Post: #1

Hey Guys

I'm thinking in buying a property, i have saved some cash but i would like to know how much of it to spend? In other words if you a have for example 250k in savings
how much of it would be wise to spend ? 50%? 75%? 85%?. I just dont want to spend everything i got and become penniless. Also i prefer to pay full cash and not going the mortgage route because you end paying more and nobody know what the futures holds...

Any ideas or tips are welcomed

Thanks!

Post: #2

It really depends where you are and what your income situation is.
Do you intend to live in the property or try to rent it?
Will you depend on the rental income or is it just an additional semi passive income stream?
If you are in the USA, there can be significant tax benefits to having a mortgage (FIXED RATE , do NOT NOT NOT get an adjustable rate).

Post: #3

(12-21-2014 12:18 PM)VolandoVengoVolandoVoy Wrote:  It really depends where you are and what your income situation is.
Do you intend to live in the property or try to rent it?
Will you depend on the rental income or is it just an additional semi passive income stream?
If you are in the USA, there can be significant tax benefits to having a mortgage (FIXED RATE , do NOT NOT NOT get an adjustable rate).

Thanks for your answer. I'm not in the US, i'm in latin america and mortgages here will rape you. I dont know yet if i would live in the property i buy, but if not i will give it to my brother, so definitely i will not rent it. I'm self employed so my income is variable but the last years have been good so i have been able to save good cash....

Post: #4

Where is your comfort level with regard to how much cash you have in the bank? If anything less then 100k in the bank makes you nervous then putting 150k into the property is your answer. If it takes 200k to get into the property how long will it take you to get back to 100k of savings? Are you ok with that time line? If not, pass on that particular property and find one that fits your goals of savings/investment balance.

Post: #5

Why would you not use leverage to buy property? I don't get it.

Like most investment strategies, the answer depends on how long you intend to hold the property for and your exit strategy.

Post: #6

(12-21-2014 12:42 PM)monster Wrote:  Why would you not use leverage to buy property? I don't get it.

Like most investment strategies, the answer depends on how long you intend to hold the property for and your exit strategy.

What do you mean by leverage? As i said i dont live in the US, so mortgages are of no use to me..
The idea is to hold the property indefinetly, unless prices increase so high that its a good opportunity to sell...

Post: #7

If you're living outside the western world and have plans on moving frequently, I would just rent. Leverage is in reference to putting money down that gives you control of a property worth far more than the money you put into it. This is universal, it works anywhere in the world. If a mortgage is out of the question and you must buy outright, then I would say no more than 25% of your savings.

Buying property in this way is not intelligent however. You want to leverage money and buy multiple properties that cash-flow on a monthly basis. Buy and hold is just speculation, and traditionally, property just follows the rate of inflation, so you're really no far ahead. I have a company that is involved in this, PM me if you want more information.

Post: #8

(12-21-2014 02:01 PM)TheFinalEpic Wrote:  Buy and hold is just speculation, and traditionally, property just follows the rate of inflation, so you're really no far ahead.

This is bad advice. Buy and hold is a proven strategy. And while appreciation of real estate can certainly mirror inflation, just as a lot of investments can and do, it does not 'traditionally' follow it.

Do some research. Get a good idea of what is going on with real estate purchases, loans, rental value etc in your area. Make a plan and execute.

Post: #9

(12-21-2014 08:12 PM)Ironsun Wrote:  

(12-21-2014 02:01 PM)TheFinalEpic Wrote:  Buy and hold is just speculation, and traditionally, property just follows the rate of inflation, so you're really no far ahead.

This is bad advice. Buy and hold is a proven strategy. And while appreciation of real estate can certainly mirror inflation, just as a lot of investments can and do, it does not 'traditionally' follow it.

Do some research. Get a good idea of what is going on with real estate purchases, loans, rental value etc in your area. Make a plan and execute.

Where are all your buy and hold investors now after 2008? Buy on anticipation of cashflow on a monthly basis, I've you're losing money every month just so you can hold a property (or even breaking even) you need to re-evaluate your positions.

Real estate traditionally has followed inflation, and barring any massive corrections à la 2008, you're just as well off putting your money in an index fund if you want to follow a buy and hold strategy.

