Comments on: Cashflow Negative RE Investors F’d http://www.bargaineering.com/articles/cashflow-negative-re-investors-fd.html personal finance blog with anecdotes, advice and commentary. Sun, 08 Nov 2009 15:56:26 -0500 http://wordpress.org/?v=2.8.5 hourly 1 By: Justin http://www.bargaineering.com/articles/cashflow-negative-re-investors-fd.html/comment-page-1#comment-19079 Justin Thu, 31 Aug 2006 19:47:38 +0000 http://www.bargaineering.com/articles/cashflow-negative-re-investors-fd.html#comment-19079 I think this is the reason that the richest people I know have always told me to make the money when you buy a place. As far as having negitive cashflow and talking about the appreciation that they are getting... that seems a bit, well, stupid. It is possible to make quite a bit of money by rehabbing but simply sitting there with negative cashflow? That goes against every bone in my body. I want more money every month not less. Rich Dad books talk about always having an exit strategy but sometimes the parachute just doesn't open. Just looking at the future value of money equation will tell you that a negitive cashflow with only appreciation as your plan for making $ is not smart. Matt makes a good point in his comment; he knows what he wants to do with his house and will be much better off for it. I think this is the reason that the richest people I know have always told me to make the money when you buy a place. As far as having negitive cashflow and talking about the appreciation that they are getting… that seems a bit, well, stupid. It is possible to make quite a bit of money by rehabbing but simply sitting there with negative cashflow? That goes against every bone in my body. I want more money every month not less. Rich Dad books talk about always having an exit strategy but sometimes the parachute just doesn’t open. Just looking at the future value of money equation will tell you that a negitive cashflow with only appreciation as your plan for making $ is not smart.

Matt makes a good point in his comment; he knows what he wants to do with his house and will be much better off for it.

]]> By: Matt http://www.bargaineering.com/articles/cashflow-negative-re-investors-fd.html/comment-page-1#comment-18849 Matt Wed, 30 Aug 2006 06:01:57 +0000 http://www.bargaineering.com/articles/cashflow-negative-re-investors-fd.html#comment-18849 The folks buying real estate with the intention of selling it later at a profit without having added their own value in the middle are going to be in trouble. But that's what happens to speculators...sometimes they win, and sometimes they lose. And if they can't afford to lose, they shouldn't be playing. Despite having just sunk a lot of money into a house with my fiancee, I'm not worried. We don't plan to sell. The Greater Fool Theory didn't drive our decision, and in fact we both felt this house would be worth every penny of its current price regardless of the condition of the market. Our time horizon isn't the next year, or the next 5 years, or the next 35 years...it's the rest of our lives. And our kids (if we ever get around to having any) can worry about the resale value after we die. Most of the people who really lose a lot in the bust are going to be people who were gambling, rather than buying or investing. And the risk of serious loss is the price of gambling. The folks buying real estate with the intention of selling it later at a profit without having added their own value in the middle are going to be in trouble. But that’s what happens to speculators…sometimes they win, and sometimes they lose. And if they can’t afford to lose, they shouldn’t be playing.

Despite having just sunk a lot of money into a house with my fiancee, I’m not worried. We don’t plan to sell. The Greater Fool Theory didn’t drive our decision, and in fact we both felt this house would be worth every penny of its current price regardless of the condition of the market. Our time horizon isn’t the next year, or the next 5 years, or the next 35 years…it’s the rest of our lives. And our kids (if we ever get around to having any) can worry about the resale value after we die.

Most of the people who really lose a lot in the bust are going to be people who were gambling, rather than buying or investing. And the risk of serious loss is the price of gambling.

]]> By: prlinkbiz http://www.bargaineering.com/articles/cashflow-negative-re-investors-fd.html/comment-page-1#comment-18839 prlinkbiz Wed, 30 Aug 2006 04:21:06 +0000 http://www.bargaineering.com/articles/cashflow-negative-re-investors-fd.html#comment-18839 I agree with above that cash flow negative does not always mean effed. However, the speculators are being flushed out right now, and the real investors are moving in. I agree with above that cash flow negative does not always mean effed. However, the speculators are being flushed out right now, and the real investors are moving in.

