If interest rates are at an all time low say 3.5%, and returns are 7% or more on some properties, isn't that like free money due to returns beating interest rates? Is this an opportunity of a lifetime or am I missing something important?

It's like borrowing money, putting it in a bank and keeping the interest without using my own cash.

I know FL and even Cali properties that can surpass interest rates easy. What are your thoughts?

I would not exactly call it free money but IF you know your market and are tolerant of risk there is certainly higher rewards in real estate than some of the money markets right now. You have to have the expertise to find those properties that will give you the rewards and then the patience to wait on those rewards. All people are not capable of the above that is why there is money markets and stocks.

DRSRK,

Thanks for the response but I felt it was a little generalized.

All I was asking was if it is possible or realistic to borrow money at say 3.5% and invest it at 7%. That is essentially the advantage right now with current interest rates and we probably won't see them like this again in our lifetime. This has to be what all the cash buyers are doing right now and probably a good reason the media or lenders don't advertise it.

This ofcourse is assuming 20% down and good credit. The deals aren't hard to find at all. So for people like me I'd say it's a no brainer but maybe I'm overlooking something? I don't see any risk with insurance and property management company.

I can go to a bank right now and prove with reports of a 7% return on homes they are short selling and offer to take them off their hands with hardly any risk to them being a 3.5% cushion before break even.

Maybe people are doing this, maybe not but I see big opportunity here

The IRS will want a piece of the action too; how much and whether that can be deferred or not depends on your individual tax situation.

The rate differential, or "free money", as you put it, is your reward for absorbing the risk on the downside.

Everyone who's upside down right now once thought that their deal was at an "advantage right now with current interest rates and we probably won't see them like this again in our lifetime."

A Bank Collections Officer, while working on her Foreclosures, once told me how hard it was to believe that, to the eyes of an Underwriter, every one of those deals once looked like a deal made in heaven . . . . no one ever thought there was the prospect of a delinquency or foreclosure waiting over the horizon.

Just like our Marriages: no one ever thinks of Divorce Court while the young couple is walking hand-in-hand down the aisle after taking their vows at the altar; but it happens.

There's a down side risk to everything. Not everyone has the stomach for it. A higher differential is necesaary to beckon the more risk adverse among us.

Vermont,

Wrong on both accounts. During the boom, nobody said houses that cost 10 times anual income was a deal made in heaven. They just didn't want to be priced out or got an ARM or lost there job.

And as far as interest rates, they were 7% or more meaning they exceeded the maximum return on average real estate.

So both your statements during the boom time make no sense in this case. We are seeing interest rates lower than investment returns for the first time in history and housing prices that now match or close to matching the historical average or pre boom levels.

I'd go as far to say that cash buyers are in the opposite position we were in during the boom meaning too many opportunities and not enough buyers.

BTW I'm just about closed on a 140k condo in Cali that has averaged 6% return since 2008. I have all income statements.

Risk? I could techincally afford 2% rent and vacancy loss before even breaking even. Now consider I bought 10% below FMV I can also afford further price drops before negative equity kicks in. Very low risk in the real estate world. Show me something with higher upside for the time invested and less risk.

So then, why hesitate? Go for it.

We will only know the Future after it becomes the Past.


If the laws of supply and demand remain valid, that is not a projection of price appreciation . . . . or even price stability.

I'm hesitating because I wanted valid proof that something can't work the way it looks on paper. But what I realize is something that actually does work is not noticed by the average person until it is too late.

Example,
That's why stock investors write books on their investing style but by the time it's published it just doesn't work anymore.

That's why some people knew to sell their homes before the buble burst

And maybe that's why some people will take advantage of interest rates that are lower than returns. Just something to think about

I never said anything about appreciation and was never factored into my results. It sounds like you are countering my use of words as opposed to my points with famous quotes or common book knowledge.

If so, I don't think you are making valid argument against investing in todays situation but I await for a good reason to not get 4% interest loans for assets that historically return 7%

In this condo complex, 350 units are underwater and lenders won't lend to this complex anymore depressing the value even more. Meaning when the market recovers and lenders lend to it, this complex could recover faster thank the rest of the market, if your concerned about appreciation, I am not. But that's not the point, the point was borrowing someones cash and collecting the returns possible for the first time in recent history and won't last long.

