For the Real Estate Drop in sales and price Naysayers HOLD ONTO YOUR HATS

[HTMike]

So a $380,000 mortgage at 2.8% has a payment of $1,561 which is principal and interest.

Putting $380,000 in a bank CD at 5% and you’re making $1,583 per month. So you’re actually netting about $20 in cash flow per month.

The bank CD is paying both the principal and your interest. If you took that same $380,000 and paid off your mortgage, you have nothing. This goes up and down according to scale.

What happens when bank CD's are no longer 5% ? That ship is sailing and CD rates will be sliding back down.

 

[BHC Vic]

So a $380,000 mortgage at 2.8% has a payment of $1,561 which is principal and interest.

Putting $380,000 in a bank CD at 5% and you’re making $1,583 per month. So you’re actually netting about $20 in cash flow per month.

The bank CD is paying both the principal and your interest. If you took that same $380,000 and paid off your mortgage, you have nothing. This goes up and down according to scale.

My mortgage because of the shorter loan is like 3200. Not sure if or how that effects anything

 

[ChumpChange]

But you pay taxes on those 5% gains which ends up equating to your mortgage interest. I will add as something similar happened to me, I paid all my debt off including the house. The feeling you get from a no debt lifestyle is something that cant be explained and also something nobody ever puts a price on because so few actually do it. I sleep like a baby every night and am completely immune to economic downturns. That to me alone is worth the price of admission.

Of course that feeling of no debt would be incredible. But I don’t ever plan on being debt-free. it takes money to make money. And I know how to make money.

Now take that 5% and bump it to 10% so you’re grossing 7.2% instead of 2.2%. Take the $380,000 mortgage and bump it to $1million or even higher. Now you’re making money. Passive income. The best type.

 

[ChumpChange]

What happens when bank CD's are no longer 5% ? That ship is sailing and CD rates will be sliding back down.

Then I’ll go back to making 20% in private party loans. I gave the CD example because it’s the easiest for understanding. And it doesn’t need to be 5%. It just needs to be higher than 2.8% in the case of Vic.

This is a general example so there’s no need to argue specifics like interest rates to try and make yourself look smarter than me in this situation.

 

[HTMike]

Of course that feeling of no debt would be incredible. But I don’t ever plan on being debt-free. it takes money to make money. And I know how to make money.

Now take that 5% and bump it to 10% so you’re grossing 7.2% instead of 2.2%. Take the $380,000 mortgage and bump it to $1million or even higher. Now you’re making money. Passive income. The best type.

If interest rates were 10% we wouldn't be having this conversation ! The reality is the fed is going to decrease rates this year so we are looking at high 3% CD rates. Then pay taxes on the interest. If he is paying 3300 a month. IMHO, he is better off paying off the loan, then paying himself the 3% interest while directing his newly found 3300/mo cashflow into investments as they reveal themselves.

 

[HTMike]

This is a general example so there’s no need to argue specifics like interest rates to try and make yourself look smarter than me in this situation.

I, in no way am trying to look smarter than you or anyone else here ( I know its hard to read intent on the internet ).

I stated earlier if you are already a savvy investor than you can take that 1MM to new heights without a doubt. The reality is that very very few people have the acumen to do such and are better off paying off debt and investing the remainder. This is just from my personal debt free experience.

 

[HTMike]

Now take that 5% and bump it to 10% so you’re grossing 7.2% instead of 2.2%. Now you’re making money. Passive income. The best type.

Just out of curiosity, what would be the best way to deploy 10 million liquid and get passive income ? What kind of safe interest could one expect ? You can PM if you would like

 

[ChumpChange]

If interest rates were 10% we wouldn't be having this conversation ! The reality is the fed is going to decrease rates this year so we are looking at high 3% CD rates. Then pay taxes on the interest. If he is paying 3300 a month. IMHO, he is better off paying off the loan, then paying himself the 3% interest while directing his newly found 3300/mo cashflow into investments as they reveal themselves.

The interest rate on the mortgage is tax deductible the same way the interest gained is. So there’s that.

 

[Havasu blue label]

Up to 10 grand I think

 

[ChumpChange]

Just out of curiosity, what would be the best way to deploy 10 million liquid and get passive income ? What kind of safe interest could one expect ? You can PM if you would like

That’s a loooooong conversation depending on your level of risk and what you deem safe. Because of my background in lending, I see Private Money as safe where some people call me crazy.

I’ll shoot you my number and feel free to call me to chat whenever you wanna talk.

