i'm thinking about buying an apartment complex.

[misombra]

so there's this apartment complex for sale in the university area. i have an appointment to see it today.

so let's see what happens...

[vashti]

I would love to own a (very) small apartment building, but not to rent out... just for me and two of my sisters to live in.

[bohemiandonut]

Real estate seems like the perfect investment to me.

Wonder what GS' thoughts are on this.

[misombra]

so i went to see it and they're selling the units individually as condos, they'll also make a deal on the whole building.

i'm not really sure how condominiums will work out in the unm area as most people are renting.

the complex was this dirty nasty place, then they remodeled it and it looks incredible.

[GrkScorp]

so i went to see it and they're selling the units individually as condos, they'll also make a deal on the whole building.

Condos are so much better than Co-Ops imo..,

The issue with Co-Ops.., practically.., and legally.., is that it all looks good on paper.., but the reality is.., that there's ALOT of wiggle room for the board to control and abuse the other shareholders..

If you ever choose to go to law school mis.., take a cource on Real-Estate Deals/Investments.., sooner or later.., the professor is going to ask.., "what if.., now your client comes in as an investor.., spends all this money to renovate the place.., and under the terms set by the Board.., they must actually live inside the unit for a year.., and before they rent it.., the Board must approve the people (which means they may reject.., and in most cases.., they don't have to give a reason).., and more importantly.., they can't flip! They have to hold onto the unit for at least one or two years.., and on top of that.., the Board must approve the buyer who will be the new owner (which means again.., they can reject.., without reason).., what happens then? Your client is living somewhere else.., they want this as an investment.., but the Board will intentionally not approve anyone to rent.., so now the client is losing money.., and they want to sell.., but the Board will intentionally not approve any buyers.., do this long enough.., and the Board can actually end up driving the investor into financial distress.., leaving your client in an unfair position of either having to go to court.., which can take years.., and for this kind of litigation.., it's very costly and just not worth it.., or your client can accept a significantly below market value price for their unit.., cutting their losses.., losing their investment.., and giving the Co-Op a bargain price for a unit they will now sell to some other "investor".., Just because things work on paper.., doesn't mean they work in reality.., you have to be able to see beyond the paper sometimes.., and advice people against situations where you can foresee things going wrong"

As a rule of thumb: Condos are more democratic than Co-Ops.., everyone has an equal share.., and you have a lot more flexibility with what you can do.., (and more importantly.., what others can't do)

Best,

GrkScorp

[squirrley]

Mis, how long has the complex been on the market? How many units does it have? I'd ask for past rentals, their history of turn overs per say. Yea now would be a great time to get a loan if you could get one, but how FAST could you rent or sell those out? Here in FL, wow, people are just not buying now. The market is flooded with homes, going into foreclosures, etc. Homes half built, etc. I'd say go for it IF you knew you could rent those things out immediately to cover your mortgage and the misc bs that comes with owning it.

Sounds like a great venture! Goodluck! We thought about buying this building in Oconto Falls WI, business in the bottom and several apartments up top for like 43 grand, what a steal. This was 2 years ago, the building is STILL for sale. Is it in a great location? I'm just super curious where you are and what the real estate is like there? Cause it sucks here.

[IndiReloaded]

Is this for yourself Miso, or as an investment? If the latter, I'm inclined to agree w/GS.

But I don't like condos either as an investment. The monthly fee you pay could easily go into an extra payment on a single-home mortgage (or your sheltered retirement fund to decrease your taxes) & the appreciation for that kind of lot is much higher than for condos or co-ops.

Unless you think the building is slated for demo/rezoning to mixed commerical then you might realize a profit if you own shares. But its unlikely w/all the work they've done.

[GrkScorp]

i'm not really sure how condominiums will work out in the unm area as most people are renting.

the complex was this dirty nasty place, then they remodeled it and it looks incredible.

It all depends what you want it for mis.., if you want to live there.., it's a personal choice.., if you want it as an investment.., then what kind of investment do you want to hold onto it as?

- Long-term (rental)
- Short-term (flip)
- Long-term (retal & sale)

If you think not too many people rent.., then the first option is out of the question..

Then.., depending on how costly it is.., or how much you can afford to personally absorb all related costs each month.., you may or may not rule out the last option..

