In escrow

User Forum Topic
Submitted by carlsbadworker on November 16, 2012 - 8:31pm

After 6+ months of waiting, bank finally approved.

This is my 2nd house in Temecula. In piggington fashion, here is some number:

Per sqft price it is 10% higher than what I paid 4 years ago.
Overall price 40% higher due to its a size upgrade.
But thanks to FED, the payment is only 15% higher. My salary increase in the last four years can't handle 40% standard of living increase, but I can handle 15%. So, FED is a decisive force here.

Strategically, this allows me to reach my goal of being a landlord at 40 ahead of schedule (I will rent out the unit I bought in 2008 as I originally planned). I can tolerate slight negative cash flow at the beginning years, with rent inflation giving me positive cash flow in future years. My zillow rent estimates is $1.1k above my mortgage, $600 above PITI+ HOA, so hopefully there is some cushion because I am not handy.

Hopefully, everything works out, less stressed about buying this time around.

Submitted by scaredyclassic on November 16, 2012 - 9:16pm.

i have a good feeling about your deal.

Submitted by hmc on November 16, 2012 - 9:29pm.

Temecula is on the earthquake fault.

I bought one small home there but I have no interest buying more.

Submitted by spdrun on November 16, 2012 - 9:39pm.

Sheesh, everything's a risk. I could be hit by a taxi crossing the street. Temecula has a fault, San Diego has bushfires, Phoenix has crazies with heavy artillery, NYC and Miami have hurricanes.

Submitted by UCGal on November 16, 2012 - 9:47pm.

Congrats!

Submitted by dumbrenter on November 16, 2012 - 10:25pm.

carlsbadworker wrote:

Strategically, this allows me to reach my goal of being a landlord at 40 ahead of schedule. I can tolerate slight negative cash flow at the beginning years, with rent inflation giving me positive cash flow in future years. My zillow rent estimates is $1.2k above my mortgage, $700 above PITI+ HOA, so hopefully there is some cushion because I am not handy.

Hopefully, everything works out, less stressed about buying this time around.

Congratulations. Are the rent estimates you mention i.e. $1.2k > mortgage on a per year basis?

Submitted by carlsbadworker on November 16, 2012 - 11:02pm.

dumbrenter wrote:

Congratulations. Are the rent estimates you mention i.e. $1.2k > mortgage on a per year basis?

Per month. But I mis-calculate for about $100. So it should be $1.1K and $600 respectively (hey, it's Temecula! And I bought almost at rock bottom four years ago.) I refinanced in between so the clock restarted...but the monthly payment is much lower as well as the rate.

I will probably price $100-$200 lower than the zillow estimates and there is vacancy. Plus I am really not handy. And I haven't factor in any additional costs. I am sure insurance will be higher as rental property. And I probably also need some good umbrella insurance coverage. So in the end, I don't expect too much would be left...with chance of negative cash flow at the beginning. But rents will for sure keep rising in the long run. I hope it can help me to pay part of my daughters' college in the future ...and that's why it is strategically important to me as long as I can hang on with all the headaches of being a landlord.

Submitted by carlsbadworker on November 16, 2012 - 11:09pm.

hmc wrote:
Temecula is on the earthquake fault.

I bought one small home there but I have no interest buying more.

Yes, there is risk. But on the bright side, I moved to Temecula 6 years ago and I rented. What a difference that made. Because both properties are about 50% off from their ~2006 peak pricing, so there is always a bright side to look at.

Submitted by CA renter on November 17, 2012 - 2:52am.

Congratulations, Carlsbadworker!

Just remember, you don't have to be overly-handy to do regular maintenance. Oftentimes, it's just basic stuff. Probably a good idea to find a couple of trustworthy handymen who live near the rental if you're really worried about it.

Enjoy!

Submitted by scaredyclassic on November 17, 2012 - 8:57am.

temecula and murrieta have different earthquake risks, I think.

Submitted by hmc on November 17, 2012 - 9:27am.

It's always risk/reward thing. I chose to diversify.

Submitted by scaredyclassic on November 17, 2012 - 10:50am.

i think Nomos brand watches will be worth 30% more in 10 years. diversify.
some objects may hold value. but what?

Submitted by hmc on November 17, 2012 - 10:58am.

squat250 wrote:
i think Nomos brand watches will be worth 30% more in 10 years. diversify.
some objects may hold value. but what?

I am not getting your point.

Submitted by earlyretirement on November 17, 2012 - 12:10pm.

Congratulations! Heading into the future, I think you will enjoy being a landlord and owning more properties.

Submitted by scaredyclassic on November 17, 2012 - 12:19pm.

Diversify into hard assets handmade watch movements gold and old comic books

Submitted by SD Realtor on November 17, 2012 - 7:53pm.

