Hi all, Im pretty much new to REI and this is what I think of the current REI market by looking at whats happening in my area wich is NorCal.
I think Part of the problem today for people starting in real estate is the over heated real estate market: when you look at the return on income properties they are lower then the interest rate to borrow money.
Example; 4 unit apartment building listed for $500,000, the net income is $30,000 a year or 6% return, but when you borrow money to buy it the bank is going to charge you 7% -7.5% or $35,000- $37,500 a year in mortgage payments, you end up losing $5k-$7k a year.
Now of course you can put a large down payment so you get some cash flow; say you had $250k to put down, you payments are now about $18,250 a year on $30,000 a year income your return is now $11,750 a year on $250k or about 4.5% return and you will have to work to get that return, apartments are not arm chair investments.
These programs make big deals about “creative financing” but in this market it’s pretty tuff to ask the sellers to hold a 1st or 2nd trust deeds, the sellers have all kinds of options to get cashed out, either by low ball all cash offers or just being patient and letting a buyer obtain a loan.
The end result is you end up doing all the work and giving all your money to who ever made you the loan, and tying up your down payment with little or no return (at least for the first few or more years) if you can deal with that time is on your side, but were talking 5-10-15 years.
You can take all the classes and seminars you want but that won’t change the market, save your money; cash is king.
The most valuable thing Iv learned is you always assume your costs and expences will be more then what ever anybody tells you they are going to be.
What do you guys think any body sees diffeent?