Investing in a home/land while in the Navy?

[captain_drewski]

Thanks captain_drewski. That was a great explanation and really useful to hear. I think my main thing though has always been that 20% down payment. It would empty all my non retirement investments to make about that. I know less is doable but not as useful. I just keep wondering how would I be able to do it again 3 years later. Or is it really as simple as put the money into savings/mutual funds and take it out for the down payment?

Yeah you can tell I'm new when it comes to real estate and am hesitant to empty my savings and investments for a down payment...

Please call me Drew.

First off. If you have 'liquid' assets, make sure they are getting the highest possible return. Savings/checking accounts probably are the lowest form of return you can get. You do have 'liquidity' . .but at a cost. You might consider 6 month CD's instead. Sure, your money is battened down for that period, but you get a higher percentage return on the funds. AND. .pay off the darn credit cards every month! DON'T charge more than you can pay off next month.

I just learned today that Jorge Boosh is authorizing the reissuance of the 1 year Treasury Bill, which has not been available for several years. I did not hear the rate they are planning on paying, but might consider moving funds if it is better than what am earning with the CDs at San Diego National. The added benefit to the Treasuries is that it is 'tax exempt'.

To address your original concern about "It would empty all my non retirement investments to make about that.":

When you consider my original conservative example of making 50% on your investment, you have to think about risk to reward ratio.

You don't get anywhere by not taking that first step. I know it is uncomfortable. But, there are pleanty of books written by folks with better credentials than I that can give you that impetus and surity to make that first step. Once you see how . .and that it works, you will be converted.

Let me also address the question of "xmid" just above:

"Veterans can get a loan with no down payment. How would that change things?"

In my original example I showed a down payment, appreciation and paydown of principle.

If you use the VA loan . .and I HIGHLY recommend you do. It is a Congressionally approved method of veterans getting into a house. . .the end example would be that your 'equity' would be 'short' the $20,000 that you used as a downpayment.

$100,000 house
$100,000 VA loan
$10,000 appreciation + principal paydown at the end of 36 months.

You have a $10,000+ equity vs. $30,000 as stated. While the dollar amount might be 2/3rds less . .you have made 100% vs 50% because you have NONE of your own money in the deal. LOTS of vets have used the zero down VA loan to get into their first house. It's a benefit . .use it . .if you can.

 

[Cobra Commander]

My immigrant grandfather, who prospered through the Great Depression, told me; "always pay yourself first", meaning to put away a good chunk of change before you started paying everyone else.

Your immigrant grandfather stole that from "Rich Dad Poor Dad".

I don't know what type of investments you have, but selling them all when the market is down is really a stupid idea. Buy and hold. You should be EXTREMELY reluctant to sell your investments for anything.

 

[HH-60H]

You should be EXTREMELY reluctant to sell your investments for anything.

If you never sell then they are worth nothing.

 

[kmac]

You don't get anywhere by not taking that first step. I know it is uncomfortable. But, there are pleanty of books written by folks with better credentials than I that can give you that impetus and surity to make that first step. Once you see how . .and that it works, you will be converted.

My father, a mortgage broker in California, gave my brother and I this book back at Christmas, 2006:
http://www.equityhappens.com/(hxnyczvmddho2d45xev1l4yv)/Default.aspx

That is what "converted" me, if you will. Now both my brother and I own, and I can definitely see where real estate over the long run is an excellent way to build wealth.

Slightly in the same vein, the only thing I'd add to Capt Drew's write-up is that you don't neccessarily have to pay down the loan to make money. First, passive equity (appreciation of the value of the home) is going to grow regardless of the monthly payments. Second, the principle you pay back to the bank is pretty much on a 1:1 ratio. In other words, when you pay that back you're not making any money on it; it is after all paying down the loan. It is true that the loan amount will go down, but our primary means of growth comes from the passive equity. Therefore, if you invest what would be the difference between an interest-only and a regularly amortizing loan, you'd come out further ahead in the end. Atleast that makes sense in my head.