 

[BHC Vic]

Welp all that went over my head. It’s not a problem I have to worry about today fortunately but something that will come up eventually. I do appreciate it though I can honestly say I have a better understanding of things now

 

[ChumpChange]

Up to 10 grand I think

The SALT is limited correct. But again semantics. That would be under the argument that you would rather make no interest above and beyond the interest you can deduct.

If you don’t wanna pay a taxes, be unemployed. I’m cool with paying more taxes because it means I made more money. That argument is always laughable.

 

[DUNEFLYER]

Things must be coming back, this just listed right across the street from me

1571 Kirk Dr Lake Havasu City AZ | Zillow

www.zillow.com

 

[shintoooo]

Love that area. I used to rent a house on Piper Loop for 8 straight years every June - August.

 

[mesquito_creek]

Because Trump tax cuts capped the SALT and mortgage interest deduction BUT doubled the standard deduction and lowered marginal rates… it really took away the tax benefits of mortgage interest for most people in moderate sized mortgages. I wouldn’t even go through the exercise and file a 1040ez if not for the state tax advantages to itemizing.

 

[HTMike]

That infinity pool view of the neighbors house and the street is incredible...

 

[HotRod82]

Interesting.

US real estate market will be 'very ugly' next year, Howard Lutnick warns

Market expert Howard Lutnick reveals the real estate news that "no one" is talking about on 'Mornings with Maria.'

www.foxbusiness.com

 

[LargeOrangeFont]

Doing a 20 year loan, you'll pay $48,000 to save $300k in interest over the course of the loan. I would bet most people stretching payments aren't savvy investors. LOL

I would agree with you, but some are.

 

[LargeOrangeFont]

Interesting.

US real estate market will be 'very ugly' next year, Howard Lutnick warns

Market expert Howard Lutnick reveals the real estate news that "no one" is talking about on 'Mornings with Maria.'

www.foxbusiness.com

They’ve been saying that for 10 years now.

 

[LargeOrangeFont]

What happens when bank CD's are no longer 5% ? That ship is sailing and CD rates will be sliding back down.

If you had $1m when that happens, take the money, buy a rental for cash for $700k that will net you probably $2k/month worst case and that will to cover your house payment and all the recurring costs associated with the rental. Save $100k for gotchas, and invest the remaining 200k.

 

[mesquito_creek]

Depends on a lot of factors ( your age, how good you are at actually investing, how much you have saved for retirement, etc ) but " I " would pay it off and then invest the remainder.

Most people who say keep the loan and invest would likely do a high end re model then " invest " the remaining money into toys and vacations. LOL

It seems as if it’s always people with debt and mortgages that says it’s not a good idea to be debt free and payoff your mortgage, but I don’t know anyone who is actually debt free without a mortgage who says it sucked so I went back into debt and took out another mortgage.

I will never get back on the hamster wheel…

 

[HotRod82]

They’ve been saying that for 10 years now.

The speculator’s have, the people like Cantor, who actually hold the debt definitely have not been saying this. The last thing these creditors want is a collapse.
I’m still pretty bullish overall in regards to RE, but I punched out a couple years ago except for one rental where I have my parents living….so I don’t really care one way or the other.

 

[badgas]

What happens when bank CD's are no longer 5% ? That ship is sailing and CD rates will be sliding back down.

Hopefully they reach over to the CD/Savings account and take the $$ and apply it to the mortgage.

 

[DC-88]

If you had $1m when that happens, take the money, buy a rental for cash for $700k that will net you probably $2k/month worst case and that will to cover your house payment and all the recurring costs associated with the rental. Save $100k for gotchas, and invest the remaining 200k.

Nah, find 2 or 3 other people with 700k and buy a NNN corp backed property where you own the land, building, and lease. Even at say 5.75% cap rate you'd make over 3,300 per month plus rent bumps 12 months per year instead of the 8 +- ish months you actually make money on a regular rental after property tax, insurance, maint, vacancy etc. . Worst case put 700k down on a smaller one and get a loan for the rest . The property goes up in value just the same as any other real estate if it's a newer building in a good area with a solid corporate backed tenant. Keep it forever, leave it to the kids or the gardener, and depreciation is good for a write off.

 

[EmpirE231]

if you had 1M dollars, you should buy a DCB, Speed car and remodel the house.

 

[hallett21]

if you had 1M dollars, you should buy a DCB, Speed car and remodel the house.

Using a cash out refi from your primary right?

 

[EmpirE231]

Using a cash out refi from your primary right?

yep @ 8% rates.... YOLO... maybe even take out a 2nd to buy another property so you can tap that one out too.

