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Subject:  Re: OT: KISS Date:  8/11/2002  7:39 AM
Author:  joelxwil Number:  73459 of 882490

High leverage in real estate is profitable! I bought two 3-unit apartment buildings for $112,500 each building. I spent $15,000 to fix them up. They cash flowed practically from the git-go. A year later when I refinanced to take out the hard money loans, they appraised at $178,000 each. Three years after I bought them, they're valued at $278,000 each. Geez, do I even have to get out my calculator to determine that my purchase--when I hardly even knew what I was doing--was profitable?

It seems to me that when you buy at a significant discount to ARV (after rehab value), leverage can do nothing but make you wealthy.

Good for you! But how about a bit of logic here: the fact that you made a lot of money in a fairly short time does not mean that you did not take a lot of risk. It certainly seems that you got a good value, and that it was an intelligent investment.

However, if the units had been hard to rent, you would have had very little room to save your investment.

Risk is the hardest thing to evaluate because it is so hard to predict what may happen. Other people have done the same thing - or what they thought was the same thing - and lost big time.

The reason I said that real estate leverage was risky has to do with the fact that sometimes when things get bad there just are no buyers, or renters, and you end up with a piece of property you cannot pay for.

One way to evaluate risk is to ask yourself, "If everything goes wrong, how easy will it be for me to save myself?" Or, "OK, this is my plan, but what is my backup plan?"

I am not opposed to investing in real estate but there are some things that you need to consider.
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