Then.., if you want to flip it.., it again depends on how much you're will and able to invest in improvements.., (but again.., if these are already newly renovated units.., and they're being offered.., these are not at all the best conditions to be flipping such a property)

The community is actually in the best position to sell them off like hot-cakes.., interest rates are rock bottom.., and will only get higher from here on.., so for people who have the money.., and want to buy.., this is the time to do it.. (also.., when we're talking about the Real-Estate market bubble popping.., we're talking about 1 & 2 family homes)

1 & 2 family homes are your normal goods.., and condos & co-ops are the inferior goods.. When the economy is doing well.., you see housing prices going up.., but when you break that down into a more detailed picture.., you actually see that being an "overall" effect.., (1 & 2 family homes are increasing.., while condos & co-ops are falling).., and since the former is way more expensive than the latter.., the net effect is positive..

When you hear about the bubble bursting.., the opposite takes place.., 1 & 2 family homes fall.., but condos & co-ops are now more in demand.., and you see their price-tag getting higher.., that's a sign of a slowing economy..

Don't make the mistake of listening to anyone who is marketing these condos saying something to the tune of.., "condos are only going up since last year.., and they're still going to be going up for the next two years.., I don't know what Real-Estate bubble they're talking about.., but it's definitely over".., (no.., it's not.., it's just that this guy doesn't know what he's talking about.., or maybe he knows exactly how wrong he is.., but just wants to make the sale)

The other problem with condos & co-ops is that since they are the inferior good.., and the "good" just so happens to be an investment.., when the economy is doing well.., these investments make sense.., are at a bargain.., and in terms of value.., are relitively cheap.., they are a good buy.., BUT.., the only way someone can make money on them.., is when they get them exactly at the end of a good economy.., hold onto them through an economic downturn.., and sell them just before the end of the economic slowdown.. (when they will start to fall)

What you're considering.., is doing the opposite.., you plan to invest money.., into something that isn't exactly a bargain or cheap.., lock in your money until it's sold.., but then see the value of the investment fall as the economy will pick back up (within the next two years).., a "liquidity trap" of sorts.., where you'll see the majority of the market (demand) for these units leave.., disappear.., and now turn to 1 & 2 family homes instead.. leaving you with a condo you either can't recover the initial investment cost of.., OR.., will have to sell at some loss to free your money and invest it elsewhere..

The best thing to do before you choose what to do.., is go talk to some (independent sources) in that area.., anyone related to the condos is not someone you should be talking to.., Go talk to some Real-Estate offices around the area.., get an idea of what renting and rental demand is like in that area for similar units.., if it doesn't look like it's a safe bet that you'll be able to rent it.., at a rate that makes sense at the end of each month.., then you'll have to look for more reasons to why you want to go ahead with the deal..

Best,

GrkScorp

[IndiReloaded]

so for people who have the money.., and want to buy.., this is the time to do it.. (also.., when we're talking about the Real-Estate market bubble popping.., we're talking about 1 & 2 family homes)

Not in Vancouver, tho. Its market dependent, GS. Duh, perhaps to you but it needs mentioning.

When you hear about the bubble bursting.., the opposite takes place.., 1 & 2 family homes fall.

But single family homes, esp around the 2000 sq ft mark (which appeal to first time buyers w/families) are always a winning investment. Even w/transient market dips, their net worth is always up. I don't know anyone who has lost $ on these, even in hot volatile markets. You may have to hold them a bit longer than anticipated, tho.

I do know ppl who lost out on condos tho. Not to scare you, but do talk to ppl in your area as GS says. Hope this helps, Miso.

[squirrley]

Another thing, you have to consider the market is STILL dropping. So whatever you invest now, chances are the investment will lose. (I guess if youre in a booming area) but for the most part, expect the value to decline still.

Even if it only drops another say 7% but its expected around 10 I think over the next year, you could possibly lose that, its like pissing money. You must be in a great area for real estate. Are you in a good retirement area? Or a seasonable area? I'm just giving my opinions based on FL, which is in the top 3 of worst loss of value of homes. But you HAVE to look up what the value of it is and has been, of course the value always goes up, but now, it goes down, and when people bought into the market at its height, theyre now screwed. Realitors WILL say now is the time to buy, but do some MAJOR research!!!!

