GT3DE

correct. net worth doesn't help at all if your "worth" is tied up and inaccessible. Especially if your net worth is just cash equivalent and you are spending it down every year until one day its gone (typical retiree).

Randy M

Sportsman

Guest89,
Read Ray's comments every morning when you get up. Print it, tape it to the mirror in your bathroom.

cfjan

So a $760k property with 20% down can generate a positive cashflow after mortgage payment, fee, etc. (I understand that the depreciation and tax will probably close to cancel it out)? What's the trick? Even with very low mortgage rate, the mortgage payment will still be significant, no?

philooo

I hear everybody talking about positive cash flow on financed real estate. But here in Florida with the high taxes and high insurance because of the hurricane situation. I can't see how you can have any positive cash flow unless you go for Loan To Value of 50% or less.

May be the depreciation is what makes it or break it ?

There is something I don't get. Right now I rent my office space for less than the taxes+insurance+"HOA". Even if I bought it cash, I could not rent it for more than the fixed costs...

Tell me your secrets

El Matador

Office is rough in my experience. I'm just starting to move it at $13-15 a foot, when the ground level retail in same building is going for around 25 + cam in downtown Orlando. I think you can cash flow residential/multi family relatively easily, although prices seem to be swinging up again. people always need to live somewhere...

DC640

Someone here has Bernanke money printer?

mooty

key is you teach kid #1 then kid #1 will teach the rest. only the first kid is hard. mia fixes max diaper, nose bleeds, feed him and disciplines him if he misbehaves.

P_collector

Hi tgavem,

Well..if this is your boat..and your girls..- ..but only these female companions will cost you more than any GT3 RS track day.

But seriously, I agree what has been said before by someone else..you need to be able every to write such toys off - completly - at any second, any day etc. Then you can afford it. If my toys get smashed at the track - of course - it will hurt me financially..but I have no loan to pay, no interest whatever. It will be a loss, thats clear..but it wont affect my monthly financial situation..as all my toys are paid off - I always pay the full sum immediately..otherwise one shouldnt afford it.

All this calculations..of monthly lease etc..interest and so on...I dont want to be in a situation of someone who leases the GT3RS..smashes it completely on the tack..and had no track insurance..good luck with that.

Not my cup of tea..

PS: I know quite a few people - whose toys (boats, cars, art whatever) are worth more than their house..and they have a solid financial situation too..it just depends on preferences..do you need a 1$ Million house..or 1,5..or 800K might also do the job and invest the rest in cars that hold their value relatively good..seems more fun to me. Id rather have an 800K house and 5 Porsches then having a 1,5Mill house with a Prius.

However, Im always careful to future depreciation on cars..the 991 depreciation within 1 year is definately too much for me (unless you buy one 1 year old)..

GT3DE

sorry, I completely disagree with: "A general guideline my financial adviser uses - the value of all your toys (cars, boats, motorcycles, snowmobiles, planes, etc) should be less than 1/2 your annual income."
* When do you make this calculation? Once, only when you buy the toy? Or revalue all your toys each month? With depreciation of the toys you could just keep adding toys as the older ones lose value. This sounds like some stupid "Financial Adviser" "calculation" to ensure that most of your assets are under his control (i.e. your money is where he can get his % of).

Guest89

Perhaps I should buy a few boats instead?

GT3DE

POSITIVE cashflow.
Never buy a property that does not have a positive cashflow.
The LTV percentage that maximizes positive cashflow is usually around 75% to 85%. This is entirely dependent on interest rate and monthly rent.
Here is an example of all cash deal vs. deal at 75% LTV:

assume low rent at $5,000/month only for analysis (this project is currently under construction and I am expecting actual rent range to be as low as 5500, as high as 6250)

These two scenarios below are BEFORE income taxes and depreciation. Remember that this is PASSIVE income (no payroll tax, no SS tax, no withholding, etc.). Depreciation is set by YOU the owner. You decide the improvement value and the land value. Then you take the improved value and divide by 27 and that is your depreciation expense for the year. FWIW you can also do an accelerated depreciation schedule that is more complicated and you will need a tax adviser to help.


ALL CASH DEAL

5,258.46 RE tax
1,000.00 insurance
6,258.46 total annual tax + insurance
521.54 per month

460,000.00 sale price
0.00 loan
465,000.00 downpymnt + 5,000 closing costs
0.00 monthly loan pymnt

521.54 ttl monthly expense
6,258.46 ttl yr expense

250,000.00 remodel/addition
715,000.00 total cash in

5,000.00 rent/month
60,000.00 rent/year
4,478.46 net cash/month
53,741.54 year cash net
7.52% cash on cash return



REFY at 75%LTV
5,258.46 RE tax
1,000.00 insurance
6,258.46 total annual tax + insurance
521.54 per month

715,000.00 sale + remodel/addition
536,250.00 loan 75%
6,000.00 refy loan closing costs
2,657.46 payment 30am 4.3% fixed

3,179.00 ttl monthly expense
38,147.98 ttl yr expense


184,750.00 total net cash in

5,000.00 rent/month
60,000.00 rent/year
1,821.00 net/month
21,852.02 year cash net
11.83% cash on cash return

P_collector

Yes..thats what I said before..there are people whose toys are worth more than their house..or annual income..and they are still financially solid. Someone with an income of 100K could easily buy a 991...save each year 10K..after 6 years, takes the cash..buys it and the rest is payed off via leasing..in the first year his car will have exactly the same value as his income..so what..

But I also agree that this financial advisor statement is completely..

However, I dont agree with your logic that leasing is such a good thing..
only if a) you know you will sell the car in 3 years again..but this fact is the worst money burning scenario anyway, or b) you can earn somewhere else more money compared to the leasing rate interest. This is certainly possible..but what happens if one looses the job, crashes the Porsche at the track..all this will result in forced actions which will be even more painful..

Guest89

Safe to say you're using cash on cash return as your primary investment criteria?

The premise that it's wise or responsible to put more towards a house and somehow risky or foolhardy to place an emphasis on cars or other toys is based on the conventional wisdom that real estate = appreciating asset and car = depreciating asset. Since this relationship is less certain now, it's more of a values judgment.

You could live in a teepee and drive a Ferrari 250 GTO for all I care.

P_collector

Well..yes and no..

1) US Housing prices during the crisis..especially luxury houses..had huge trade offs..I know of one case where the price had to be lowered by 800k to get it sold..this was however in 2009..whether the prices are back up to pre 2008 levels in the US..I dont know..Im not an expert on this. If someone would have bought that house in 2007 and also in 2007 a GT3RS..and selling both in 2009..the Porsche would have been the better investement..

2) Yes, on average a house is appreciating..but even that - I think - will reverse - at least for some houses. Middle classes in Europe and US are eroding..so there will be a consequence in 30 years..normal 911s will also become cheaper..and I dont see miracle that US and EU will be out of the problems in 5 years..

3) but its all about choices..,,isnt it..I would be more happy with an 1Mill house and 5 Porsches..while others would take the prius and buy a bigger 1,5Mill. house..but Mcdonalds is also cheaper then good healthy food..this discussion would never end. I personally would just not advise to buy cars on loan..as you corretly said..since they mostly depreciate..and paying interest for something which is loosing money is..