 

[ChumpChange]

It seems as if it’s always people with debt and mortgages that says it’s not a good idea to be debt free and payoff your mortgage, but I don’t know anyone who is actually debt free without a mortgage who says it sucked so I went back into debt and took out another mortgage.

I will never get back on the hamster wheel…

I do. I have a customer who almost went out of business because he had no debt. Had approximately $25 million in free and clear properties but no cash to operate his business. And without cash flow, he couldn’t get a bank loan against those properties. This was during the collapse where even private lenders were apprehensive and charging in upwards of 20%. It was a crazy time.

I remember dropping in on his business that morning for probably the third time over the span of the year asking him if there’s anything I could do for him. He said he wasn’t looking to change banks. Called me about three hours later and gave me his scenario since his bank said no. Somehow pulled it off and he’s followed me from bank to bank since that time. Amazing customer with an amazing business that just had one hiccup because the economy for a couple years. Chief credit officer laughed at me for years how we somehow did that deal.

 

[mesquito_creek]

I do. I have a customer who almost went out of business because he had no debt. Had approximately $25 million in free and clear properties but no cash to operate his business. And without cash flow, he couldn’t get a bank loan against those properties. This was during the collapse where even private lenders were apprehensive and charging in upwards of 20%. It was a crazy time.

I remember dropping in on his business that morning for probably the third time over the span of the year asking him if there’s anything I could do for him. He said he wasn’t looking to change banks. Called me about three hours later and gave me his scenario since his bank said no. Somehow pulled it off and he’s followed me from bank to bank since that time. Amazing customer with an amazing business that just had one hiccup because the economy for a couple years. Chief credit officer laughed at me for years how we somehow did that deal.

Interesting… I don’t understand how you can have 25 million in property that doesn’t cash flow or how loan would allow them to cash flow, but I do understand how business would leverage debt to expand asset or equipment.

Wouldn’t it be reasonable that it should be pretty easy to find a group of people who we all could reference who are speaking up about the pit falls of financial independence?… who are not selling something.

 

[ChumpChange]

Interesting… I don’t understand how you can have 25 million in property that doesn’t cash flow or how loan would allow them to cash flow, but I do understand how business would leverage debt to expand asset or equipment.

But wouldn’t it be reasonable that it should be pretty easy to find a group of people who we all could reference who are speaking up about the pit falls of financial independence?

When your business occupies those properties and your business has no income, then it happens.

The business world is an interesting world that most people will not understand. They just go to Walmart and see the stuff on the shelves. They have no idea how it’s manufactured or how it got here or what cash flow looks like to make it to that shelf.

 

[mesquito_creek]

When your business occupies those properties and your business has no income, then it happens.

The business world is an interesting world that most people will not understand. They just go to Walmart and see the stuff on the shelves. They have no idea how it’s manufactured or how it got here or what cash flow looks like to make it to that shelf.

I would have probably changed my business model to put tenants into my buildings that generate income…. And BK’ed my business that didn’t generate income.

My business I ran for 10 years always made money and only lost money on paper for taxes for 3 years at a time… otherwise it’s a hobby not a business.

 

[Flatsix66]

When your business occupies those properties and your business has no income, then it happens.

The business world is an interesting world that most people will not understand. They just go to Walmart and see the stuff on the shelves. They have no idea how it’s manufactured or how it got here or what cash flow looks like to make it to that shelf.

Sounds like he should have saved some of his money.

 

[ChumpChange]

I would have probably changed my business model to put tenants into my buildings that generate income…. And BK’ed my business that didn’t generate income.

My business I ran for 10 years always made money and only lost money on paper for taxes for 3 years at a time… otherwise it’s a hobby not a business.

And that’s why you’re ridiculous. And you don’t have the millions upon millions of dollars that this business owner has now. He supported his business, supported multiple families that work for him, and made it back better than ever. Beyond anything that you’re ever gonna come across and I’m 100% confident in saying that and I don’t even even know you.

BK? Always looking for the easy way out, eh? And what tenants would have you put in those buildings in the great recession? There weren’t any to go in there. You can always play the devils advocate in La La Land.

 

[badgas]

When your business occupies those properties and your business has no income, then it happens.

The business world is an interesting world that most people will not understand. They just go to Walmart and see the stuff on the shelves. They have no idea how it’s manufactured or how it got here or what cash flow looks like to make it to that shelf.

He owns $25 million in real estate in a business that doesn't make money. I would love to hear how going into debt and borrowing money made him now profitable on his business?

