Leguna
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Leguna
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Joined: 4:39 PM - Apr 29, 2009

1:35 PM - Jan 11, 2018 #31

manngc wrote: So you're saying that 401k loans has no penalties, aside from the fact that you lose any market gains for the money you pull out of the market, which could be substantial as the last two years have shown?  <--That's the risk.
Not in my case, my 401k has been growing at a shitty 1% a year! Not to mention that the market could go south and pulling the money out means my money isn't affected by it. So you can't say I 'lose money' until we know what the market actually would have done otherwise. Plus, I really don't care about the 1% compared to what the free loan does for me.
Also, recognize the assumptions you are spouting:
Assumption ONE: "I will be selling my house long before I would need to be replacing AC units, roofs, siding, etc."  
What are you basing this off of (the assumption that selling within 15 years will shield you from this?) or how can you guarantee you won't bear the brunt of these costs?
The roof, AC units, siding, etc have a known life expectancy. Is it possible they go out sooner? Sure, but unlikely if you take care of the house by doing things like changing our the air filter and buying new homes.
Assumption TWO:  "Rental property is as risky as the stock market, but I would argue that its a bit less risky because it is less effected by down turns in the economy."  
Ignoring the fact that you literally contradict the first part of this statement with the second, you are assuming that the number of people renting going up in a downturn is good for you.  But you don't know that.  A downturn could force the rental price down so much that it's not profitable to have the Rental Property (especially an older one that will soon need maintenance).  You haven't really analyzed what a good cost to rental price ratio is have you?
The best rental property is property that rents for 1% of the entire cost of the home. That's the ideal. I'm perfectly happy getting anything above .5%. As long as I'm getting a net positive after expenses, its a good deal.

Why would rental prices go down if demand went up? That makes no sense to me. People rent more in a down economy. What I'm more concerned about is the fact that I'm buying B class property and so my tenants are upper middle class and they tend to be the ones that lose their job when the economy goes south, BUT it just means lowering rental prices and waiting out the storm. The same is true of the stock market; you don't sell when the market is down, YOU BUY MORE! And that's what I'll do when the economy dips.
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bork
おっぱいは命、尻は故郷
bork
おっぱいは命、尻は故郷
Joined: 6:48 AM - May 26, 2009

8:19 PM - Jan 11, 2018 #32

Dos Locos Tacos wrote: This thread is exactly like the speaker one...just on a much larger and way more expensive scale. 
Nothing else needs to be said.
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manngc
He Da Mann
manngc
He Da Mann
Joined: 10:05 PM - Apr 29, 2009

12:25 PM - Jan 12, 2018 #33

Leguna wrote:
manngc wrote: So you're saying that 401k loans has no penalties, aside from the fact that you lose any market gains for the money you pull out of the market, which could be substantial as the last two years have shown?  <--That's the risk.
Not in my case, my 401k has been growing at a shitty 1% a year!  Not to mention that the market could go south and pulling the money out means my money isn't affected by it.  So you can't say I 'lose money' until we know what the market actually would have done otherwise.  Plus, I really don't care about the 1% compared to what the free loan does for me.
Also, recognize the assumptions you are spouting:
Assumption ONE: "I will be selling my house long before I would need to be replacing AC units, roofs, siding, etc."  
What are you basing this off of (the assumption that selling within 15 years will shield you from this?) or how can you guarantee you won't bear the brunt of these costs?
The roof, AC units, siding, etc have a known life expectancy.  Is it possible they go out sooner?  Sure, but unlikely if you take care of the house by doing things like changing our the air filter and buying new homes.
Assumption TWO:  "Rental property is as risky as the stock market, but I would argue that its a bit less risky because it is less effected by down turns in the economy."  
Ignoring the fact that you literally contradict the first part of this statement with the second, you are assuming that the number of people renting going up in a downturn is good for you.  But you don't know that.  A downturn could force the rental price down so much that it's not profitable to have the Rental Property (especially an older one that will soon need maintenance).  You haven't really analyzed what a good cost to rental price ratio is have you?
The best rental property is property that rents for 1% of the entire cost of the home.  That's the ideal.  I'm perfectly happy getting anything above .5%.  As long as I'm getting a net positive after expenses, its a good deal.

