Debt/Finances-our favorite topic

Surprised we have 5 thus far that are buy now and figure out later....

 

I thought we had more here.

hard to admit sometimes

I've been looking to buy some rental property. The one's I've been looking at are appraised anywhere from 25 to 40 percent higher than the asking price. Now granted they all need a lot of work, as in total overhaul but you could still refinance to get your money back out. But then you're basically maxed leveraged on them and the rental income is basically just paying the mortgage on the rental. I know after the 15 years it's all income but I'm not top sure about what to do.

 

For example if the AC goes up or if the roof starts to leak I'll already be leveraged out on the house with no money in the rental business so then the roof or AC unit would be on a credit card or line of credit somewhere that I have to use the little rental income I'm getting to pay that off. It just seems to risky for money. I've always wanted to have some rental properties but it seems like it's not worth the hassle. To the guys that have them am I going about this wrong? Or looking at it the wrong way?

Surprised we have 5 thus far that are buy now and figure out later....

 

I thought we had more here.

 

Don't believe everything you read on the net

 

Don't believe everything you read on the net

:lol2:

 

I will give you another example, my first development ever, I will NEVER sell, I had multiple offers but it has sentimental value to me, when I've completed it I was upside down in it so o couldn't sell it for gain I actually built it for my business, I put every single penny in it and it hurt me but I kept it, that was 15 years ago, it costed me all up $650k borrowed $450k against the land and my $200k equity, I've paid back the back, now it's worth $3.5 mil on bank valuation, brings in $216k/year with an interest repayment of $10k a year.

 

If I were scared of debt back then I wouldn't have had a lot of the things I have now, I LOVE good debt, money's just a tool, you need to know how to use it, if you are a fool and you don't know how to use it in your advantage that's a different story.

 

Thanks. This is what I mean about creating wealth, a perfect example.

Surprised we have 5 thus far that are buy now and figure out later....

 

I thought we had more here.

 

Not regarding the income of those who make a ton, but the average Joe, I see a lot of people my age (I'm not quite 30 yet) who see financing everything as "the solution" and then resent not having the freedom to do things they want to do later. I sometimes wonder (and it may not be applicable to all situations or people) if that attitude of "must have it now, need all the things, and I'll make payments on it all" is why so many end up not being able to invest, and not being able to put money away to have the freedom of doing things.

 

One guy who shall remain nameless in a local car club here has always given me shit for the cars I've owned and things I've done and always tries to guilt trip me with, "Must be nice to have money." but it's never been about money, it's been about keeping my debt to income ratio healthy. He started a family very early in life, he financed all his shit, ran up credit cards, and he seems to resent everything he does, or rather, cannot do, because of life choice. He literally reminds me of this commercial:

 

 

Again, I don't know if this is applicable to those with tons of disposable income, and it's probably not, but again my point is about the average joe. If I had the disposable income to toss tons of money in the bank, invest a lot of money and go finance a really nice new Lambo, I probably would because I feel like that would be safe and not too bothersome. But I think a lot of people get themselves into trouble when they finance themselves to the point where it goes from disposable income, and into a repetition of check to check (and I imagine that's going to suck if you miss a payment and have your car repo'd etc).

 

There was a series someone posted on here some time ago about people in a culture called "The 30k millionaire" (I think the name is right?) about people who made less than 30k a year, and put basically everything imaginable in loans, credit cards and all kinds of crazy shit just so they could live an extravagant lifestyle they couldn't afford, and end up going broke in no time.

I always hated the idea of paying for something over and over once I already had it... so I buy outright. There needs to be a warning on credit cards like on packs of cigarettes - "WARNING, NOT FREE MONEY. CAN YOU AFFORD THIS?!"

I try to look at money unemotionally by following simple rules:

1) Borrow low, invest high. Otherwise don't borrow. Caveats: Primary residence or education with a fairly certain ROI.

2) Don't finance your fun: Cars, vacations, chicks, engagement rings, blow, basically anything with entertainment/emotional value.

3) Credit/leverage is simply a tool. Logic guides the use of tools, not emotions. Being "debt free" or spending money you don't have - neither should have any romantic value.

4) Always have at least a a couple years of living expenses liquid.

5) Invest a higher than average portion of your income, ie live well below your means.