 

[mesquito_creek]

And that’s why you’re ridiculous. And you don’t have the millions upon millions of dollars that this business owner has now. He supported his business, supported multiple families that work for him, and made it back better than ever. Beyond anything that you’re ever gonna come across and I’m 100% confident in saying that and I don’t even even know you.

BK? Always looking for the easy way out, eh? And what tenants would have you put in those buildings in the great recession? There weren’t any to go in there. You can always play the devils advocate in La La Land.

His success really doesn’t justify me having a mortgage regardless…. But financial independence is my“La La land” for sure!

 

[ChumpChange]

He owns $25 million in real estate in a business that doesn't make money. I would love to hear how going into debt and borrowing money made him now profitable on his business?

I can’t argue with people who don’t have reading comprehension. It didn’t make money because of the recession. A lot of people didn’t make money during the recession. Made it through the recession without filing bankruptcy and people went back to buying. Do you see that recession word in the other posts? See it?

 

[mesquito_creek]

He owns $25 million in real estate in a business that doesn't make money. I would love to hear how going into debt and borrowing money made him now profitable on his business?

Sounds like he just needed to get his hands on the equity to float his business through the down turn… not really an apropos argument for why we should all strive always be in debt and have personally backed mortgages on our homes and real estate.

 

[ChumpChange]

His success really doesn’t justify me having a mortgage regardless…. But financial independence is my“La La land” for sure!

Glad you ran your business successfully for 10 years and not running into a hard time where you had to file bankruptcy and put it on other people. Maybe even employing a person, and having the financial independence you now so desire.

 

[ChumpChange]

Sounds like he just needed to get his hands on the equity to float his business through the down turn… not really an apropos argument for why we should all strive always be in debt and have personally backed mortgages on our homes and real estate.

You are finally getting the gist of it. But had he had debt against that property to begin with, it would’ve been at 3% instead of having to go Private Money at 20% when no banks were lending during the recession. That debt would’ve been operating cash/capital in the company.

Fortunately he did find a bank that would do it for him but this is the whole purpose of this conversation. To discuss why debt can be good and free and clear properties are not always the best option. Especially if you’re running a business that requires capital for payroll amongst other things.

 

[badgas]

I can’t argue with people who don’t have reading comprehension. It didn’t make money because of the recession. A lot of people didn’t make money during the recession. Made it through the recession without filing bankruptcy and people went back to buying. Do you see that recession word in the other posts? See it?

Yes I did. I was just wondering how he made debt payments when he was going to lose the business due to no income.

Sorry ! I don't have a very complex mind to understand all of this stuff. A business that makes no money all of the sudden can service debt? But then again that's probably why I don't own a big 7 or 8 figure company ha ha ha

I think if it were me I would have just stuck the 25,000,000 in an index fund and peeled off $1,000,000 per year passively and retired. If you did that during the Great Recession that 25 would probably be now 60 million.

It sounds like the guy was a good man and really cared about his employees and their families and wanted to keep the thing rolling glad to hear he recovered and glad you were there to help.

 

[mesquito_creek]

this is the whole purpose of this conversation. To discuss why debt can be good and free and clear properties are not always the best option.

I agree, mortgages and debt are a tool that serves a purpose. Eventually, they go away regardless if you stop pulling equity out. 30 year mortgages seem like a lifetime to some and those same 30 year mortgages are in the review mirror for others like me.

I will leave you with a quote from a wise man:
“Of course that feeling of no debt would be incredible.”

 

[jet496]

I do. I have a customer who almost went out of business because he had no debt. Had approximately $25 million in free and clear properties but no cash to operate his business. And without cash flow, he couldn’t get a bank loan against those properties. This was during the collapse where even private lenders were apprehensive and charging in upwards of 20%. It was a crazy time.

I remember dropping in on his business that morning for probably the third time over the span of the year asking him if there’s anything I could do for him. He said he wasn’t looking to change banks. Called me about three hours later and gave me his scenario since his bank said no. Somehow pulled it off and he’s followed me from bank to bank since that time. Amazing customer with an amazing business that just had one hiccup because the economy for a couple years. Chief credit officer laughed at me for years how we somehow did that deal.

Yup, land rich, cash poor. Myself & a buddy both experienced that. He's gone on to become quite wealthy in real estate but I shied away after that when I should've followed his ass but my ass was puckered LOL.

 

[HNL2LHC]

Interesting… I don’t understand how you can have 25 million in property that doesn’t cash flow or how loan would allow them to cash flow, but I do understand how business would leverage debt to expand asset or equipment.

