At one point, he remarked that he didn’t get enough rent on any of them to cover the mortgage payments. However, he figured that after ten or fifteen years, when he planned to retire, he would be able to sell them for enough combined equity to go home to Romania and live like a king. As it develops, in the Old Country about a hundred grand puts you into the near-royalty category.

Come the Bubble, this guy was smart enough to sell at the peak. He pocketed a nice profit, rented the place he was living in, and moved himself and his wife into a nicer property in the fancier neighborhood adjoining ours. This still left him with enough cash to buy an even more upscale house and hold it speculatively. He made money on that even after the Bubble burst.

I guess you could say he combined investment with speculation (and added a healthy dollop of raw luck). In his case, the line between investing and speculation seems a little blurry.

My son and I recently copurchased a house for him to fix up and live in for five to ten years, after which we will rent or sell it. Actually, he already IS renting, having taken in a tenant to help cover mortgage and renovation costs. Personally, I feel less than confident that we’ll make out like the neighborhood rental baron…but hope that planning a long-term hold will mitigate losses to some degree.

I agree with you that it is tough to find cashflow positive properties. But its only tough in certain high priced markets, where the cost of entry is sky high. I live in San Francisco but I will likely never invest another dime in the state of CA. There are plenty of properties that have positive cashflow producing great returns and they are still easy to get into in a lot of US markets. Tomorrow I have a post showing how I calculate returns on rental property and the numbers shown is for a real property on the market in Houston.

Although sometimes you may even find something in your area. deals are everywhere but they are usually made off of the market. A friend of mine was able to buy a 4 unit building in the bay area, 0% down and it was cashflow POSITIVE. Sure it doesn’t come around often but there are always opportunities. He basically has an infinite ROI.

I respectfully disagree that calculated speculation isn’t that bad. I think its dangerous because you are paying into it every month with nothing but hope that it will appreciate. You risk losing all of your equity if an emergency comes up. In order for you to make money on it, everyone else’s house around you will have to appreciate as well. I’d rather have calculated returns AND potential for appreciation.

I agree with you that in 30 years it will be paid off and you will have rental income on it forever. What I’m saying however, is that the ROI for that 30 years suck if you’re cashflow negative. You might as well invest the down payment and monthly negative in another vehicle like stocks, prosper, business whatever for that same 30 years and after that you can buy 2 of those same properties all cash and earn rent from both. For example 150k down payment, 6000 a year negative, at 8% ROI for 30 years is approx 2.2 Million. So when compared to that, a negative ROI property doesn’t seem like a good deal at all. Now if its a cashflow positive property however, you’ll likely see 15-30% internal rate of return if you look, and that surely beats an index fund or anything else that I know of besides a business(or selling crack).

Anyway sorry for going way over what I intended to write. Check out my post tomorrow. Thanks for commenting and happy Turkey day.

It seems like it’s simply impossible to invest in real estate nowadays. I think calculated speculation, as long as you can easily cover any shortfall, isn’t all that bad though. In 30 years, it will be paid off and will still be earning rent. Or perhaps I’ll sell it for a sudden windfall.