*I'll caveat that with the fact that I myself have a 30yr fixed. I plan on moving and renting, and therefore don't mind other people paying down my loan amount.

 

[The Chief]

Please call me Drew. ....

Aye, Aye Sir.:icon_smil

Great advice, much wisdom.

There are opportunities everywhere, all the time. Example: a house down the street recently sold in one week, multiple offers, above asking price. One simply must do their homework. Location, location, location.

I am currently looking at a small (17 acre) horse farm in South Carolina, between Asheville and Charlotte. Am preparing a contract offer of just over 50% of the asking price, no contingencies in the contract, hefty "earnest" $$. I think they will accept or counter close to my bid. Plenty of bargains in that area, looking long term. Lots of dogs too, you must have a plan and understand what you are doing, evaluating risks etc.

Oh, and should you buy a dog, get rid of it as quickly as you can, do not hang on to a loser.

 

[villanelle]

Please call me Drew.

First off. If you have 'liquid' assets, make sure they are getting the highest possible return. Savings/checking accounts probably are the lowest form of return you can get. You do have 'liquidity' . .but at a cost. You might consider 6 month CD's instead. Sure, your money is battened down for that period, but you get a higher percentage return on the funds. AND. .pay off the darn credit cards every month! DON'T charge more than you can pay off next month.

I just learned today that Jorge Boosh is authorizing the reissuance of the 1 year Treasury Bill, which has not been available for several years. I did not hear the rate they are planning on paying, but might consider moving funds if it is better than what am earning with the CDs at San Diego National. The added benefit to the Treasuries is that it is 'tax exempt'.

To address your original concern about "It would empty all my non retirement investments to make about that.":

When you consider my original conservative example of making 50% on your investment, you have to think about risk to reward ratio.

You don't get anywhere by not taking that first step. I know it is uncomfortable. But, there are pleanty of books written by folks with better credentials than I that can give you that impetus and surity to make that first step. Once you see how . .and that it works, you will be converted.

Let me also address the question of "xmid" just above:

"Veterans can get a loan with no down payment. How would that change things?"

In my original example I showed a down payment, appreciation and paydown of principle.

If you use the VA loan . .and I HIGHLY recommend you do. It is a Congressionally approved method of veterans getting into a house. . .the end example would be that your 'equity' would be 'short' the $20,000 that you used as a downpayment.

$100,000 house
$100,000 VA loan
$10,000 appreciation + principal paydown at the end of 36 months.

You have a $10,000+ equity vs. $30,000 as stated. While the dollar amount might be 2/3rds less . .you have made 100% vs 50% because you have NONE of your own money in the deal. LOTS of vets have used the zero down VA loan to get into their first house. It's a benefit . .use it . .if you can.

While I won't dispute the fact that RE is a great opportunity, you did fail to account for money spent on interest in both this scenario and the first one you posted. You've haven't spent nothing just because you put nothing down. You still have your own money money in the deal. In those first years, nearly all of your mortgage payment is interest, so you'll have put several thousand (tax-deductible) dollars into the property every year. If you sell in the above scenario and have paid $10k in interest, you are essentially only breaking even on the deal (excepting whatever small amount of principle you've managed to pay down, which won't be very much in 3 years).

That's why it is so much better to put down as much as possible. You are paying interest on a smaller amount, which means you you don't pay as much interest overall and there is less to make up for in order to turn a profit.

 

[captain_drewski]

Your immigrant grandfather stole that from "Rich Dad Poor Dad".

OR maybe the other way around, since I first recall him telling me this around 1949 . .before even black & white TV . .at least in our house.

Brings up a sore subject about 'stealing' proprietary stuff. "The West Wing's" President, Josiah Bartlett, happens to be cast after a descendant of the original, who was a signator to the Declaration of Independence and one of NH's first Governators (http://en.wikipedia.org/wiki/Josiah_Bartlett). My whole family is ticked at that hijacking of our family's good name, as we trace ourselves back to Josiah, on my mom's side.

