Thanks for posting these links and adding the search feature. Very helpful!

Did you end up inking that $2.5 M deal or not?

Have you been able to find properties that can ‘positively cash flow’ even with theoretical calculation of putting 100% down (realize banks don’t do this anymore)?

Did you ever study Japan’s commercial property market during their lost decade of the ’90′s? I am a little concerned about being in a commercial deflationary environment (for example- I negotiated a 10% rent reduction from my landlord for the company I run, saves us $6500 per month!) I know you mentioned that CRE is less volatile than residential but this still worries me a bit.

You’ve opened my eyes… now I need to find and make friends with a logical, clear thinking broker!

-Mike

I added a search box (under the comments on the right-hand side) and you could just google-search the site (it’s what I do when people as me for back-posts); but, these are the posts that you want:

http://7million7years.com/2009/01/05/anatomy-of-a-commercial-re-investment-part-3/ (follow the back-links for the earlier parts)

and

http://7million7years.com/2009/05/14/a-young-mans-fancy-turns-to-spring/

These are two such important / good (in my humble opinion) posts that I might put them in e-book form.

Thanks a lot for taking the time to answer my questions with great detail. You raise some compelling points.

Did there ever exist a day when it was possible to have a property cash flow positive with a scenario of mortgaging 100% of the value of the house? Ideally that’s the situation I look for, and the one I got when I bought my place in Asia- rent is $1500 per month, price paid was $175K, this was in 2005. Today this seems to be a hard to find deal.

Besides the last question, I have one other request- can you link in your posts on commercial real estate again, please? All my experience in valuing property has been in residential and I’d like to know the key difference in commercial- where I’ve always been the renter and not the landlord.

Thanks-

Mike.

1. Realize that your Required Annual Compound Growth Rate of 15% – 16% (which is well within the bounds of a long-term, conservative RE + Stocks investment strategy) INCREASES every year that you delay moving from 3% – 6% cash returns … simple math confirms this (you get to plug fewer and fewer years into the Compound Growth Rate Calculator), and

2. All you need to do to ensure these results (besides having a little ‘faith’ and making some reasonable investment selections that are only slightly on the ‘astute’ side of random) is to buy some cashflow positive property, which you can ‘manipulate’ in exactly the way that you suggest: i.e. take a mortgage. But, how much?

In the current low interest market, buying more property with lower deposits is ideal BUT only if you have the stomach to handle more property and/or debt AND if you can lock in to protect against future interest rate increases.

IMHO focus on positive cashflow, with a reasonable cash buffer (say, 25% if you can get it), and borrow to that extent and no more. Even this may be a challenge, so your question might be moot

This is NOT the same advice that I would give to other people, as they are not in your position.

The alternative i.e. if you delay, will be to increase your income so that you can invest more at higher risk/returns later … now THAT seems high risk to me!

BTW: You have the comfort of knowing that the market is more likely to go up than down … and, if it does go down, it will be less ‘down’ than people investing in any other period since the last recession … so, your timing has to be regarded as better-than-random wouldn’t you say?

Good job; cash in the bank; low market; low interest rates: could the stars be any better aligned for you?

@ Neil – Are you suggesting ‘wraps’?

Someone has to provide the cash to fuel the mortgages.

The big thing is not to be stuck having to take out a loan at 14% (like my dad did since Canada didn’t have 30-year fixed options).

Neil

One question for you- right now property values are still such that if you can mortgage 100% (assuming you find the lender) you can get an interest rate for 4-6%… seems like interest rates can only move upward from here.

When interest rates move upward then getting a mortgage will be more expensive (10% interest upwards)… won’t the principle value of the property fall then as people who get in and are highly leveraged can afford less?

Isn’t that the time to put high cash deposits down on property, when interest rates are higher? Or have I got this logic wrong?

-Mike

… buy commercial RE at, say, 50% down and sit on it for 14 years. Reinvest the excess cashflow (rent – mortgage – management fees – 25% provision for vacancies/repairs/etc.).

I’m pretty sure you’ll get close to what you need, particularly if you keep a tight reign on living costs and keep building more cash for more 50% deposits!

Sounds like a gimme to you but 15-16% each year seems like a tough goal.

I am looking at stocks and RE. For RE, it’s tough to find properties that are cash flowing right now… still have an eye open. Am starting to get into different stocks as well, taking my time though.

Great financial advice- will try not to do anything stupid!

-Mike