Out at the peak

Sunday, May 28, 2006

Early 2004 memories

I posted part of this on Flip This:

I remember when I was considering to buy a second house for an investment in 2004. I was reading the "investor" books' examples, but then I was never able to apply similar numbers to the real world. Goal: Obtain properties for maximum of 12 GRM (Gross Rent Multiplier) or less. And many experts will not bother unless it is 9 or less.

The only stretch that was possible was if I took out a 2nd mortgage for a downpayment on a crappy condo in a bad area. I would hole up in the condo, and rent my primary residence since I might get $600 more per month for it than the condo. I would have negative cash flow of $500-$700 a month plus I would be taking on a bigger personal mortgage payment.

Needless to say, I gave up on that idea. I grew worried that prices might slip some day because we were disconnected from fundamentals.

My point is: My first house was purchased in Jan 2001 (under contract in July 2000), and a pre-boom investor could not get cash flow positive on the house (unless the downpayment was 40% or so). It was already 16 GRM at this point, and when I sold it in October 2005, it was 31 GRM since rents in the area have not changed.

If I bought that condo, I could have sold it too in Q3 2005 for a pretty penny except I'm not sure how I would have survived the carrying costs.


  • Check out http://www.condorenege.com and see how buyers are banding together to get a new fair purchase price from builders.

    By Blogger condo renege, at 10:18 AM  

  • That's too bad your board was wiped out. I hope your effort gains traction again.

    By Blogger Out at the peak, at 5:49 PM  

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