Wouldn’t it be reasonable that it should be pretty easy to find a group of people who we all could reference who are speaking up about the pit falls of financial independence?… who are not selling something.

I have a friend in Hawaii. Family Realtors. Parents bought hundreds of apartments starting in the 70s throughout the years. All paid off this last year the son, my age, had to sign for a loan becuase the mother has no source of income As she is retired from the family business and the kids/grandkids took over.

 

[HNL2LHC]

You are finally getting the gist of it. But had he had debt against that property to begin with, it would’ve been at 3% instead of having to go Private Money at 20% when no banks were lending during the recession. That debt would’ve been operating cash/capital in the company.

Fortunately he did find a bank that would do it for him but this is the whole purpose of this conversation. To discuss why debt can be good and free and clear properties are not always the best option. Especially if you’re running a business that requires capital for payroll amongst other things.

At one point in our early years I had the goal of paying things off early. I still do but that is not the mind for this exact reason. I had been dumping in all extra $$$ Into paying off our mortgage early. Once we pulled cash out to buy our second home that money could be touched but it woudl have cost me a lot more money than I was currently paying. So ever Since then I consider our cash reserves and never get to the point that we have less money than the wife feels comfortable. That is about 2 years when they say you only need 6 months. Also bear in mind that there are IRA and other accounts that we could barrow against but I guess she likes to see the $$$$ in the bank account. I have pushed her on occasion to take the $$$ and buy properties or pay them off. It really is a balance unless you have millions at yoRe fingertips like most of you all on RDP…

 

[mesquito_creek]

I have a friend in Hawaii. Family Realtors. Parents bought hundreds of apartments starting in the 70s throughout the years. All paid off this last year the son, my age, had to sign for a loan becuase the mother has no source of income As she is retired from the family business and the kids/grandkids took over.

There are lots and lots of good reasons people take out debt and mortgages. Both you and chump change gave business based reasons, which are perfectly fine. There are others for sure.

Like most RDP stuff it goes sideways from my comment “but I don’t know anyone who is actually debt free without a mortgage who says it sucked so I went back into debt and took out another mortgage”

People take out mortgages and invest in other properties and equities all the time. They are not the example I was referring too.

 

[Havasu blue label]

He owns $25 million in real estate in a business that doesn't make money. I would love to hear how going into debt and borrowing money made him now profitable on his business?

Please let’s us know

 

[badgas]

There are lots and lots of good reasons people take out debt and mortgages. Both you and chump change gave business based reasons, which are perfectly fine. There are others for sure.

Like most RDP stuff it goes sideways from my comment “but I don’t know anyone who is actually debt free without a mortgage who says it sucked so I went back into debt and took out another mortgage”

People take out mortgages and invest in other properties and equities all the time. They are not the example I was referring too.

Nor do I and I know several of them. I have many friends and associates myself included who subscribe to the Dave Ramsey plan and I can promise you they don't ever say " This sucks "

They will honestly admit that they could have more money if they would have taken bigger risks. With that they also say that they are content with where they are and sleep very well at night not having the anchor of debt around their neck

"The Borrower is slave to the lender"

 

[mesquito_creek]

Nor do I and I know several of them. I have many friends and associates myself included who subscribe to the Dave Ramsey plan and I can promise you they don't ever say " This sucks "

They will honestly admit that they could have more money if they would have taken bigger risks. With that they also say that they are content with where they are and sleep very well at night not having the anchor of debt around their neck

"The Borrower is slave to the lender"

I like Ramsay’s teaching, although I only subscribed to about 90% of his method to reach the same end game. He’s got 100s of millions in real estate all debt/mortgage free so there that!

 

[HNL2LHC]

There are lots and lots of good reasons people take out debt and mortgages. Both you and chump change gave business based reasons, which are perfectly fine. There are others for sure.

Like most RDP stuff it goes sideways from my comment “but I don’t know anyone who is actually debt free without a mortgage who says it sucked so I went back into debt and took out another mortgage”

People take out mortgages and invest in other properties and equities all the time. They are not the example I was referring too.

I hear you it would not suck. But I know having paid off a couple of things off it is nicer to have 6 figures in the bank rather than in a house recouping only a few thousands a month. There is no right or wrong just what works for one person’s needs. I have been on both sides and the wife likes one aspect and I like the other. LOL

 

[shintoooo]

Housing: Bidding wars erupt as 2024 kicks off, with some listings seeing over 30 offers

Mortgage rates declined throughout December, luring more buyers back to the market. They're competing over stubbornly low inventory.

finance.yahoo.com