[Tone]

Ohh I need a place to live near campus!

[GrkScorp]

Real estate seems like the perfect investment to me.

Wonder what GS' thoughts are on this.

A philosophical question to consider.., is the growth rate spread between those earning $80,000 or less annually.., and those earning more than $80,000 annually.. You can pull up some data.., but with time.., the spread just gets bigger and bigger.., it comes to the point where the net assets (personal worth) of the lower earners grows at only one-fourth the rate of the higher earners..

Considering that as people make more money.., they spend more money.., as an economist.., but even as a person.., you have to wonder.., why such a gigantic spread in growth?

For those who work.., and depend on a salary.., the majority of their assets.., is in the form of (cash).., and (cash) is the worst asset to have on hand.., because as each moment goes by.., it is worth less.., and less.., and less.., and less.., (inflation).., then some would argue that.., (I know better than to keep it all in checking.., I have a money mutual fund account or a savings account or a CD).., and to that i'll say.., considering your annual rate of return is more or less (5%).., and that core inflation is more or less around (2.5%).., in theory.., you're only really earning (2.5%) growth on your assets each year.., in reality.., food & energy prices matter.., so core inflation is useless to consider.., we have to look at headline inflation.., which is currently just over (4%).., so these people are really just earning a (1%) growth rate in their purchasing power (net assets & personal worth)

That's a meaningless number to look at.., if you can't compare it against something else.., so let's consider the wealthy.., and what form they keep their assets in..., (Real-Estate.., Majority ownership interest in businesses.., significant ownership interest in businesses.., indirect finance & funds).., there's a major advantage to these assets.., they are all resistant to inflation.., and some are even immune to inflation.., the best example.., is Real-Estate..

It's property.., it's land.., it's a building.., and it has some value in some point in time.., if today it is worth $100.., and tomorrow it's real value goes up by 10%.., but the value of money doesn't change.., then it will be worth $110.., but if it's value doesn't change.., and only the value of money changes.., then this asset will still be sold at $110 to compensate for the relative change in the value of (cash).., when you sell an asset for cash.., all you're doing is converting the form in which you are carrying value.., from one asset to another.. Real-Estate is amazing in the sense that it do several things that are great to an investor:

- Preserve value & immune to inflation
- It's an earning asset which can produce a positive cashflow
- It's generally an appreciating asset so it's value is increasing in the long-run
- Tax advantages which further help in increasing net asset growth
- Form of security which can assist in financing other future investments by borrowing against it's value

In NYC.., the ideal investment for the average person (not on the Forbes 500 list).., is a Mixed-Use property (2 family & 1 Store)..

- The store allows for a commercial tenant which is responsible for 50% of all property taxes.., 100% of all property tax increases.., and 100% of all costs related to maintaining the sidewalk/garbage/etc.. In NYC.., a commercial tenant is also responsible for any related costs of their business (unlike residential tenants which have.., in NYC.., an "implied warranty of habitability".., and some or all costs are the responsibility of the landlord)

- You have $2,000 from each residental unit (3 bedrooms 2 baths).., and $6,000 from the store.., that's $10,000 a month.., with monthly expenses of $1,600.., considering that these properties used to sell for $750,000.., it's not too big of a shock to hear about a $2,000,000 price tag on these babies today..

- Tax class I.., the same as a 1 family home.., only ($4,000 a year!).., considering that they not only pay for themselves.., but leave behind a positive cashflow at the end of the year.., and tax advantages.., (along with steady appreciation in value).., their price is justified..

Personally.., if you want to quantify the value of the investment.., in the NYC area.., you divide the asking price by the annual rent-roll.., anything 12 and under is considered (cheap/a bargain).., anything between 12 and 18 is considered fair.., anything higher than 18 is considered expensive..

