Friday, May 29, 2009

Real Estate Investing: A Dialogue Amongst Friends

Here is another interesting back and forth (mostly forth on my part) between a friend and I. This friend is extremely smart, an awesome dude, and a very entrepreneurial person. Throughout the existence of BadskiBlog I have preached that there is no one set investment advice. That is why it is so important to know your goals and your strategy for achieving those goals. Because it is those goals that will dictate which investing advice you will take, and which you will leave for the next guy. Just because my friend and I do not have the same world view on this topic does not mean that I am right and he is wrong or vice versa. I would argue that we are both right given our goals and investing strategies. I have included my friends contributions in italics


See above link. Part of this discussion is why I am not big on buying homes unless you plan to live there for a long time....

Love Forever,


I just posted a blog post on the index yesterday. I think what the article fails to address is that the majority of the benefits of
being a property owner aren't Annual Return. And that return is skewed by not taking into account Cash on Cash return. If you buy $10K worth of stock, how much is that stock worth at that moment? $10K.....not a trick question. If you buy $10K worth of property how much is that property worth? It could be worth $100K or even $200K depending on financing. So if the price of that $100K property appreciates by the 1.5% the article claims after factoring the CPI then it would be worth $101,500.00. Not a great return. But you have to look at cash on cash return. You only put in $10K of your own money. $1,500 is a much more significant portion of $10K than $100,000; it's actually a 15% cash on cash return.

Leverage can work the opposite way as well but how many houses go out of business? Not many. And as I always say with both stocks and property, you only lock in losses if you sell.

After you look at the income potential from renting out a property, the tax advantages, and the control you have over the present value of your investment I think that property is a really good investment.

I do however agree completely with Reese that some people shouldn't own homes unless you live there for a while. The situation I am in getting moved to Boston has put me in a tough spot with my condo. However, I feel that I have the business sense and the stamina to become a landlord and continue building equity in my property. Each person's situation is different. Good read.