I try to look at money unemotionally by following simple rules:

1) Borrow low, invest high. Otherwise don't borrow. Caveats: Primary residence or education with a fairly certain ROI.

2) Don't finance your fun: Cars, vacations, chicks, engagement rings, blow, basically anything with entertainment/emotional value.

3) Credit/leverage is simply a tool. Logic guides the use of tools, not emotions. Being "debt free" or spending money you don't have - neither should have any romantic value.

4) Always have at least a a couple years of living expenses liquid.

5) Invest a higher than average portion of your income, ie live well below your means.

 

Print this out and save it for future reference because this is all you need to know when it comes to your finances

 

With the most important being "live below your means!"

1) Borrow low, invest high. Otherwise don't borrow. Caveats: Primary residence or education with a fairly certain ROI.

 

Uzzi-great post!

 

The education with a fairly certain ROI is SO true. I can't tell you how many people I know that got their law degree at prestigious schools, and are making $50,000-$60,000 a year 8-10 years later and have $300,000 in student loans.

 

 

Uzzi-great post!

 

The education with a fairly certain ROI is SO true. I can't tell you how many people I know that got their law degree at prestigious schools, and are making $50,000-$60,000 a year 8-10 years later and have $300,000 in student loans.

 

Are they working as public defenders or prosecutors? That sounds like shit pay for anything in the private sector.

First thing I want to say is I love you guys and I love this brand. Reading through the level headed posts in this thread just confirms the types of people the Lamborghini nameplate attracts (but we all already knew that). Guarantee there would be more 401k, IRA, ETF and Mutual Fund talk if this was a Ferrari forum .

 

Now let me just echo what others have already said: Debt can truly be your best friend, if you know what you're doing.

 

I will give you another example, my first development ever, I will NEVER sell, I had multiple offers but it has sentimental value to me, when I've completed it I was upside down in it so o couldn't sell it for gain I actually built it for my business, I put every single penny in it and it hurt me but I kept it, that was 15 years ago, it costed me all up $650k borrowed $450k against the land and my $200k equity, I've paid back the back, now it's worth $3.5 mil on bank valuation, brings in $216k/year with an interest repayment of $10k a year.

 

If I were scared of debt back then I wouldn't have had a lot of the things I have now, I LOVE good debt, money's just a tool, you need to know how to use it, if you are a fool and you don't know how to use it in your advantage that's a different story.

 

I love this, Fortis. I am 25 years old but bought a 3-flat when I was 22 as my first rental property. I have no "bad-debt"...only what I would consider to be "good" debt (investment related). I figured I would make some value-add improvements (add a garden unit) and sell it after a few years...but when I sat back and thought about it, my long term rate is 3.25%, it cash flows (NOI less debt) $1.5k a month and I have $150k equity.

 

Could I go buy a fancy car right now? Yes...I did in fact -- a $6,800 2005 Acura RL with 170k on the clock (haha). Then I bought another 6-flat apartment building and launched my first business.

 

And when others ask me "What happens when shit hits the fan and you are over-levered??" The short answer there is exactly what Fortis has been saying "Smart people don't borrow like regular sheeple". My coverage ratio is usually 1.8x-2.5x at acquisition, and I don't tap unnecessary equity. If (when) the market shits the bed again our rental rates will go up and refinancing will be very attainable since we maintain healthy leverage.

 

We can't get where we need to go buying material items we don't need. Until we reach the point where discretionary spending can truly be an after-thought, it should remain ever present in our thoughts. Live now the way most people won't, so that later you can live the way most people can't. (I'm sure I'm preaching to the choir here).

 

If the shit hits the fan again, the already high demand for rental property will get even higher.

The rates are low enough, though most of the bargains have already been picked up.

The time to have reacted was five or six years ago, although the rates did not get extremely good until the past two years.

 

You're right too Redlambo. Love the play you made for a luxury residence 5 years ago.

 

You are right in that most of the bargains in the residential and 2-4 unit space are drying up. Agree with what you said about borrowing as much as you can right now while rates are cheap (if you know what to do with it/ can consistently beat your cost of capital). If you know how to spot a deal that will truly cash flow...you should be borrowing whatever you can get your hands on. Historical residential lending rates are a nudge above 7%, anything under 4.5-5% (especially like commercial is now) is free money. Remember in the 1980s when avg. national residential rates were 16.5%? I don't, because I wasn't alive yet...but holy shit are rates low right now!

