4 ms·

People who think 6-10% returns are unrealistic are sheep, and know nothing about real estate. A friend of mine, a complete novice, was able to buy a multifamil

by istari 16y ago

People who think 6-10% returns are unrealistic are sheep, and know nothing about real estate. A friend of mine, a complete novice, was able to buy a multifamily unit in downtown San Jose for 500K and rent it out for 5000 a month. His down payment is 100K. His expenses(400K mortgage, insurance, taxes, etc) is 2500 a month. His rate of return is (5000-2500)x12/100K = 30% or so. He did this while violating the #1 rule of real estate investing: you never buy at market price. You pay 70% of what stuff are going for on the MLS. I invest in courthouse foreclosure auctions, and manage about 40% cash on cash returns. Investing in real estate is a skill, just like building companies or coding. Imagine how much a typical person know about building web apps. That is how much a typical person know about real estate investment.

hugh3 16y ago
So because your friend managed to get a crazy-good deal on one property, everyone else is sheep? Arbitrage opportunities do exist in the current market due to the current craziness, but the present foreclosure pace can't last forever. I don't know how long "70% of MLS" has been "the #1 rule of real estate investing", but how easy was it to snap up properties for those prices in 2005?
- istari 16y ago
  My point isn't that my friend got a crazy good deal. My point is that arbitraging 12% rental income against a 5% mortgage rate is so easy right now you can do it by buying right off the MLS at market rates, in one of the most expensive(price to rent wise) cities in the US. The original poster was moaning about how hard it was in TODAY's environment to make money off of several million dollars in cash(!). I wanted to provide a counterpoint to that attitude.
  - Eliezer 16y ago
    If what you say is true, why is all this free money still lying around? Is there some systematic reason for why hedge funds don't do it, or why too few people bid on courthouse auctions?
    - istari 16y ago
      It's not free at all. Buying a rental property off the MLS means you have to manage it, and is like starting a small business. This is fairly safe to do even for beginners, and is a good way to leverage a few tens of thousands and a good credit rating. Buying at courthouse auctions is a completely different ball game, and requires you to 1. pay all cash(this eliminates 99% of competitors) 2. research title and liens on the property(if you screw up you might end up buying the second mortgage instead of the first and lose everything) 3. estimate the market price without being inside 4. be there on weekday mornings 5. have strong intestinal fortitude. 6. have heard about them in the first place and have taken the trouble to learn the system. The above are why you can get discounts of 30% or more off of market price. Properties need to be individually researched, fixed up and resold. Someone has to physically go attend the auction. It's MUCH too messy for hedge funds. It's ideal for individuals, or groups of individuals, with cash and local knowledge. More and more people are showing up at my local auction, and good deals are getting harder to find. Are you in California? Go to your local county courthouse at 10AM on a weekday and look for a circle of homeless looking people holding large cashier's checks. Depending on the state, it might be once a month on a designated weekend. Let me know if you want more info. Stop reading HN and get back to work on chapter 35.
      - noname123 16y ago
        Thank you for providing detailed and concrete information about how to go about buying foreclosure properties at courthouse auctions. I admire people who are confident/kind enough to share inside information about their business to the public, as opposed to most people on HN who just engage in self-congratulatory circle-jerk. You have a good day, sir.
      - 7d9bf2471be6f39 16y ago
        I would like more info. I am in the position to invest on this scale and the idea of being a landlord is not too scary to me (actually sounds kinda fun in a twisted way). Some questions off the top of my head: - What attributes constitute a good rental property? - Is it ever worth it to hire a manager? - How often do you have to visit the property? I live in SF but I understand being a landlord here is difficult due to renter protection. If I were to buy a property in an outlying area, how often would I need to visit it? I'd also like to take some extended travel in the future. Would being a landlord get in the way of that? - What else should I be thinking about? Thanks!
Daniel_Newby 16y ago
> His expenses(400K mortgage, insurance, taxes, etc) is 2500 a month. A different point of view is that his expenses are 12500 a month and FedGov is paying him a 10k/month interest subsidy, and that he is upside down by 150k and accounting for FedGov price supports as an asset. Tick. Tick. Tick.

by istari 16y ago

hugh3 16y ago

So because your friend managed to get a crazy-good deal on one property, everyone else is sheep? Arbitrage opportunities do exist in the current market due to the current craziness, but the present foreclosure pace can't last forever. I don't know how long "70% of MLS" has been "the #1 rule of real estate investing", but how easy was it to snap up properties for those prices in 2005?

istari 16y ago
My point isn't that my friend got a crazy good deal. My point is that arbitraging 12% rental income against a 5% mortgage rate is so easy right now you can do it by buying right off the MLS at market rates, in one of the most expensive(price to rent wise) cities in the US. The original poster was moaning about how hard it was in TODAY's environment to make money off of several million dollars in cash(!). I wanted to provide a counterpoint to that attitude.
- Eliezer 16y ago
  If what you say is true, why is all this free money still lying around? Is there some systematic reason for why hedge funds don't do it, or why too few people bid on courthouse auctions?
  - istari 16y ago
    It's not free at all. Buying a rental property off the MLS means you have to manage it, and is like starting a small business. This is fairly safe to do even for beginners, and is a good way to leverage a few tens of thousands and a good credit rating. Buying at courthouse auctions is a completely different ball game, and requires you to 1. pay all cash(this eliminates 99% of competitors) 2. research title and liens on the property(if you screw up you might end up buying the second mortgage instead of the first and lose everything) 3. estimate the market price without being inside 4. be there on weekday mornings 5. have strong intestinal fortitude. 6. have heard about them in the first place and have taken the trouble to learn the system. The above are why you can get discounts of 30% or more off of market price. Properties need to be individually researched, fixed up and resold. Someone has to physically go attend the auction. It's MUCH too messy for hedge funds. It's ideal for individuals, or groups of individuals, with cash and local knowledge. More and more people are showing up at my local auction, and good deals are getting harder to find. Are you in California? Go to your local county courthouse at 10AM on a weekday and look for a circle of homeless looking people holding large cashier's checks. Depending on the state, it might be once a month on a designated weekend. Let me know if you want more info. Stop reading HN and get back to work on chapter 35.
    - noname123 16y ago
      Thank you for providing detailed and concrete information about how to go about buying foreclosure properties at courthouse auctions. I admire people who are confident/kind enough to share inside information about their business to the public, as opposed to most people on HN who just engage in self-congratulatory circle-jerk. You have a good day, sir.
    - 7d9bf2471be6f39 16y ago
      I would like more info. I am in the position to invest on this scale and the idea of being a landlord is not too scary to me (actually sounds kinda fun in a twisted way). Some questions off the top of my head: - What attributes constitute a good rental property? - Is it ever worth it to hire a manager? - How often do you have to visit the property? I live in SF but I understand being a landlord here is difficult due to renter protection. If I were to buy a property in an outlying area, how often would I need to visit it? I'd also like to take some extended travel in the future. Would being a landlord get in the way of that? - What else should I be thinking about? Thanks!

Daniel_Newby 16y ago

> His expenses(400K mortgage, insurance, taxes, etc) is 2500 a month. A different point of view is that his expenses are 12500 a month and FedGov is paying him a 10k/month interest subsidy, and that he is upside down by 150k and accounting for FedGov price supports as an asset. Tick. Tick. Tick.