Post: #10

(12-21-2014 02:01 PM)TheFinalEpic Wrote:  If you're living outside the western world and have plans on moving frequently, I would just rent. Leverage is in reference to putting money down that gives you control of a property worth far more than the money you put into it. This is universal, it works anywhere in the world. If a mortgage is out of the question and you must buy outright, then I would say no more than 25% of your savings.

Buying property in this way is not intelligent however. You want to leverage money and buy multiple properties that cash-flow on a monthly basis. Buy and hold is just speculation, and traditionally, property just follows the rate of inflation, so you're really no far ahead. I have a company that is involved in this, PM me if you want more information.

Thanks for your advice but as i said earlier if i buy a property will not be to rent it. It would be for personal use or for a family member. Under this scenario leverage wouldnt make sense right?

Post: #11

Ask yourself why are you buying? If you don't for see housing prices increasing by a rate above the local interest rate or what you could get in t-bills over the next 5-10 years you should not be buying. Do not buy for the sake of buying, do your research then evaluate. As for the amount to spend it depends on the cost of the house, but generally you should not invest all your money and you should take a loan.

Post: #12

(12-22-2014 05:47 AM)DumbfromBirth Wrote:  Ask yourself why are you buying? If you don't for see housing prices increasing by a rate above the local interest rate or what you could get in t-bills over the next 5-10 years you should not be buying. Do not buy for the sake of buying, do your research then evaluate. As for the amount to spend it depends on the cost of the house, but generally you should not invest all your money and you should take a loan.

I dont understand why you guys insist in taking a loan. I will give you an example. A one bedroom apartement in a posh area of the city i live sells for 174000 dollars cash. If i go the loan route i would have to spend 34000 dollars as a down payment. The rest would be dealt with a mortgage with a variable rate (There are no FIXED rate loans here) , currently would be 8-9% or 900 dollars monthly payments for 25 years. That means 25*12*900 (assuming the rate doesnt increase which would not be the case) = 270000 dollars. How on earth is that a good advice? Am i missing something??

Post: #13

Do you considerate a safe/good investment? Will you not need any of the money in the near future? If both yes then go for it. I only said loan because of these reasons.

Btw if you include inflation and your interest the 270000 will be less than you think.

Post: #14

If you understand the time value of money, then 270000 in 25 years will probably be less than 170000 today. Your dollar is never worth as much as it is today, I have a friend who insists upon buying month to month memberships because of this phenomena.

Post: #15

(12-22-2014 09:27 AM)TheFinalEpic Wrote:  If you understand the time value of money, then 270000 in 25 years will probably be less than 170000 today. Your dollar is never worth as much as it is today, I have a friend who insists upon buying month to month memberships because of this phenomena.

Ok i get your point. What i dislike of the idea is to become a debt slave of a bank for 25 years.
I think its better if one can afford it of course, to just shell out full cash, but always minding how much % you can burn from your savings. I currently think that i would spend 40% max of my current savings for buying a property....

Post: #16

put aside some small % of it. you never know...earthquakes, bombs 0_0, cheating wife demands piece of it etc. etc. Never put all your egss in one basket...(unless it's a pretty damn cool basket).

Post: #17

(12-22-2014 12:31 PM)kr4t0s Wrote:  

(12-22-2014 09:27 AM)TheFinalEpic Wrote:  If you understand the time value of money, then 270000 in 25 years will probably be less than 170000 today. Your dollar is never worth as much as it is today, I have a friend who insists upon buying month to month memberships because of this phenomena.

Ok i get your point. What i dislike of the idea is to become a debt slave of a bank for 25 years.
I think its better if one can afford it of course, to just shell out full cash, but always minding how much % you can burn from your savings. I currently think that i would spend 40% max of my current savings for buying a property....

Here's where people get confused: If something is an asset, debt is good. If something is a liability that depreciates, debt is bad. Now, in your scenario, because you want to not rent it out, then you would be correct to buy it and not be making a monthly payment every month. But why then, don't you rent a place (renting is not a dirty word like so many people would have you believe), and then you can move about freely all over the world as you please.

In my honest opinion, buying real estate is only for when it generates an income; I will buy investment property in a heart beat, if I'm going to live in it, I would consider renting the much better option.

Post: #18

(12-22-2014 12:46 PM)bacardi123 Wrote:  put aside some small % of it. you never know...earthquakes, bombs 0_0, cheating wife demands piece of it etc. etc. Never put all your egss in one basket...(unless it's a pretty damn cool basket).

Yeah, thats why i said i would spend 40% max of my savings...

