transaction costs in purchasing or selling a home - $20k on a $330k house, so if you stay there 10+ years, it can make sense, otherwise you're potentially better off renting.

Personally, I bought because I wanted stability and a place I can call my own. Apartment life isn't horrible (I've had no issues), but I want a garage, want a yard for a dog, want a place where I can have people over to grill out and have a bonfire, etc. My investments are going to make me financially independent. Not my house.
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Old 05-02-2017, 12:27 PM
 
Location: Denver CO
23,285 posts, read 14,546,245 times
Reputation: 35937
Quote:
Originally Posted by illinoisphotographer View Post
Maybe, maybe not.

If I were to take the $75k I have for my downpayment and closing costs and using the market average of 7% returns, by the end of 30 years, I have $533k. That means my initial 75k investment will have increased 7.1x from when I started.

Meanwhile, my $330k house I just purchased will not have increased 7.1x from the current value.

Also, while long-term your mortgage payment will remain more stable, short term, many people (especially in the Denver metro) have a large increase in payments + upkeep from renting. Our payment is going up $130/month (plus higher utilities, maint, etc).

There's also huge transaction costs in purchasing or selling a home - $20k on a $330k house, so if you stay there 10+ years, it can make sense, otherwise you're potentially better off renting.

Personally, I bought because I wanted stability and a place I can call my own. Apartment life isn't horrible (I've had no issues), but I want a garage, want a yard for a dog, want a place where I can have people over to grill out and have a bonfire, etc. My investments are going to make me financially independent. Not my house.
And then you get to subtract 540K from that 533K for 30 years worth of 1500 per month rent (which of course won't be 1500 per month for that entire time period). Because you can't live in your investment in the stock market.
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Old 05-02-2017, 12:54 PM
 
Location: Denver
1,330 posts, read 540,034 times
Reputation: 1269
Quote:
Originally Posted by emm74 View Post
And then you get to subtract 540K from that 533K for 30 years worth of 1500 per month rent (which of course won't be 1500 per month for that entire time period). Because you can't live in your investment in the stock market.
Living expenses aren't in a vacuum. You're either paying rent or a mortgage, taxes, interest, insurance and upkeep. For us right now, that's going to be $1600/month. Add in a few upgrades, repairs (roof, HVAC, appliances), painting, flooring, etc over 30 years and you could be set back another $50-60k in stuff.

The biggest thing is that it takes money to make money. 7% of $10,000 is only $700. 7% of 100,000 is $7,000.

If you were to save $8,000/year while renting (thus keeping that $75k for downpayment) you'd have $1.23 million in 30 years. If you spend that $75k for the downpayment and start from scratch with $8,000, you have $756,000, or a net difference of about $476,000. I'd assume that my mortgage price for the house ($264k) will probably double in 30 years and my 330k property will be worth at least $600k in 2047.

But.... if you're like most people and move 2-3x in that time period, transaction costs will whittle down your earnings on the house, plus most people buy up houses, so mortgages go up.

What it boils down to is that there is a huge opportunity cost in owning a home. If you live in a low cost of living area and/or have low taxes (like CO), there's a huge benefit to owning after 30 years. But if you're going to keep moving and restarting on 30yr mortgages and pay transaction costs, it might be cost more

Last edited by illinoisphotographer; 05-02-2017 at 01:29 PM..
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Old 05-02-2017, 01:09 PM
 
Location: Victory Mansions, Airstrip One
4,398 posts, read 2,727,983 times
Reputation: 5027
Quote:
Originally Posted by illinoisphotographer View Post
There's also huge transaction costs in purchasing or selling a home - $20k on a $330k house, so if you stay there 10+ years, it can make sense, otherwise you're potentially better off renting.

Personally, I bought because I wanted stability and a place I can call my own. Apartment life isn't horrible (I've had no issues), but I want a garage, want a yard for a dog, want a place where I can have people over to grill out and have a bonfire, etc. My investments are going to make me financially independent. Not my house.
+1

Yup, and the $20K is just the commission. There are other closing costs on both the buying and selling end, and then it's pretty common to have some overlap of owning two homes while doing the transaction. On my first home trade I got very lucky, I had the closing on my old house in the morning and closing on the new house that afternoon. Second trade not so lucky, I owned two houses for about eight months, so had two mortgages and two sets of utilities for a long time.

Financially speaking, real estate is best as a very long term holding. I think even ten years is kind of marginal. Transaction and upkeep costs can be murderous. I think people tend to forget about all of the money they sink into their homes, and the origination fees, title insurance, inspections, etc., etc.

