"Douglas Johnson" <johnson[at]classtech.NOTPARTOFADDRESS.comon Elle's lamentation over teaching personal finance in
schools:
- quote -

Looks great.

A+ to Texas curricula officials.

"Elle" <honda.lioness[at]nospam.earthlink.net> wrote:

- quote -

Take a look at:
http://www.dallasnews.com/sharedcont...k.17a478c.html

It outlines the Texas personal finance curriculum for high school students.
Looks pretty good. Of course the devil is in the details.
-- Doug

Elle wrote:

- quote -

Elle, but just like the fortunate person who dies after buying a VA just
when the marget crashes (to be clear - purchase, crash, death, in that
order), there must be tens, if not dozens, who borrow $100K, work their
tails off, fixing up the place in six months, and sells it for $150.
Six months' interest = 7-1/2% + the 5 points. That still leaves quite
the profit.

JOE

- quote -

Come on John. Your site emphasizes that people who cannot
pass a credit check should come to you, because your company
does not do credit checks. Who are these people who can't
pass a credit check and so qualify for a lower interest
rate? The uneducated and desperate.

An "investor" "more educated on the details" knows a 15%
interest rate and five points down is usurious for a
mortgage on "residential real estate" (the only real estate
in which your site says you deal).

Why don't you explain the math that indicates a 15% interest
rate will put a residential real estate investor ahead even
if the appreciation were around 10% a year, as you
originally claimed?

Ellie,

People look to buy shares that are expected hold their value and go up.

People who invest in RE (not when buying a home to live) they buy a
property that they are getting for a bargain and expect to be worth
more than they are paying.

A savvy investor would certainly elimiate the dogs when shopping. If
you are arguing otherwise then we do not need to discuss it further.

What is the point about what Chelsea does? We are cheaper than an
equity partner for RE investors. The smart ones can do the math and
figure this out.

John Corey
www.ChelseaPrivateEquity.com

PS. We do not lend to consumers. Only commercial transactions with
investors. People who are more educated on the details.

Elle wrote:
- quote -

"John" <john.corey[at]gmail.com> wrote
- quote -

Why are you disconnecting {putting borrowed money into a
risky venture} from gambling?

My previous post speaks for itself. Your words do not
represent it. I condemn ARMs, mortgages with no down
payment, and other creative financing schemes too plentiful
to list here.

"John" <john.corey[at]gmail.com> wrote
- quote -

The national average denotes the mathematical reality that,
while some local markets appreciate a lot, many others do
not.

Why do you insist on emphasizing only local markets that do
appreciate and not the ones that depreciate or stay flat?
Perhaps the answer lies in your email address:

http://chelseaprivateequity.com/
"Chelsea Private Equity LLC provides funding to investors in
the US residential real estate market. ... No credit
checks...
Standard Terms for Hard Money Loans
15% interest rate
5 points (discount for preferred customers)
...
Interest-only monthly payments"

In my part of the country, we call this a form of usury.

704set wrote:

- quote -

Nice link. I like that the numbers show 'real return'.
Curious that they created decades from 19x6 - 19x5. and not the 30s 40s,
etc.

In 7 of 8 decades, stocks beat bonds by a decent margin in most periods.
Even the loser decade 1966-75 stocks were -2.8 compared to bonds -2.5 or
a 3% (total) delta for the entire 10 years. Not quite a disaster.

Funny that even 1926-35 had equities positive 6.8%. This included the
crash of '29. Speaks volumes about investing for the long run.
JOE

- quote -

"Only buy stocks that go up. If they aren´t going to go up, don´t buy
hem." - Will Rogers.

704set

- quote -


Ibbotson Associates puts out the historical stock market returns.
http://www.finfacts.com/Private/cure...erformance.htm

704set

704set wrote:
- quote -

RE markets are local. There is no national market. In many markets
homes double in 7 to 12 years. Any national average blends in areas
that have had a declining population for 20 years Buffalo NY) with
areas that have seen rapid growth (Silicon Valley). The national
average is very misleading if you are investing in a local market.

it is best to look at more local data when trying to understand the
trends. Most people invest locally and can not buy a national average.

- quote -

Why assume that someone is living in such a high priced home? I agree
that if someone wants to spend that much they will pay that much in
mortgage payments.

If the home is average for the area the cost of renting will be
significant. Normally less than the number above being paid in
interest. In other ares the cost of renting is higher than the cost of
owning a home with 20% down. In those areas the people renting are
coming up short each month. Both markets exist so the answer that is
right in one is wrong in the other yet the national stats would hide
the difference.

