What Would I Buy With A Million Dollars?

| | Comments (1)

Somebody asked me that.

A dachshund puppy (or two!) would be the first item. I miss Thing, and Mellon just isn't the companion he was. She's very sweet, and devoted in her own way, but the phrase "Canine American Princess" was invented for her. If she can't have 100% of your attention, she's not interested in just cuddling up while you read.

After that, invest some in the stock market for liquidity, and buy some rental properties, because within two years anything I buy now is going to be a lot more valuable. Leverage my money right, and we're talking at least two million, probably more.

Specifically, Condominiums, and Townhomes. High density housing.

Why? Well for an illustration as to the first part of that reason, look at my article from October 15, 2007, Economics of Home Ownership in High Density Areas. We're in a phase here in southern California where we're getting ready to switch, by economic necessity, away from the single family detached property on its own lot and towards the community interest lot. Land is just too expensive. The average person or family, making an average paycheck, can no longer afford single family detached housing unless they've got one heck of a down payment. The demand is too high, and the supply too limited, for everyone who wants one to have one. When that sort of situation happens, price goes up until enough people get priced out.

Here's the trip: When you're talking rent, half million dollar single family detached housing rents for maybe $1800 per month. But if you buy a $200,000 condo, it rents for $1000 to $1200. Put 20% down, and it's very possible to have a positive cash flow on such a unit - something it's not currently possible to have with the detached house. The fact that the spread is so small is temporary, of course, but in the meantime it's an opportunity for a sort of arbitrage.

Furthermore, the average family can afford a fairly nice condominium or townhome. It's just that during the era of make believe loans, they were told they didn't have to "settle." So they purchased properties far beyond their real means, because they were being told they could qualify for those ridiculously high dollar value loans.

(I call it the era of make believe loans because the agent made believe people could afford more expensive properties, the lender made believe that people could qualify, and the consumers made believe that there weren't deadly traps they were falling into on every single one of them. It was seductively easy for everyone. The agent didn't have to sell only the property the client could afford, or "settle" for the smaller commission. The lender and loan originators could make money hand over fist on paper. The consumers could pretend they could afford a property far beyond their means, and didn't have to "settle" for what they could really afford. And people are still making believe that the era of make believe loans is going to come back.)

But denial has a definite half life when it encounters pervasive economic reality. Once it's become accepted that the housing market has stabilized from its free fall of the last two years, people will be forced to look reality straight in the eye. We had the bubble, we had the pop, and now it's almost time to start going up again. Once it starts happening, families will be forced to confront the fact that they can't get the American Dream all in one easy step by essentially clicking their heels together and declaiming, "There's no place like Oz!" They will have three options: Stay a renter forever, move away to somewhere there is less demand or more supply, or settle for what they can afford, leveraging it to something better. When larger number of people realize that those are their choices, the demand for and price of condominiums is going to shoot up.

So, put $40,000 or $50,000 into a $200,000 condo, rent it for $1200 per month, and your cash flow is just about even. That's the second half; the situation right now, as it exists. I've predicted rents are heading up in the near future several times, and that was before the local fires. Rent goes up, I'm making a couple hundred dollars per month while values are climbing. In a few years, I've a property that has doubled in value while making me some small cash in the meantime. Multiply this by a dozen, and I've got two to three million dollars from an investment of six hundred thousand or so. Plus, of course, I'm going to pull all the old flipper's tricks just before I sell them. Yes, there's risk - risk that can be minimized and dealt with. That's why I wouldn't be sinking every last penny I had into it, a mistake way too many people have made in the last few years.

Of course, nobody's giving me a million dollars. But if you have $50,000 sitting around, you can make about 10% per year in the stock market with a reasonable amount of risk, Over ten years, that's turning your money into about $138,000. Or, if California real estate increases at an average rate of 5% per year for the next ten years (our forty year average is about 7%), that $200,000 condo turns into a $325,000 condo, while your loan has been paid down to $125,000 and you walk away with $200,000, not counting the cash in your pocket between now and then. If we should actually tie our long term average of 7% annualized increases, that's a $390,000 condo and you walk away with $265,000. Meanwhile, the cash flow picture gets better every year as rents increase. Your choice, of course, but I'm not the only one who sees an opportunity here.