An alternative approach.., is to take the projected net-income from month to month.., and the projected capital gain on the sale.., and then discount it back so that the present value is equal to the asking price.., then.., calculate the IRR (internal rate of return).., this number is one that is more useful.., because you can relate it to other rates of returns and compare investments against eachother.., an IRR of 6% is very low.., and considering the risk you'll be taking on in any particular project.., it may not be high enough to make it worth your while.., and IRR between 7% & 9% is reasonable.., between 9% & 12% is very good.., and if you happen to come across an IRR greater than 15% and you're sure you're not making some math error.., you better borrow some money from a loan-shark or do what you can to make that deal happen.. again.., all depending on risk (area)

This is why you see growth rates break off.., compound.., and then have the gap grow so fast.., how can a growth rate of 1.01 compare to one of 1.12 through time? Raise both to the power of (40) and see how different they are.., then multiply the factors by $100,000 to see how much of a difference it really makes.., "the only thing you can't afford in Real-Estate.., is to not buy Real-Estate"

Best,

GrkScorp

[squirrley]

Gks, I'm by no means an economist and won't pretend I know it all because I just don't. I do agree with your last statement, but don't you also take into consideration the location of where you live? We're currently renting. Its a 2 bedroom 2 bath right on the water rougly 1600 sq ft. We pay a grand a month. I wish Chris were home to tell me the name of the website, but there is one that will tell you whether youre better off renting or owning the dwelling. When we moved in here a year ago, the value of the house was 365,000. 6 months into our lease it dropped about 30 grand. A year later its now about 250,000. Thats a HUGE loss on the value of the home. In the meantime, we've had a new roof installed, a new lawn, some new plumbing. Knowing the market is still decreasing, would you not say or agree that the money say you put down on a house, 15% youre basically LOSING in less than a year considering the market NOW? We would like to buy this house, but plan on waiting at least another year.

On the whole, yes people have the tendency to believe or know owning your home is a huge assest. However, most people have a 15 or 30 yr mortgage and the bank owns the house. The interest you pay on your house after that mortgage, is nowhere NEAR the true value of the home, you will NEVER get back what you paid. Unless youre fortunate enough to buy outright.

Living in FL and seeing the value of homes plummet I dont see how its a smart thing to do at this time. I know the housing market isnt quite that bad in a lot of areas, but I couldn't swallow buying into something knowing that in less than a year Ive lost 10% right out of the blocks.

I think its great when people want to invest into something of value, IF you know you're going to get a return on it. That's the only reason why I'm suggesting to do so much research into the complex and the area. If it looks great than hey!!! Proud owner! This is good you posted on this one, it's nice to see figures and others ideas of things rather than freaking Squak Box everyday.!

[GrkScorp]

Gks, I'm by no means an economist and won't pretend I know it all because I just don't.

Awww.., hey.., you don't need to know economics that well to have an educated talk about these things.., that's very modest of you squirrley.., but you seem to know more and be able to talk about more than you're giving your own self credit for..

A rent vs. own calculator is something you can find on a couple of sites.., the issue with that is.., that all it's telling you is this:

"at this current point in time.., it makes more financial sense for you to own.., rather than to rent"

Do you see the issue with that? It's a great marketing tool for lenders.., "hey.., look! you should buy! now! we can help!".., but like you saw.., what about the future? What if it made sense for you to buy back then.., and you had to see that property go down in value? That's something those calculators don't tell you.. But.., it looks like things are rock bottom.., hypothetically.., on a balance of $250,000.., with a rate of 5.25% amortized over 30 years.., your monthly payment should come out to $1,380.., roughly.. I might be off my a dollar or so.., but what's important is.., would you rather own your home for an extra $400 a month?

- Build equity through paying back the loan
- Build equity through appreciation of the property
- Take advantage of tax deductions (both federal & state)

But beyond that.., let's just put all this financial/real-estate babble on the side.. There's nothing quite like the feeling of knowing you own the home you are living in.., a sense of security and safety.., that's something we can't put a ($) sign on.., but just because we can't.., doesn't mean it's not important..

If that's the case.., I think you and Chris should definitely think about how you can make this happen for the two of you.., especially if you really like the area..

Best,

GrkScorp

[squirrley]

Ive owned my home prior to meeting Chris. It felt great, it was mine. And I sold it at a peak, made 30 grand on it. Was only it for it maybe 3 years.

I was just curious what you thought overall rent vs own. Right now it makes sense for us to rent HERE.

I want Mis to be happy and it sounds promising!

GOODLUCK!!!

(sorry Mis for stearing away for a moment) Best to you!!! Take pics if you buy this place! Hey can you change the name of the complex if you buy it?