Note: There are other costs when buying (maintenance, etc).

There is a cost to have a roof over one's head. Maybe you can recover
some of all of that cost if you buy and later sell at a higher price.
No guarantee. Maybe you pay more while owning the property than you
would have if you rented in the same community. Maybe you recover what
you paid extra and then some if prices rise. Or maybe you like to
control your home and pay extra to not have a landlord.

When you rent you pay the cost for the shelter. You have no other real
housing costs other than dealing with a landlord and facing the fact
you might have move other than when you choose. You also have no upside
so it is all money spent for shelter and not to be recovered.

- quote -

Few people look at the full picture so I think we can agree on that.
What you posted implies you are overlooking a lot of important
variables or assuming certain things. Neither one of us is truly
dealing with all the possible variables.

See below...

Elle wrote:
- quote -

Why are you connecting borrowing to gambling?

Most any company that is listed in the stock market borrows so I expect
you understand that borrowing is not the same as gambling.

Many of the responsible people on the list borrow to buy a house. They
would be insulted if they felt you were saying they are gambling.

Hence I think you were just being flip rather than making a useful
point.

- quote -

I proposed what? I did not suggest she borrower. I was saying that
rental property using leverage produces total returns that are not the
same as the rise in the house price index. It was meant to compare
housing to the stock market in the typical way someone invests in both.

- quote -

ARMs covers a very large range of loans. Not all are rip-offs.

Greenspan once testified that 30 year fixed mortgages are actually a
bad deal for the borrower. Too much cost associated with fixing the
rate long after the typical consumer is out of the loan.

I am not trying to make the case for an interest only loan as a general
tool. It has a purpose that applies in specific situations.

- quote -

I was comparing the returns possible in property to the stock market.
The original question concerned rental property. Someone made a
comparison to the stock market.

Comparing rental property without leverage to the stock market is where
the mistake begins as it is mostly an apples to oranges comparison.

Thanks for the data. Based on that data I understand your point. Where
is the data for the stock market returns? Someone else was recently
arguing that you can have long patches with very low returns so lets
use your source when comparing your numbers.

Back to the house price index.

What is a house price index? What is it trying to measure? How is it
calculated (high level details so do not waste time checking if you do
not know)?

As you noted it is hard to compare the two given the rental income, the
maintenance and the fact that leverage is the norm rather than the
exception.

I work from an assumption that housing doubles ever 12 years
approximately. The index you cite is not one that people can buy so I
am not sure of its value. People can buy the stock market index.

I also like to buy for a 10% to 30% discount from retail prices so I
have a large jump on things compared to buying stock at the listed
price. I am definitely not buying an index or a fund so I can better
control the inputs and then the profit.

Next is the added complication that RE can be 'hands on' while using a
stock index is very passive. Unless you start your own company or are
the CEO of a large one there is little you can do to influence the
outcome of the return with stock investing. You can do research and
look for investments that might be under priced by the market.
Mispricing compared to negotiating a better price.

Finally there is personal experience. I have property investments that
have produced 1,000% in 20 months cash on cash. While I find the
comparison at 2%-3% to the stock market interesting I do not focus on
such low returns. If I can not find a way to produce 15% a year then I
pass on the transaction. Some do better but I do not count on doing
better than 15%.

BreadWithSpam[at]fractious.net wrote:
- quote -

John B. Corey Jr.
Chelsea Private Equity, LLC
+1 (503) 906 7840 x1108
+1 (503) 210 0227 (efax)
+44 (20) 8133 6825 (UK)
john.corey[at]ChelseaPrivateEquity.com

http://www.linkedin.com/in/johncorey

Looking for hard money for your latest real estate deal?
Visit www.ChelseaPrivateEquity.com

Do you have a source that says real estate increase 5-7% over the long term?
That sounds very high.

I agree with you if you put down $100,000 on $500,000 house then your return
on the cash will be 15% for the year if the house apprecites 3%. But what
about the the $26,000 that has to be paid in mortgage interest at 6.5%? You
just forget about it?

That is the crux of my arguement. Everyone knows the gross returns of their
real estate, but very few know their net returns.

704set

"John" <john.corey[at]gmail.com> wrote
- quote -

For the long term in the U.S., they are correct.

Citations were produced earlier in the thread.

You can produce your own.