No, you didn't; you didn't need to . . . . you just made a statement about there being "too many opportunities and not enough buyers" and that just happens to equate to a prescription for price declines . . . . or depreciation.

The current rate of return on any investment doesn't mean much without confidence that the value of the underlying asset will be preserved. That's part of the rationale of the Bankers who won't loan on that Austin Condo Complex which looks so attractive to you . . . . along with the lack of PMI (because the Insurers will not take the risk). Without PMI, the Banks won't go it alone.


If other "CASH" Investors thought like you (and were ONLY concerned about their current rate of return), they'd be snapping those Condos up; BUT THEY'RE NOT . . . . and that's clearly a function of their having made a less than optimistic forecast of future values (something you're not concerned with).

Now, I don't think you should waste your time reading anything that I write since you already know that it's either all wrong . . . . or just "common book knowledge". Sorry 'bout that.

that is certainly not the case with the plethora of defaults during the recent mortgage meltdown, and it still continues. the underwriters were pressured by their own upper management, everyone was pressured to go with the flow of fraud, and unscrupulous, licentious predatory lending. the underwriters knew better, bud they played the game in order to keep their jobs. there was NO effective underwriting, only the profit motive. competent underwriting would have preempted most of the defaults. bad fortune is one thing, but this time the entire game was rigged from the onset, and it was foreseeable.

BTW I'm just about closed on a 140k condo in Cali that has averaged 6% return since 2008. I have all income statements.


only time will tell. now may be the ONLY time that condos are good investments. LOL. I suspect that the upside potential will be limited over the long term. you might consider the alternative returns for all passive investments.

Vermont made a good point in that other investors are typically not attracted to this type of property. If you think you have better information, or more investment savvy, by all means, give it a shot.

Tons of deals out there.Condo's are at the bottom of the list for many investors because of all the known problems that can go wrong.

More "common book knowledge" . . . . which is also probably wrong:

It's all but impossible to prove a negative; but you might be just the contrarian to swim against the tide and prove that old rule wrong too.

With your knowledge of what other people DO NOT KNOW (or haven't noticed), I think you should simply throw caution to the wind and just follow your instincts. These other Investors don't know what they're thinking about.

If you wait for "proof", you'll be waiting an eternity. Stop hesitating and Go for it !

Now, with your pre-conceived notion that I'm wrong on everything that I write, then when I say I'm wrong, I must be right! Right ?

Sorry Vermon but your wrong again.

For one, Austin condo complex? Maybe you are talking about the condo which I sold last year for 8k more than I bought it after collecting an additional 6k in rents. Calculated risk, I knew condos were overbuilt and condo starts just stopped, I bought at botton of the barrel. They quickly went up. That is old news

Getting back to business, I just closed yesterday on the 140k condo that returned 7% this year after all expenses @ 70% occupancy.

unfortunately, I can't seem to get a loan for these condos at <4%. Otherwise, technically, I'd be set. The banks stopped loaning to them last year due to high foreclosure rate in this one particular complex in DT San Diego.

Does anyone know who will lend to these at conventional interest rates?

How do you know they are not snapping them up?

Takes a while for 350 units in one complex to get short sell approval and sell to cash buyers. For some reason, banks won't lend to them, probably because they are not considered securities, but I don't know. They are hotel condos at the hard rock if I haven't mentioned before and I think the banks will accept much less than what you will find them for on zillow and I think that is because since they are paid in cash, certain paperwork doesn't get sent to the local assessor office which common online services pull from?

Also take into consideration that 350 units are about to foreclose on because they bought the units for 400k in 2007 and are now worth ~140k, and I think you have potential for not just a better return than standard SFH/condo, but a great CAP since cap I believe is based more on value.

I think someday, when lenders lend to these and when foreclosures are all bought by cash investors, prices will stabalize and possibly increase more than comparables.

Any constructive criticism as opposed to cheap sarcasm please let me know. I'd like to hear others thoughts on these units in this particular situation plus who may be able to lend to them at <4% interest rates, please let me know

Absolutely, buyers are hesitant towards condos.

Did some research over time and answered my question

Nobody will lend to condo hotels except one bank but only if it's a resale and the terms are awfull, negating any free money in that market

I guess the benefits of high returns favor only those with cash