Interesting investment philosophy - Posted by Steve (OH)

Posted by Mrs SD on February 09, 2001 at 09:53:01:

Mr Chin,

Thank you for the solid advice from a voice of experience.

Mrs SD

Interesting investment philosophy - Posted by Steve (OH)

Posted by Steve (OH) on February 08, 2001 at 09:23:47:

I recently met a guy who has been investing in RE for 20+ years and we got to talking about different investing philosophies. He presented me with a strategy that a friend of his took to several years ago and I wanted to see what everyone thought of it. He said his friend bought one GOOD, solid investment property that was in a decent appreciating area per year for 10 years. He would put them on shorter term loans (25, 15 or he would even pay down the mortgage to try to get it equal to a 10 year mortgage if he could…this would obviously be tough.). At year 11, he would refinance his 1st house and cash out tax free. At year 12, he would cash out the 2nd house, etc.

This seems like a pretty good way to build wealth. Granted you would have to either have good cashflow properties or do flips on the side or work a full time J-O-B, but this intrigued me. You would also be somewhat of a ?slave? to whatever interest rates were currently at, but aren?t we anyways.

Just curious and thought I?d throw that out!


Re: Interesting investment philosophy - Posted by Harley-CA

Posted by Harley-CA on February 10, 2001 at 24:11:04:

I call it “Equity Harvesting.” Very cool concept.


Re: Interesting investment philosophy - Posted by David Krulac

Posted by David Krulac on February 09, 2001 at 08:53:49:

Robert Allen had that idea in his book Nothing Down 20 years ago. As noted cash flow and appreciation may not be the same today as then but the concept/plan can still work. Even with 30 year financing refinancing every ten years can get you cash out, which is tax free borrowed money. It you can get it to the point that the cash out is enought for you to live on you can have a tax free income without a job. Doesn’t sound too bad.

How About This - Posted by Frank Chin

Posted by Frank Chin on February 08, 2001 at 14:35:32:

The investment plan mentioned is not workable in New York or California where values are high and cash flow is low.

But, I spoke to a gentlemen here in New York who by 1986 invested in Real Estate for 20 years. When the Capital Gains tax was to be raised at that time - he sold all, paying the taxes. Said he netted around One Million.

He didn’t know what to do till the market crash of 1987. Jumped into it with both feet. Tripled his money in the early 90’s while Real Estate was in bad shape. Heard from friends of his that its close to 10 million now.

I’m currently selling some of my properties. Consensus of brokers I spoke to is that the Real Estate market here has peaked.

While I’m looking around to do a tax-free excahnge. Another thought I had was to pay the taxes, invest a good portion of the proceeds into beaten down stocks, and take it from there. Stock market pros expect a good turnaround with rate cuts and tax cuts. Interest Rate cuts are expected to hold Real Estate up for a short while.

While everyone tells me its BAD BAD BAD to pay the taxes- my friends experience indicate that you can profit from bad economic times, even after paying the taxes.

Just to say I’ve done well in both the stock market and Real Esate and comfortable in both areas.

Any thoughts on this ???

Not so . . . - Posted by JoeKaiser

Posted by JoeKaiser on February 08, 2001 at 13:08:45:

The problem you probably don’t recognize is that owning properties is not without its pitfalls. The number one problem when just starting out? Cashflow.

In the early years, holding onto your little empire can be a formidable challenge. Without an outside source of funds, you often are holding on with nothing but your fingernails. Clearly, cashflow is the key, and 15 year mortgages put a serious dent into that net income every single time.

I think working the same plan with 30 year loans pretty much gets you into the same situation. Obviously, the homes aren’t paid off in ten years, but refinancing down the road just to get my money back was never really the point.

In my area, houses traditionally double in value every ten years or so. Those “appreciation dollars” would be the dollars I’d be looking to pull out . . . not the dollars I paid in. Frankly, I’d like to pay in as little as possible along the way.


Re: Interesting investment philosophy - Posted by JD

Posted by JD on February 08, 2001 at 10:24:54:

That was a good strategy 25+ years ago. Today cash flows are less favorable, and appreciation is less likely.

Re: Interesting investment philosophy - Posted by phil fernandez

Posted by phil fernandez on February 08, 2001 at 09:52:59:

Hi Steve,

That was a technique explained by Robert Allen in his book Nothing Down. And I think it’s a great idea. Bite the bullet for ten years and you have a bunch of free and clear properties that your tenants paid for.

But a JOB to accomplish that. Naugh. I’d make sure that my properties cash flowed well enough and you could , as you say , do some flips to created added money to throw at knocking down the mortgage balance.

What this technique boils down to is having a clear cut goal and a PLAN to accomplish this within the ten year time frame.

Re: Interesting investment philosophy - Posted by J.P. Vaughan

Posted by J.P. Vaughan on February 08, 2001 at 09:32:34:

I believe it was Mark Harolson who wrote about this in
"How to Wake Up the Financial Genious Inside You."

It’s now out-of-print, but definitely worth reading if
you can find a copy.


Re: How About This - Posted by Brent_IL

Posted by Brent_IL on February 09, 2001 at 01:11:40:

People always talk about the one guy who made it big in the equities market. You don’t hear about the thousands who broke even, or lost money after ten years.

For most folks, the trend is indeed their friend, but most are unaware when that trend changes.

I like real estate because you can input change if things go wrong. You can raise rents, lower rents, sell, fix-up, lease-option, sub-divide, mortgage, and auction it off. I have a lot more influence over a property than I do over the stock and commodity markets.

Re: How About This - Posted by Mrs SD

Posted by Mrs SD on February 08, 2001 at 21:22:02:

Frank Chin,

I’m spinning my wheels in Brooklyn. According to your prior posts, you seem to have achieved your success using conventional methods. Do you have any pointers for aspiring investors in NYC which are particular to our market?

Also, are you selling any of your properties using creative financing?

Mrs SD

Investing in New York City - Posted by Frank Chin

Posted by Frank Chin on February 09, 2001 at 09:16:33:

Its currently a sellers market in good solid neighborhoods. I approached brokers in areas where I own properties both as buyer and seller and I’m told that no one is selling. Thats why I’ve been able to sell via open listing with brokers, and sell relatively quickly.

I don’t need to sell with creative financing in this market. Placed a 3 family house on the market 12-1-00. I got one offer in the first open house and another one on the second open house. The buyer is putting 30% down and preapproved for the remainder.

The last time I bought in New York City was during the Real Estate market bottom of 1992, 1993. Back then, there were pages of auctions, foreclosures etc. I went to auctions almost every other week.

Currently, I’m looking to invest areas outside of New York City. I own properties in Springfield Ma. where values are still low and rents reasonable. My neice and her husband done rehabs (as contractor)there not long ago. A wreck can be bought for 20K and fixed for another 20K (10K labor/10K material) and sold at 60K to 70K. These numbers conincided with ones mentioned on another thread here regarding rehabs.

So if you’re looking to buy something in New York City to live in - its one thing. There are zero down loans you can get. But, if you’re looking as investor with no money down, creative financing etc., its very difficult in good solid neighborhoods.

My conclusion is - sell in a sellers market in New York and do something elsewhere where the pickings are better.