<p>Fender girl, you are fortunate. Not too many people your age own homes. But some of us older folks don’t always have 200.00 to pay for a plumber at the exact moment needed when there are other pressing expenses, a tax bill, tuition, other home repairs. In a down economy, there isn’t a lot of disposable income available. Some things just have to wait if it can.</p>
<p>H and I bought our first home when we were 25. We sold it after seven years for 20% more. Bought the next house, sold it after 7 years for 40% more. We’ve been in our current home for 16 years and if we sold today, I estimate we’d get double what we paid for it. </p>
<p>I am not getting those sorts of returns on any other investment. </p>
<p>For me, it’s a lot easier to tell when a house is over or under valued than whether a stock is over or under valued. But maybe that’s just me. And I can do things to improve the value of my investment, something I cannot do with a stock.</p>
<p>I had this same conversation with our neighbor who has a D the same age as DS. Too bad they never got past the distance neighbor stage. Nice people. </p>
<p>Her daughter getting married and thinking about buying a house in the local area. They are of the same opinion that it would be nice to just get up and go. But we can’t. Big yards, older houses, slow and depressed housing market. </p>
<p>DS is saving a $$$$. Only he can jump on a plane to visit college friends. </p>
<p>EmeraldK.
DS lives in the Udub area of Seattle, in a big ol dormer. Shared housing, of six. No indoor pets, but 7 chickens and 20 rabbits, big garden (one of the housemates is a yardswoman). They try not to flush the T if you’re only doing a #1. Apparently they are trying to save water- Renters
and in Seattle ???</p>
<p>
We don’t really do these kinds of long term projections, there’s too many unknowns. Property taxes are less than 15% of my expenses, even if they go up a lot it doesn’t effect things all that much. And the last wo years, the taxes have gone down.</p>
<p>Here’s how we evaluate a rental property:</p>
<p>1) First, calculate the gross rental multiplier, or GRM. This is the price divided by the monthly gross income. For example, a $240,000 property with $3,000 in rents per month has a GRM of 80. If the GRM is above 90 it can start to get difficult to have decent cash. A GRM below 50 generally indicates a distressed property. A GRM in the 70’s is a good place to be.</p>
<p>2) Then we do a breakdown of the costs (mortage, insurance, taxes, and water) and revenues (rents). We typically use our HE line on our residence for the down payment, so we are essentially financing 100% although we count that as the investment for ROI calculations. The taxes are public, after a while you get a feel for what insurance and water bills will be, and you have to know the market to accurately forecast rents. We have small, multi-unit buildings (2,3, 4 units). This gives a baseline cash flow, and if it is not positive, we stop right there. We like to have sufficient cash flow so that if one unit is empty in that building, we are still at least breaking even.</p>
<p>3) We then assess the condition. Key here is 1) quality of the “bones” of the house" and 2) deferred maintenance. These affect what the property is worth to us. So many properties we look at have 40 year old roofs and heating systems, kitchens that haven’t been updated in decades, etc.</p>
<p>4) Then we look at other factors that affect rentability such as off-street parking.</p>
<p>There are very few properties that make it through this, as a result we are pretty small-time landlords. My DW is a RE agent doing primarily rentals, at this point she can almost smell a bad tenant. She has a pretty rigorous screening process. As a result we’ve only had to do one eviction in a decade of RE investing. And I do a lot of my own maintenance. If you can’t do this, it can eat a lot of profit.</p>
<p>Cash flow is king. As a result, when the market cratered and multi-families dropped by 50% or more, completely wiping out our equity, we didn’t lose too much sleep - everything is cash-flowing, we are in no danger of losing a property.</p>
<p>The last two properties were bought out of foreclosure, for less than half of what the previous owner paid. Two had GRM’s in the 40’s and needed substantial work. You have to wonder why someone would buy an invesstment property where the rents cover less than 50% of the mortgage, forget about taxes, insurance and utilities. It might have been fraud, there was a <em>lot</em> of that in this area.</p>
<p>Ok, this is getting into tl;dr territory, so I’ll stop rambling.</p>
<p>H and I have owned 3 houses, upsizing each time we moved. We had always amassed enough equity in the house we were leaving to cover the larger downpayment on the next house. We took out a 30 yr mortgage on our current house when we bought it 16 years ago. As soon as we could, we added to the principal payment each month, and our house will be paid off in about 18 months, long before we retire. Even if our house hasn’t appreciated in value (I think it has), we still come out ahead because when we sell it, all the money we get back is ours. If you rent, you get nothing back.</p>
<p>We always bought brand new houses, so maintenance wasn’t too much of an issue, although after 10-12 years, things start to go wrong in any house.</p>
<p>When my parents died, the value of the house was primarily what they had to leave the 3 of us. H currently owns the house that he will “inherit” when his mother dies, although she will continue to live there as long as she pleases. </p>
<p>I don’t think in most cases a house should be thought of as an investment, but it does it does become the primary asset for many people.</p>
<p>In many places, rental rates are not all that much lower than mortgage payments. In HI, property values are so high, it is clearly the largest asset in most estates. When you decide to pay rent and “save or invest” the amount that would have otherwise gone to a mortgage payment, that amount often disappears to other “needs” and is not there for saving or investing. Mortgages can be like a forced savings account.</p>
<p>[Real</a> Vs. Nominal Housing Prices: United States 1890-2010 [CHART]](<a href=“HuffPost - Breaking News, U.S. and World News | HuffPost”>Real Vs. Nominal Housing Prices: United States 1890-2010 [CHART] | HuffPost Impact)</p>
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<h2>Then there’s a graph in the article that I can’t copy.</h2>
<p>I am still thinking about real estate :)</p>
<p>The problem I have with articles and charts like that is, you can come up with whatever answer you are trying to get just by varying the starting point.</p>
<p>That chart looks a lot different if you start 30 years later, and probably would look a lot different if you start 30 years earlier.</p>
<p>And how exactly to you compute things that far back to calculate real dollars? So much of what I spend money on didn’t even exist back then, how do you factor that in? How do you compare housing prices when in 1890 houses had no electricity? Maybe even no indoor plumbing? Is the average house bigger or smaller now? How are they calculating inflation?</p>
<p>There’s a million variables.</p>