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Old 05-21-2020, 04:33 PM   #261 (permalink)
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Quote:
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Do we want 10 mortgaged retails bringing in $100 a month or 1 paid off rental paying $1000 a month? Mathematically we should have 10 houses with the least amount of equity possible to maximize ROI. That is what a MBA learns in school. What is ignored in that calculation is the risk. With the mortgages if we get another event like COVID 19 and renters are allowed to skip payments I’m screwed. I have to cover 10 mortgage payments out of pocket while the market is down and I would have to sell assets at a loss. With one paid for house I lose income but don’t have to pay out of pocket. The entire point of investing in real estate is to diversify sources of income so we don’t have to sell assets in a down market to cover living expenses.

No doubt the math works to carry a high mortgage balance and invest the difference in the stock market. However, that is a riskier bet and a risk I’m not looking to take 3 years from our target retirement date. We plan to enter retirement with zero debt.
When we were buying our current home I asked a CPA/CIO friend what was better; a 30 year mortgage, or a 15 year mortgage? She said "30 year" and went on to detail why; inflation dollars, opportunity cost, yada yada. My eyes glazed over. When she was done I asked her "what term do you have on your mortgage?" "15 years", she said, "I hate being in debt."

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Old 05-21-2020, 05:59 PM   #262 (permalink)
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There's too many variables involved to have a blanket "best strategy". If you're only going to own the 30 year mortgage for 8 years, that changes the time horizon for your strategy. Then there's assumptions to be made about your investment strategy that are not certain, like assuming an index fund will earn the 7% average that has historically held true, or that inflation will be somewhere around 2-3% on average.

Maybe you end up having to sell the house in 3 years for unexpected reasons, and in that time the stock market tanked and lost 20% value due to Covid-19.

Or, you keep the mortgage for 30 years, invest the cash you saved by having a high loan to value ratio (LTV), and earn a compounded 7% interest on that cash. Your 7% gain is reduced by your ~3.5% effective interest payment, so the effective gain is 3.5%.

That's why building a spreadsheet is important to guide decision making. The variables involved are too complex to crunch in your head or to have "good intuition" about. I'll have the spreadsheet output the results of a better than average scenario, an average prediction, and a lower than average prediction to get a sense of risk vs reward potential.

Various strategies have varying degrees of risk and reward potential. Generally there is a cost associated with safety, and people are more risk averse than they are reward motivated. You feel worse losing a $100 bill you once had than being given a $100 bill randomly.
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Old 05-21-2020, 06:02 PM   #263 (permalink)
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VA won't do 15 year.
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Old 05-21-2020, 06:50 PM   #264 (permalink)
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Is that effective 3.5% return before 3% inflation?
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Old 05-21-2020, 06:55 PM   #265 (permalink)
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Is that effective 3.5% return before 3% inflation?
The 7% ROI with an index fund is inflation adjusted already, but that's certainly important to consider when plugging everything into a spreadsheet. Home value in general appreciates at the same rate as inflation. The only way it grows faster than inflation is the neighborhood is becoming more desirable, or there's a bubble growing.
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Old 05-21-2020, 09:10 PM   #266 (permalink)
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Quote:
Originally Posted by JSH View Post
Do we want 10 mortgaged retails bringing in $100 a month or 1 paid off rental paying $1000 a month? Mathematically we should have 10 houses with the least amount of equity possible to maximize ROI. That is what a MBA learns in school.
Business school instruction: Leverage, then cash out.

Every MBA's motto: I got mine, Jack!
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Old 05-21-2020, 09:59 PM   #267 (permalink)
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That house really has been for sale for over four years. [image heavy]

How do I become a CEO so that I can declare bankruptcy and give myself a bonus?

What is the worst that could happen?! I go to a country club jail?!

Arguably I am a CEO, but my LLC doesn't have any assets.

I stopped by that house and talked to a neighbor in his yard. I wonder how deep the garage is. The neighbor said that it had tons of space even with two cars in there.

It has a nearly-detached garage. There is a roof and a deck. I am confident that you could put in two walls, real doors, a real floor, and have an attached garage with extra square footage, although it would just be a hallway.
One sign says “Do not use plumbing.” Another says “No trespassing!” I could not read the rest.

Bay windows are nice.

Mom’s lawn is way nicer! [pats self on the back]
There are many places where the fence requires repairs--or replacement.
That backyard is not very big. Do you think that is an addition?
I feel like the back porch needs a real step.
Is that all garage?!

Electric fence?
This is technically outside of town and natural gas is unavailable. I hear that propane is a distant second. How do you fence around a propane tank?
Do you think that it has been on the market for over four years because it is outside of town?
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Old 05-21-2020, 10:03 PM   #268 (permalink)
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Aside from around the tank, is there anywhere that the fence is more than 20 feet away from the house? You'd think that outside of town you'd have a lot big enough to need more than scissors to cut the grass with.
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Old 05-21-2020, 11:13 PM   #269 (permalink)
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The plumbing is probably shot.
If the garage shares a roof with the main house it's not considered detached.
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Old 05-21-2020, 11:32 PM   #270 (permalink)
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Many pictures from Zillow

It doesn't look like it, but it says the lot is 9,583 square feet!

The house is 1,308 square feet. Say the garage is 20 x 30 and 6' from the house. The actual footprint would be 2,078 plus walls and other space that doesn't count.

I figured out this from Zillow:
This is the entry room. Would you want coat hooks on that wall or inside the next room?

I think that is the doorway that you kind of see here and it takes you into the main room:


Why is there a step down?




The kitchen is dated. Oh no!


I see three doors and the hallway makes a right angle.

There are three bedrooms and this laundry room:

I guess this is one of those doorways. The master bedroom may be on the right.

I sure hope this isn't the only closet in the small original bedroom!

Pictures of the master bathroom, but not the master bedroom, or the other original bedroom? Are they dealbreakers?


There must be more of a hallway with this bedroom on the left side of the addition:

This back room:

...and this bedroom on the right side of the addition:

This breezeway. I wonder which way the wind blows. If those are 2x6es then the buildings are 6' apart:

The super-long garage:

It is about a quarter-mile down a gravel road with a dirt road down the side. Zillow says that it has a septic tank.

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