I agree on congratulations. Sticking to a long range plan is not easy to do. In no way are rental properties a get rich quick scheme. I think of my rentals as a single component to a retirement strategy that also includes other components such as securities and bonds. Living in California, especially Southern California means you live with earthquakes. I agree you are far more likely to be killed in an auto accident yet we all get in our cars and drive to work daily. I don't believe letting mother nature dictate a retirement strategy is beneficial. Moreover I know of people who went to Louisiana a few weeks after Katrina to purchase real estate. Retirement strategy should be based on risk/reward (or return) on equity investments sans mother nature.

Submitted by scaredyclassic on November 18, 2012 - 6:50am.

watches probably are a bad investment for the future, unless you arereal lucky and pick the right watch.

i happen to think Nomos brand are a good shot because the movements are not generic, they are entirely handmade. The price they charge for that much cooolness doesn't strike me as excessive. still it's a dumb retirement plan.

http://www.watchbuys.com/store/pc/nomosw...

More likely, you can buy the watch, wear it ten years, insure it, have it cleaned, and then sell it for a bit more than you paid for it, or maybe the same, if you are lucky. my best guess.

rolexes, now they seem priced pretty damn high for what they are.

inicedentally if you are looking for a non-fake rolex that looks a lot like a rolex, I wouldrecommend a sterile dial Parnis, based on watch chat group concensus.

buy that for a $100, save $6000 on a rolex, and put the 6k towarda rental property:

http://www.ebay.com/itm/PARNIS-40MM-CASE...

but really, only a wannabee would wear that.

the right property at the right price is probably about as good a place to put your money as any.

Submitted by hmc on November 18, 2012 - 11:07am.

I guess I didn't get my message across.

We are talking about real estate here. I think most people don't put all eggs in real estate (I am not talking about this kind of diversification). I never meant earthquake is the only risk people have to face. Risks like car accidents are under different context, comparing them with earthquake is like comparing apple and orange).

My point is that I would diversify locations for investment homes, for both income and appreciation.

Submitted by spdrun on November 18, 2012 - 11:36am.

Then again, there's an argument for not diversifying too far. Most management companies are total f--king crooks, and having to buy a plane ticket to fix a running terlit doesn't seem worth it :)

Submitted by hmc on November 18, 2012 - 12:59pm.

There are a lot of choices other than Temecula, within driving distance. Arizona is not known for earthquakes and even San Diego is much safer than Temecula, in terms of earthquake, for example.

Submitted by spdrun on November 18, 2012 - 1:03pm.

Arizona has other problems, like not having a real economy in the Phoenix area -- a lot of Phoenix's economy was due to the city building itself outward rather than any constructive activity. Plus there's long-run risk of water shortage. San Diego could be hit by a large tidal wave. All areas have their risks and rewards.

Submitted by hmc on November 18, 2012 - 1:28pm.

That's why we need diversification.

Submitted by thejq on November 19, 2012 - 1:42pm.

Congrats! Hopefully you don't have to commute to Carlsbad every day. Interestingly, one of my offers in Temecula also got approved (after 5+ months) and escrow opened last Friday. Coincidence? :) I was there doing inspection in the weekend and had a chance to visit the city for the first time and really liked it. Good luck with moving and land-lording! It may sound intimidating, but with hand-on management and good timing (sounds like you got the latter already), I see owning rentals to be the safest way to retirement. Imagine in 15-20 year, you'll own them free and clear.

Submitted by carlsbadworker on November 20, 2012 - 7:59pm.

Thank you, everyone. Just got back from vacation and did the inspection today.

hmc, I can understand your principle of diversification. In fact, real estate is one of my 3-legs diversification strategy. The other two are equity and start-up. I tried to allocate my after-tax savings accordingly. Unfortunately, I am mostly just inline with market return with my equity investment and I think US stock market is over-valued. So I don't want to invest more at the current moment. And my startup idea never took off from the project stage. So I am stuck.

Again, I said I understand diversification in principle but in real life, no one can be truly diversified. For example, how diversified are you if you only buy properties in US? There are always costs associated with diversification and unlike equity market, diversification is very hard to do elsewhere. It is often said "Put all your eggs in the one basket and --- WATCH THAT BASKET" because one may not have the energy to carry a true diversification strategy. Thinking you can diversify away risks is often an illusion.

Buffett says, “Diversification is protection against ignorance.” I would rather buy some places where I know the risks than getting myself into a total ignorance of the associated risks. My strategy may not be the best, but it's the one that I feel more comfortable given my limited energy.

Part of me just wants to put this into bed so that I can focus my energy to see if I can take the startup idea into the next level. Just like four years ago, I want to buy the property so that I can spend more time studying investing. And once I had the first rental property, things can start manage on itself ... at least I hope.

Like I said, I spent quite some time studying investing in the last few years. So if you want to debate the investment strategy, I am very happy to do so.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.