Caveat Emptor

Categories

Delicious Bookmark this on Delicious StumbleUpon Toolbar Stumble It!

1 Comments

Blaise Author Profile Page said:

Hi, Dan!

Thank you for taking the time to write this blog and provide this extraordinarily helpful information. You're a treasure.

If you wait till you have saved up for a down payment on a million-dollar dachshund puppy, you'll miss out on the appreciation of owning one now.

Please be civil. Avoid profanity - I will delete the vast majority of it, usually by deleting the entire comment. To avoid comment spam, a comments account is required. They are freely available, and you can post comments immediately. Alternatively, you may use your Type Key registration, or sign up for one (They work at most Movable Type sites). All comments made are licensed to the site, but the fact that a comment has been allowed to remain should not be taken as an endorsement from me or the site. There is no point in attempting to foster discussion if only my own viewpoint is to be permitted. If you believe you see something damaging to you or some third party, I will most likely delete it upon request.
Logical failures (straw man, ad hominem, red herring, etcetera) will be pointed out - and I hope you'll point out any such errors I make as well. If there's something you don't understand, ask.
Nonetheless, the idea of comments should be constructive. Aim them at the issue, not the individual. Consider it a challenge to make your criticism constructive. Try to be respectful. Those who make a habit of trollish behavior will be banned.

Leave a comment

Copyright 2005-2017 Dan Melson. All Rights Reserved

 



Buy My Science Fiction Novels!
Dan Melson Author Page

The Man From Empire
Man From Empire Cover

A Guardian From Earth
Guardian From Earth Cover

Empire and Earth
Empire and Earth Cover

Working The Trenches
Working The Trenches Cover

Preparing The Ground
Preparing The Ground Cover

Building the People
Building the People Cover

The Book on Mortgages Everyone Should Have!
What Consumers Need To Know About Mortgages
What Consumers Need To Know About Mortgages Cover

The Book on Buying Real Estate Everyone Should Have
What Consumers Need To Know About Buying Real Estate
What Consumers Need To Know About Buying Real Estate Cover

Dan Melson's San Diego Real Estate and Mortgage Website

↑ Grab this Headline Animator

About this Entry

This page contains a single entry by Dan Melson published on November 4, 2007 7:00 AM.

Buying One Property While Selling Another was the previous entry in this blog.

Listing: Understand Your Target Market is the next entry in this blog.

Find recent content on the main index or look in the archives to find all content.



What I Do

Read My Promise To All My Clients

My Office Contact Information

There are no better agents in San Diego County!

There are no better loan officers in California!

Ask for your free consultation today!

**********
Favorite Loans Available Now

My Listings

Hot Properties!
Email me! danmelson(at)danmelson(dot)com
**********
I want your business!
Unhappy with your loan?
Can't afford your payments?
I can help!
---
Want to buy smart?
Want to sell smart?
I can do it!
---
Bankruptcy?
Foreclosure?
In Default?
Let Me Help!
---
Want to buy properties in distress?
(defaults, foreclosures and REOs)
Ask Me How!
---
Bad Credit?
No Down Payment?
Ask Me What I Can Do!
---
1031 Exchanges
Forward, Reverse, or Partial
I Get It Done!
---
Should I Buy Now?
Should I Sell Now?
Would It Help Me to Refinance?
I'll tell you if the answer is "No"
I'll help you if the answer is "Yes"
---
Contact me:
My Office

Want San Diego MLS?

Here's my office's link to San Diego MLS

Enter your email address:

Delivered by FeedBurner

Subscribe with Bloglines Add to Technorati Favorites

Not in San Diego?

My other site is here
Powered by Movable Type 4.21-en