]]> By: Dus10 http://www.bargaineering.com/articles/cashflow-negative-re-investors-fd.html/comment-page-1#comment-18793 Dus10 Tue, 29 Aug 2006 22:39:19 +0000 http://www.bargaineering.com/articles/cashflow-negative-re-investors-fd.html#comment-18793 Well, depending on how long someone has held the properties, they may be well served to refinance and hold. If they have held onto the property for two years, and they can refi for 0.5-1.0% less than their current rate (which could be possible, given ARMs), then they could put themselves in a near cash-neutral setting. I bought my home almost two years ago with a 2/1 ARM, and we are looking to refinance, and we may likely drop by 0.5%. That coupled with an ever-so-slightly lower principle, we will be saving about $60/month. If you extrapolate that over six properties, that could be make/break... Well, depending on how long someone has held the properties, they may be well served to refinance and hold. If they have held onto the property for two years, and they can refi for 0.5-1.0% less than their current rate (which could be possible, given ARMs), then they could put themselves in a near cash-neutral setting.

I bought my home almost two years ago with a 2/1 ARM, and we are looking to refinance, and we may likely drop by 0.5%. That coupled with an ever-so-slightly lower principle, we will be saving about $60/month. If you extrapolate that over six properties, that could be make/break…

]]> By: Khyron http://www.bargaineering.com/articles/cashflow-negative-re-investors-fd.html/comment-page-1#comment-18789 Khyron Tue, 29 Aug 2006 21:15:40 +0000 http://www.bargaineering.com/articles/cashflow-negative-re-investors-fd.html#comment-18789 Be careful using the word "flipping". Some of the professional investors I know, in MD in particular, are staying away from it because it has confused people. "Flipping" was targeted in a Federal government investigation; basically, "flipping" is about committing appraisal fraud to sell a home for more than its post-rehab value. What you are describing, Jim, is rehabbing. See this for a distinction: <a rel="nofollow" href="http://therealinvestor.blogspot.com/2006/08/strategy-3-wholesaling-vs-flipping.html"> Strategy #3 - Wholesaling vs. "Flipping"...</a> Sherman is the head of a REIA in Bowie, MD that obviously became very popular in the last few years, and still is. I am a member of that REIA. His course materials go into even more detail about the difference between "flipping" (both the illegal type and the legal type which is better called "wholesaling" in the commercial RE world) and rehabbing. See the problem? Best to stay away from that word; its meaning has been confused through overuse. Moving on, I agree with everything else you said. Peace! <strong>[Edited URL into link]</strong> Be careful using the word “flipping”. Some of the professional investors I know, in MD in particular, are staying away from it because it has confused people. “Flipping” was targeted in a Federal government investigation; basically, “flipping” is about committing appraisal fraud to sell a home for more than its post-rehab value. What you are describing, Jim, is rehabbing. See this for a distinction:

Strategy #3 – Wholesaling vs. “Flipping”…

Sherman is the head of a REIA in Bowie, MD that obviously became very popular in the last few years, and still is. I am a member of that REIA. His course materials go into even more detail about the difference between “flipping” (both the illegal type and the legal type which is better called “wholesaling” in the commercial RE world) and rehabbing. See the problem? Best to stay away from that word; its meaning has been confused through overuse.

Moving on, I agree with everything else you said.

Peace!

[Edited URL into link]

]]> By: Todd http://www.bargaineering.com/articles/cashflow-negative-re-investors-fd.html/comment-page-1#comment-18788 Todd Tue, 29 Aug 2006 21:14:47 +0000 http://www.bargaineering.com/articles/cashflow-negative-re-investors-fd.html#comment-18788 You have described the classic bubble scenario. I'm not sure everyone must sell but those who do might be in for a surprise. Real estate markets are local so the scenario you describe may be more realistic is some areas than others. The only people who will be impacted by the "cash flow" negative situation are those who must sell now. If you can weather the storm real estate will continue to be a very good long term investment. On the bright side if you have some cash there will likely be some great deals to be had in the months to come. We already are seeing less buyers and a tighter rental market (driving average rents up) We had so many buyers and condo conversions in the past couple of years that renal inventory is down. Thus rental prices will go up and the scenario you discussed will cause real estate price will go down until equilibrium is reached. That may take a few years and there is money to be made in the gap. You have described the classic bubble scenario. I’m not sure everyone must sell but those who do might be in for a surprise. Real estate markets are local so the scenario you describe may be more realistic is some areas than others. The only people who will be impacted by the “cash flow” negative situation are those who must sell now. If you can weather the storm real estate will continue to be a very good long term investment. On the bright side if you have some cash there will likely be some great deals to be had in the months to come. We already are seeing less buyers and a tighter rental market (driving average rents up) We had so many buyers and condo conversions in the past couple of years that renal inventory is down. Thus rental prices will go up and the scenario you discussed will cause real estate price will go down until equilibrium is reached. That may take a few years and there is money to be made in the gap.

]]>