Why would rental prices go down if demand went up?  That makes no sense to me.  People rent more in a down economy.  What I'm more concerned about is the fact that I'm buying B class property and so my tenants are upper middle class and they tend to be the ones that lose their job when the economy goes south, BUT it just means lowering rental prices and waiting out the storm.  The same is true of the stock market; you don't sell when the market is down, YOU BUY MORE!  And that's what I'll do when the economy dips.
There is no way that your 401k has been growing at 1% a year for that last 8 years.  No way.  The S&P 500 alone has done on average around 20% a year.  There is now way you are correct.  You are not calculating your Rate of Return correctly.  Not to mention taking into consideration the matching which like I said makes your rate of return 100% for year 1.  Your 401k should be growing mightily.  You need to reevaluate that.

And "rents for 1% of the entire cost of the home," so you're satisfied with your original house renting for 0.6% of its original value (per month).

One thing that you are not considering is the selling a rental property is NOT the same as selling your residence.  All that depreciation that you claimed on your taxes all those years...guess what, you have to pay taxes on that when you sell.  Selling the Rental as anywhere near it's original price will be a huge tax hit.  For example, you are selling your original home for it's original price...but 15 rental years later.  You have depreciated just over half the value of the house.  That means when you sell it, you will have to pay INCOME TAX on HALF of the price of the home.  That will kill your returns completely.  Good luck with that.
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Shino
Up InDis
Shino
Up InDis
Joined: 1:55 PM - Jul 27, 2009

1:20 PM - Jan 12, 2018 #34

Wow... I didn't even think of that point (selling a rental)
That's a really good point Mann.
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bork
おっぱいは命、尻は故郷
bork
おっぱいは命、尻は故郷
Joined: 6:48 AM - May 26, 2009

1:31 PM - Jan 12, 2018 #35

Holy shit...Mann with that huge logic bomb.  And dude already has two houses now so he's gonna have to pay all that tax on at least one of them even if he decides to just move into the new one. 
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manngc
He Da Mann
manngc
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Joined: 10:05 PM - Apr 29, 2009

4:44 PM - Jan 12, 2018 #36

Dos Locos Tacos wrote: Holy shit...Mann with that huge logic bomb.  And dude already has two houses now so he's gonna have to pay all that tax on at least one of them even if he decides to just move into the new one. 
He doesn't have the second home yet.  He's only signed a contract to purchase it, he hasn't closed on it or anything.

It's funny, Leguna claims to be this experienced landlord with 6 months...but I rented my old place out for 2 years and paid taxes on it AND sold it after the 2 years.  I'm the one with complete rental experience (front end and back end)!  I didn't even think about it until now!
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Leguna
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Leguna
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Joined: 4:39 PM - Apr 29, 2009

1:10 PM - Jan 17, 2018 #37



Guys, what Mann said changes NOTHING!!!  Basically I get the savings on the front end instead of the back end.  I'm deducting from my taxes the depreciation NOW and then 15 years from now, when I sell the home, I have to pay extra capital gains tax.  WHO CARES!!!  I still come out WAY ahead!
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bork
おっぱいは命、尻は故郷
bork
おっぱいは命、尻は故郷
Joined: 6:48 AM - May 26, 2009

3:09 PM - Jan 17, 2018 #38

Leguna wrote: WHO CARES!!!  I still come out WAY ahead!



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Leguna
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Leguna
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Joined: 4:39 PM - Apr 29, 2009

11:11 PM - Jan 17, 2018 #39

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bork
おっぱいは命、尻は故郷
bork
おっぱいは命、尻は故郷
Joined: 6:48 AM - May 26, 2009

2:21 AM - Jan 18, 2018 #40

I don't know what that broken link is, but "broken link" seems apt.  😄
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