I don't know what type of investments you have, but selling them all when the market is down is really a stupid idea. Buy and hold. You should be EXTREMELY reluctant to sell your investments for anything.

"Buy low, sell high" is a good way to operate. OR . .never sell at all . .passing it along to your heirs.

My only regrets have been over the 3-4 properties I was forced to liquidate when Reagan gave us "Tax Reform" in 1986. That really hurt 'mom & pop' types, who were 'out there', highly leveraged, based upon the money they got back from the government on April 15th. My goal was to own 30 free and clear rental properties at retirement. We only got half way there, due to the misguided tax reforms of the '80's, which hurt the small guys.

If you never sell then they are worth nothing.

Au contrare; any equity you have is part of your net worth and you can leverage that equity in any number of ways. Borrow against it . .use it as security. And. . when you get to a certain age, there is comfort in knowing you have a fall back position and something to pass onto your kids and grandkids.

And . .if they are kicking out a lot of net income every month. .that is worth a lot more than 'nothing'. Tell that to the IRS

 

[a2b2c3]

All I have to say is thanks to everyone who's offering their advice. Real estate just seems colossal when you have no experience with the matter... Really useful advice here. Thanks.

 

[bert]

Just a little more math to throw at this as a word to the wise. If you buy on a VA loan (especially if you had bought in the last couple of years) you need to be prepared to stick with it for awhile. Figure a 200k house and a total of 1% of loan fees (I'm keeping the math simple) and 5% commission on selling it and you need to be able to sell it for 212k just to get out from under it.

This is greatly simplified and I am not putting this out to discourage anybody: I am a big believer in buying property and I have bought at every CONUS duty station. I just want to make sure folks understand what they are getting into.

 

[captain_drewski]

This is greatly simplified and I am not putting this out to discourage anybody: I am a big believer in buying property and I have bought at every CONUS duty station. I just want to make sure folks understand what they are getting into.

I thought the theme here was "buy . .and never sell" . .unless you do a "Tax Deferred Exchange (IRS Tax Code 1031)".

THAT would be my advice. In which case, all the 'numbers' don't mean much when we are thinking what the value might be waaaay down the road.

This is time worn, I realize, but I include it because there are a lot of people a lot younger than I who might never have heard it:

Mark Twain: "Buy real esate . . God isn't making it any more."

 

[JTS11]

GREAT! My first post and I get to wax eloquent on two of my favorite subjects. Naval Aviation & real estate.

Previous posters have pretty well addressed some of the questions. From the time I left college to go to Pensacola in 1965 -to when I got off Active Duty to take an airline job in 1971, I moved 13 times. Don't know how that compares to today, but you get the idea. Your milage may vary.

Wow, pretty quick turnaround from college to the airlines. Is that even possible these days?

What did you fly while you were active duty?

 

[Catmando]

...
I just learned today that Jorge Boosh is authorizing the reissuance of the 1 year Treasury Bill, which has not been available for several years. I did not hear the rate they are planning on paying, but might consider moving funds if it is better than what am earning with the CDs at San Diego National. The added benefit to the Treasuries is that it is 'tax exempt'...

T-bills, notes, and bonds may be exempt for state and local taxes. However their interest income is indeed subject to federal income taxes.

Virtually risk-free, Treasuries will most always have a lower rate of return than Bank CD's for the same term. Currently, they actually have a negative rate of return since they pay less than the inflation rate.

Still, Treasuries are an excellent place to park some cash for a few days, weeks, months, or longer. But never buy them through a broker. Buy them directly without commissions from the Treasury.

 

[bert]

I thought the theme here was "buy . .and never sell" . .unless you do a "Tax Deferred Exchange (IRS Tax Code 1031)".

Time was I would have agreed with that, but unique circumstances in the last decade changed my mind. I was lucky enough that some of my career choices put me in a position to buy pretty close to the bottom in San Diego. The first house I bought (with 5% down) tripled in price in less than a decade. While it sounds like you might not have agreed with my choice, I did indeed sell that and have since sold others that I initially bought with the intent to hang on to forever. (I am actually down to owning only two - the house I live in and a condo in SD with a great tenant in it).