I'm sure I would have been better off financially as a renter, even though I've "made money" on every home I've owned... in the sense that the selling price minus closing costs was higher than the purchase. But as you describe, owning a home is a lifestyle choice. I would not be as happy in an apartment, and if one is renting a house they are always at risk of having to move at the end of their lease.
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Old 05-02-2017, 02:14 PM
 
100 posts, read 132,446 times
Reputation: 81
I just got into this same discussion with a realtor on a seperate post on here. I am looking for good locations to move to in South Denver for work and was told the market is going to appreciate 10% next year and that I "better buy now"!. the current market is very reminiscent of 2005-2006. I don't know the Denver market that well currently but I do know the San Diego market which is where I am selling my current home. Prices are at all time highs, inventory is at its lowest point, and people are over reaching because they have been told "you need to buy now before its too late and your priced out".

Coincidentally, there has been a massive up tick in foreclosures the last few months. In my opinion we are due for a correction which is why I will rent when we move next month.

I don't think prices will drop drastically like 2008. but the market will soften, inventory will begin stabilizing, and new builds will start catching up. Granted this is just an opinion.
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Old 05-02-2017, 02:41 PM
 
Location: In The Thin Air
12,572 posts, read 9,087,729 times
Reputation: 9226
The difference between now and 2008 are the regulations on lending practices. Yes there are still some shady lending out there but it has been tightened up for the most part.
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Old 05-02-2017, 02:46 PM
 
Location: Aurora, CO
7,371 posts, read 11,681,807 times
Reputation: 11749
Quote:
Originally Posted by Timmyy View Post
The difference between now and 2008 are the regulations on lending practices. Yes there are still some shady lending out there but it has been tightened up for the most part.
+1
"Back in the Day" you had $30k millionaires who had no business whatsoever owning a home buying $350,000 houses with crap products like negative amortization loans (why the HELL were these even a thing?), interest-only loans or 1-3 year ARMs hoping to rake in the dough by flipping the house before the bill came due.
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Old 05-02-2017, 02:50 PM
 
Location: Denver CO
23,285 posts, read 14,546,245 times
Reputation: 35937
Quote:
Originally Posted by illinoisphotographer View Post
Living expenses aren't in a vacuum. You're either paying rent or a mortgage, taxes, interest, insurance and upkeep. For us right now, that's going to be $1600/month. Add in a few upgrades, repairs (roof, HVAC, appliances), painting, flooring, etc over 30 years and you could be set back another $50-60k in stuff.

The biggest thing is that it takes money to make money. 7% of $10,000 is only $700. 7% of 100,000 is $7,000.

If you were to save $8,000/year while renting (thus keeping that $75k for downpayment) you'd have $1.23 million in 30 years. If you spend that $75k for the downpayment and start from scratch with $8,000, you have $756,000, or a net difference of about $476,000. I'd assume that my mortgage price for the house ($264k) will probably double in 30 years and my 330k property will be worth at least $600k in 2047.

But.... if you're like most people and move 2-3x in that time period, transaction costs will whittle down your earnings on the house, plus most people buy up houses, so mortgages go up.

What it boils down to is that there is a huge opportunity cost in owning a home. If you live in a low cost of living area and/or have low taxes (like CO), there's a huge benefit to owning after 30 years. But if you're going to keep moving and restarting on 30yr mortgages and pay transaction costs, it might be cost more
I agree there are costs to owning. But at least at this point in time, rents in Denver are often even more expensive on a monthly basis, certainly for a comparable property. So it's unlikely someone is saving $700 a month when they rent that they would otherwise spend on housing and that they can invest instead. Not to mention that rents go up just about every year, while a mortgage stays fairly stable - even when taxes go up, it's usually not a huge difference, generally not as much as a yearly rent increase is.

So yeah, transaction costs of selling do factor in, but then again, so do moving costs when your landlord decides they are selling or they raise the rent so high that you have to move - in other words, things outside your control vs. selling a house and moving which is more likely to be a choice, not a necessity.

I don't want to sound like one of those "everyone has to buy a house, period!" people because I don't believe that and there are certainly times where renting is the right choice for both logistical and financial reasons.

But I think it's a huge mistake to look at a house solely as an investment - to me, it's my home first, and an investment second. However, I also recognize that I need to live someplace no matter if I rent or own, and that cost has to be factored in when you do look at the investment side of owning a house.
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Old 05-02-2017, 03:58 PM
 
Location: Victory Mansions, Airstrip One
4,398 posts, read 2,727,983 times
Reputation: 5027
Quote:
Originally Posted by emm74 View Post
But I think it's a huge mistake to look at a house solely as an investment - to me, it's my home first, and an investment second. However, I also recognize that I need to live someplace no matter if I rent or own, and that cost has to be factored in when you do look at the investment side of owning a house.

A reasonable rule of thumb from Bill Bernstein is to pay no more than 180 months' rent for a property. I haven't seen him describe how he arrived at that ratio, but I've read a lot of his writing over the years and have found him to be a sound thinker. Of course that's if you want to view it in purely financial terms.
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