 

And thanks for your great post too Uzzi!

Are they working as public defenders or prosecutors? That sounds like shit pay for anything in the private sector.

 

Some are handling foreclosure file processing (which I believe pays the FIRM $2000-$2500 per file processed and they get a small fee for each), and some are ticket clinic types because all have had a hard time finding anything worthwhile. This market is FAR too over saturated with attorneys. I have a friend that went to school to get his law degree, and couldn't find work, so he went BACK to school and did his MD instead (has a healthy trust fund, so really doesn't matter).

Thanks for that great post, Fortis!

House is paid off. Zero credit card debt. 90% in cash low risk simple stuff. Canada has something called a guaranteed investment certificate, pays around 3% to 4% annually if the stock market is moving forward. The principal is safe guaranteed by the bank. With my credit union deposits are 100% insured. Zero risk of loosing money. Only downside is no growth potential. Second tool is a term deposit, downside you are locked in for 20months or more. Again the principal is safe. Low interest rates means the best is 2.10% to 3% annually. I do have 10% in stocks. Have 20 years stock market experience. Along with my Father, who was a senior VP at one of Canada's largest brokerage firms, for nearly 40 years. Stock market is second nature to me and makes more sense then real estate.

House is paid off. Zero credit card debt. 90% in cash low risk simple stuff. Canada has something called a guaranteed investment certificate, pays around 3% to 4% annually if the stock market is moving forward. The principal is safe guaranteed by the bank. With my credit union deposits are 100% insured. Zero risk of loosing money. Only downside is no growth potential. Second tool is a term deposit, downside you are locked in for 20months or more. Again the principal is safe. Low interest rates means the best is 2.10% to 3% annually. I do have 10% in stocks. Have 20 years stock market experience. Along with my Father, who was a senior VP at one of Canada's largest brokerage firms, for nearly 40 years. Stock market is second nature to me and makes more sense then real estate.

 

I'm surprised that between your father's experience and your own, your investments aren't more geared towards stocks and other more active instruments.

 

I didn't know anyone really bought GICs... Is there a reason you're so risk averse? The returns you're seeing barely, if at all, hit preservation levels...

Those returns are just about canceled by inflation so your cash in the bank has less and less buying power but at the end of the day you should only do what makes you feel comfortable.

House is paid off. Zero credit card debt. 90% in cash low risk simple stuff. Canada has something called a guaranteed investment certificate, pays around 3% to 4% annually if the stock market is moving forward. The principal is safe guaranteed by the bank. With my credit union deposits are 100% insured. Zero risk of loosing money. Only downside is no growth potential. Second tool is a term deposit, downside you are locked in for 20months or more. Again the principal is safe. Low interest rates means the best is 2.10% to 3% annually. I do have 10% in stocks. Have 20 years stock market experience. Along with my Father, who was a senior VP at one of Canada's largest brokerage firms, for nearly 40 years. Stock market is second nature to me and makes more sense then real estate.

 

 

 

The problem with GICs (Guaranteed Investment Certificates) is they are to a max of $100,000 and there are only 40 of them or so. Once you have 4MM or whatever the number is, there's no more to buy. They are a good way to hold cash and ladder a certain percentage of your portfolio. I wish I could have 25% of my portfolio in GICs with no risk to principal as I am long in real estate.

I've only been near 100% cash and totally safe for the last year. Stocks overall haven't been good this year. Its going to get worse over the next 4 to 5 months. Basically just sitting on cash and earning a little. Inflation in Canada is a minimum, basic things like food costs are going up. But big things like the mortgage are not.

I've only been near 100% cash and totally safe for the last year. Stocks overall haven't been good this year. Its going to get worse over the next 4 to 5 months. Basically just sitting on cash and earning a little. Inflation in Canada is a minimum, basic things like food costs are going up. But big things like the mortgage are not.

 

I've only mentioned it because Inflation is close to 2% http://www.inflation.eu/inflation-rates/ca...ion-canada.aspx you mentioned returns around the same percentile.

Some quote doesn't work for me. Yes, returns just above inflation. Just seeing food costs rise. I'm more about preservation over creation at the moment.