Post: #19

Not much point in buying a property cash if you don't want to live there or rent it out. The opportunnity cost is too high and you would certainly be losing money. Either buy a property with leverage, or put your money into an index fund. Much higher returns. The stock market is actually very hot right now.

Post: #20

(12-22-2014 12:50 PM)TheFinalEpic Wrote:  

(12-22-2014 12:31 PM)kr4t0s Wrote:  

(12-22-2014 09:27 AM)TheFinalEpic Wrote:  If you understand the time value of money, then 270000 in 25 years will probably be less than 170000 today. Your dollar is never worth as much as it is today, I have a friend who insists upon buying month to month memberships because of this phenomena.

Ok i get your point. What i dislike of the idea is to become a debt slave of a bank for 25 years.
I think its better if one can afford it of course, to just shell out full cash, but always minding how much % you can burn from your savings. I currently think that i would spend 40% max of my current savings for buying a property....

Here's where people get confused: If something is an asset, debt is good. If something is a liability that depreciates, debt is bad. Now, in your scenario, because you want to not rent it out, then you would be correct to buy it and not be making a monthly payment every month. But why then, don't you rent a place (renting is not a dirty word like so many people would have you believe), and then you can move about freely all over the world as you please.

In my honest opinion, buying real estate is only for when it generates an income; I will buy investment property in a heart beat, if I'm going to live in it, I would consider renting the much better option.

Yes i thought about that too. I'm currently renting a place for myself, but the idea of buying a property is not for me, but for my brother that lives with me. So i have 2 options, to buy the property full cash or to rent another property for my brother. The latter would give me freedom of movement and i would not lose a big chunk of my savings. Under this scenario, renting a second property would be wiser than buying it?

Post: #21

(12-22-2014 09:27 AM)TheFinalEpic Wrote:  If you understand the time value of money, then 270000 in 25 years will probably be less than 170000 today. Your dollar is never worth as much as it is today, I have a friend who insists upon buying month to month memberships because of this phenomena.

Well the time value of money is a thing yes, but like everything, the devil is in the details, the key detail here being the rate you pay vs. the rate you make.

If he's paying 9% interest, (after tax money mind you, unless you're in the US, or incorporated if I'm not mistaken), he needs to be able to generate like 13% off this debt, just to break even. 9% interest on 80% the value of a property is a huge bite into cashflow.

The US the last few years have had sort of a perfect storm of opportunity for people wanting to become landlords, low rates, low prices, and more or less stable rents. There is the ideal place to leverage.

If you're looking at very high rates (undeveloped world), or very high prices compared to rents (Canada) its a lot more difficult to make a go of leverage.

It can be done, but at least in Canada now the vast majority of cases it makes more financial sense to be the renter, not the owner. I'm renting a condo, and since prices of identical units, condo fees, mortgage rates are all knowns, and insurance and taxes can be pretty well estimated, best I can figure, before any big maintenance issues or special condo assessments (surprise!) they're subsidizing my rent roughly $100-$150 a month.

Why would they do that? Because everyone "knows" (at least seems the conventional thinking still here in Canada) real estate only goes up.

Leverage (from base lever) means a force multiplier. It can be a great tool to make 5x more on your money, but If you're leveraged to the hilt and things go south, they can go very south because it's happening 5x faster.

Post: #22

If I was back home, I'd have to spend something like 10 times my gross annual income for a property, and take out a substantial home loan to finance it.

The overpriced housing bubble drives out first time buyers into the outskirts of the city, however with massive demand for inner suburban properties there's always relative stability in the renters market so it's easy to rent out rooms or rent out the property and recoup a substantial portion of the monthly loan repayments.

The idea of being tied down with a home loan in a city I don't respect nor have any long term ambitions in is too depressing for me to consider purchasing property in the near future. Mobility is far more appealing at this age.

Post: #23

(12-24-2014 09:21 AM)UnW Wrote:  If I was back home, I'd have to spend something like 10 times my gross annual income for a property, and take out a substantial home loan to finance it.

The overpriced housing bubble drives out first time buyers into the outskirts of the city, however with massive demand for inner suburban properties there's always relative stability in the renters market so it's easy to rent out rooms or rent out the property and recoup a substantial portion of the monthly loan repayments.

The idea of being tied down with a home loan in a city I don't respect nor have any long term ambitions in is too depressing for me to consider purchasing property in the near future. Mobility is far more appealing at this age.