Again, I'm not disputing any advice you've given, I just wanted to make sure folks were considering all the angles. As much as the market was favorable for me a decade ago, it has probably been tough on folks who bought in the last couple of years. I don't know how easy it is these days for folks to get the loans you or I were getting not many years ago (but if you or anybody else has a good feel for it then I would be curious).

As a side note, I've contemplated starting a "Stupid Financial Questions" thread where people could ask these sorts of questions. We probably have a fair amount of folks on the board who have done pretty well for themselves. This would NOT be a stock tips thread, just a place where people could ask financial/retirement related questions without fear of looking ignorant or behind the curve. Any interest in that?

 

[captain_drewski]

Wow, pretty quick turnaround from college to the airlines. Is that even possible these days?

Well . .yes and no . . I DIDN’T say I got to KEEP the airline job

Close to the end of the first tour commitment, the Detailer hauled out all the trash Shore Duty gigs. I had “helo” on my resume, so he kept wanting to revert me back there, even though the rotor time was a small fraction of the total time. I would have stayed ‘in’ for the right billet, but there was NO way I was going to be “Station Pilot” at NAS MEM or Brownsville (H-34). Had socialized on the beach with the CO of VA-42 at Oceana and because I had TC-4C time, he said I should try to get orders there and he would make sure when it came time to rotate again, I would be qualified and get Fleet A-6 orders. Detailer didn’t care.

Immediately prior to seperation, I had two interviews and two class dates. DAL and UAL. If you recall, DAL was a small, regional with a preponderance of Convair props & turbo-props in 1971 and my real dream was PanAm . . .duh . . God is good.

I foolishly (or, so it seemed at the time) 'no showed' for the DAL class and later regretted it, as the early Monday morning I showed up to start new hire class in DEN, the receptionist said; "you didn't get the telegrams we sent to your permanent address in Massachusetts & where you last lived in Va Beach LT Johnson?" GULP . . first hint of a problem. I had been on the road for 2 weeks after separating and that was well before cell phones and the Internet (Al Gore was still in Viet Nam), so I had not talked to anyone.

Long story little bit longer, after sobering up in DEN about 72 hours later, I drove up to Aspen, immediately ran into a squadron mate (F-4 guy) who had gotten out the year before and had a band up there. His roommate was the manager of the Christian Endeavor bar at Highlands ski area and he hired me on the spot. Spent that winter bar tending, skiing every day and otherwise crazy stuff that I am not sure about the Statute of Limitations.

That was the year John Denver moved up there and our circle of buds got to socialize with him and the Nitty Gritty Dirt Band. One of my friends and former Navy Pilots, John Sommers (http://www.johnsommers.com/johnsommers/) was in the band and wrote songs for Denver (Country Roads) and others and still lives up in the mountains.

I came to SAN when the snow melted, shaved the beard and joined the Reserves, where I camped out, while building time, staying current, interviewing with PSA, WAL, AirCal, CAL, getting a RE Broker’s license, until I heard about Federal Express, where I got the Falcon Type Rating and went to work as a Courier in 1975. Was hired on the ‘line’ as a DA-20 F/O in January of '76 (Pilot #204) . . . SO . . from MY view, it was NOT “pretty quick turnaround from college to the airlines” . .more like 11 YEARS !

Interestingly enough, the guys who were on the line and furloughed from UAL did NOT get called back until 1978! I got a call from them in 1979, asking if I wanted to come in for another interview -and told them to ‘stuff it’.

What did you fly while you were active duty?

T-34, T-28, H-13, H-34, SH-3, TH-57, CH-46, CH-53, AH-1 (Cobra), UH-1 (Huey), A-1 (Spad), S-2, E-1B, C-1, C-2, U-11A, TC-4C, HU-16, E-2, P-2V, P-3, C-130, T-2, F-9, A-3, A-4, A-6, F-4, F-84, T-33, OV-10, T-39, C-54, C-117, C-118