- quote -

Why so many folks here are insisting on comparing the return
(if any) on a house "purchased" with borrowed money to the
historical return of, say, stocks purchased outright (no
borrowing), is fascinating. For a fair comparison, one
should compare investments in both assets (housing and
stocks) using borrowed money either (1) for both; or (2) for
neither. I suggest "for neither," since this newsgroup
overwhelmingly atttracts individuals interested in
responsible, personal financial planning. Being responsible
means not borrowing money to gamble. Newbies need to master
much more before doing as you propose (borrowing
extravagantly to finance a real estate purchase).

Have you even read through the OP's story? Thank goodness
she's intelligent enough to ask about her situation. From
where I'm sitting, her story is part of the Modern (last
five years?) American Homeowning Tragedy.

What the hell is with all these rip-off ARMs? Banks are
operating like used car lots.

Aside: Renting one's property out for income is an entirely
different calculation and shouldn't be thrown into these
comparisons willy-nilly.

BreadWithSpam[at]fractious.net writes:

- quote -

Quick and dirty (since I couldn't find my handy references):

US Gov't's House Price Index in 1975: 61
in 2006: 394

annual compounded rate of growth: 6.2%
Inflation over that period (CPI-U): 4.36%

Now, again, real estate is a complex beast - it's not
like folks typically buy a house with cash and sit on
it in a portfolio like one does with a bond or stock -
so this is necessarily apples-to-oranges stuff. There
are potential cash flows from the house (rent or, if one
lives in it, imputed rent), cashflows into the house
(property taxes, repairs, insurance) - even if one buys
it with cash - which folks rarely do. Then, assuming
folks did buy it with leverage (ie. a mortgage) there
are further complications to estimating a "return".

But the raw price appreciation is not as spectacular
as folks seem to think.

--
Plain Bread alone for e-mail, thanks. The rest gets trashed.
No HTML in E-Mail! -- http://www.expita.com/nomime.html
Are you posting responses that are easy for others to follow?
http://www.greenend.org.uk/rjk/2000/06/14/quoting

On Fri, 14 Jul 2006 08:11:39 -0500, BreadWithSpam[at]fractious.net <BreadWithSpam[at]fractious.net> wrote:
- quote -

But you can rent out residentiaql real estate. That adds considerably
to returns. Plus, let's not forget that a landlord has a lot more
leeway with tax writeoffs that is also a nice benefit.

i

"John" <john.corey[at]gmail.com> writes:

- quote -

Can you back that up with any references at all?

Last times I looked into it, I found (and I'll dig for
the references later, too) that, at least *residential* RE
(ie. folks homes) goes up at 1-2% above inflation. That's
nowhere near the stock market's rate.



--
Plain Bread alone for e-mail, thanks. The rest gets trashed.
No HTML in E-Mail! -- http://www.expita.com/nomime.html
Are you posting responses that are easy for others to follow?
http://www.greenend.org.uk/rjk/2000/06/14/quoting

If you apply a similar set of adjustments for inflation, etc. what do
you believe your return is with stocks (the market average rather than
how well you trade)?


704set wrote:

- quote -

Chelsea Private Equity, LLC
+1 (503) 906 7840 x1108
+1 (503) 210 0227 (efax)
+44 (20) 8133 6825 (UK)
john.corey[at]ChelseaPrivateEquity.com

http://www.linkedin.com/in/johncorey

Looking for hard money for your latest real estate deal?
Visit www.ChelseaPrivateEquity.com

Your numbers are wrong.

If you look at RE without any debt then you will find that the annual
gain is close to the return from the stock market. Some will say the
stock market produces 11% and you will find RE is just below. Otherwise
will use a different number for the stock market (average over a period
so the numbers vary).

If you look at the return on RE, cash on cash where you use debt rather
than all cash the return will be much greater than 3% on a long term
basis. Mileage does vary with the debt level.

A very crude rule of thumb is RE goes up around 5% to 7% a year and a
75% 60% to 75% LTV loan would be conservative.

As you are saying the returns are 3% and then you talk about debt
service it sounds like you are mixing up the two (all cash returns plus
debt service).

704set wrote:
- quote -

John B. Corey Jr.
Chelsea Private Equity, LLC
+1 (503) 906 7840 x1108
+1 (503) 210 0227 (efax)
+44 (20) 8133 6825 (UK)
john.corey[at]ChelseaPrivateEquity.com

http://www.linkedin.com/in/johncorey

Looking for hard money for your latest real estate deal?
Visit www.ChelseaPrivateEquity.com