What's your age UnW?

Post: #24

(12-24-2014 09:10 AM)Seadog Wrote:  

(12-22-2014 09:27 AM)TheFinalEpic Wrote:  If you understand the time value of money, then 270000 in 25 years will probably be less than 170000 today. Your dollar is never worth as much as it is today, I have a friend who insists upon buying month to month memberships because of this phenomena.

Well the time value of money is a thing yes, but like everything, the devil is in the details, the key detail here being the rate you pay vs. the rate you make.

If he's paying 9% interest, (after tax money mind you, unless you're in the US, or incorporated if I'm not mistaken), he needs to be able to generate like 13% off this debt, just to break even. 9% interest on 80% the value of a property is a huge bite into cashflow.

The US the last few years have had sort of a perfect storm of opportunity for people wanting to become landlords, low rates, low prices, and more or less stable rents. There is the ideal place to leverage.

If you're looking at very high rates (undeveloped world), or very high prices compared to rents (Canada) its a lot more difficult to make a go of leverage.

It can be done, but at least in Canada now the vast majority of cases it makes more financial sense to be the renter, not the owner. I'm renting a condo, and since prices of identical units, condo fees, mortgage rates are all knowns, and insurance and taxes can be pretty well estimated, best I can figure, before any big maintenance issues or special condo assessments (surprise!) they're subsidizing my rent roughly $100-$150 a month.

Why would they do that? Because everyone "knows" (at least seems the conventional thinking still here in Canada) real estate only goes up.

Leverage (from base lever) means a force multiplier. It can be a great tool to make 5x more on your money, but If you're leveraged to the hilt and things go south, they can go very south because it's happening 5x faster.

Where the hell do you live that your interest is so high? Canadian mortgage rates on even 5-year fixed mortgages are just over 3.00%. Also, remember that the investment is on the leverage you put into a property, there are plenty of properties which we have calculated to flow 120+% of the initial investment. You don't make money on single family homes by the way (unless you have them suited), you should only be investing in cheaper condos, multifamily property, or commercial buildings.

Post: #25

(12-24-2014 11:46 AM)TheFinalEpic Wrote:  

(12-24-2014 09:10 AM)Seadog Wrote:  

(12-22-2014 09:27 AM)TheFinalEpic Wrote:  If you understand the time value of money, then 270000 in 25 years will probably be less than 170000 today. Your dollar is never worth as much as it is today, I have a friend who insists upon buying month to month memberships because of this phenomena.

Well the time value of money is a thing yes, but like everything, the devil is in the details, the key detail here being the rate you pay vs. the rate you make.

If he's paying 9% interest, (after tax money mind you, unless you're in the US, or incorporated if I'm not mistaken), he needs to be able to generate like 13% off this debt, just to break even. 9% interest on 80% the value of a property is a huge bite into cashflow.

The US the last few years have had sort of a perfect storm of opportunity for people wanting to become landlords, low rates, low prices, and more or less stable rents. There is the ideal place to leverage.

If you're looking at very high rates (undeveloped world), or very high prices compared to rents (Canada) its a lot more difficult to make a go of leverage.

It can be done, but at least in Canada now the vast majority of cases it makes more financial sense to be the renter, not the owner. I'm renting a condo, and since prices of identical units, condo fees, mortgage rates are all knowns, and insurance and taxes can be pretty well estimated, best I can figure, before any big maintenance issues or special condo assessments (surprise!) they're subsidizing my rent roughly $100-$150 a month.

Why would they do that? Because everyone "knows" (at least seems the conventional thinking still here in Canada) real estate only goes up.

Leverage (from base lever) means a force multiplier. It can be a great tool to make 5x more on your money, but If you're leveraged to the hilt and things go south, they can go very south because it's happening 5x faster.

Where the hell do you live that your interest is so high? Canadian mortgage rates on even 5-year fixed mortgages are just over 3.00%. Also, remember that the investment is on the leverage you put into a property, there are plenty of properties which we have calculated to flow 120+% of the initial investment. You don't make money on single family homes by the way (unless you have them suited), you should only be investing in cheaper condos, multifamily property, or commercial buildings.

Pal, i live in latin america. Please check the mortgage interest rates in brazil, argentina, uruguay, peru, etc, etc... they are sky rocket high. In the developed world is really different!