Definition of Cash Flow

[mlwilliamson]

QUOTE (C2Ventures @ May 3 2008, 11:21 AM) Hi Turtleford,

The HELOC source Neopez is referring to would likely be from equity in their personal residence or another property, so no it would not be considered the 2nd or 3rd mortgage. You get a mortgage for 75-80% LTV and then utilize your personal LOC to fund the down payment.


That is correct!

 

[invst4profit]

Smitty
However, I would like to point out a small difference; an aggressive real estate buyer using creative and leveraged buying/financing strategies does not automatically imply that they are a speculator, they may just have a different risk tolerance and goals for their real estate investing. If they do all the due diligence and they buy based on economic fundamentals, they`re still investing, not speculating just because they have (or not) a tolerance for negative cash flow.



If you buy something based on it`s expected future value regardless of how educated you may be you are speculating that it will increase in value. It may well be a highly educated speculation but it is speculation just the same.
Keeping in mind speculation is a accepted form of wealth growth.

 

[Sarnia]

QUOTE (thomasbeyer2000 @ May 4 2008, 02:17 PM) ON, SK, some smaller AB and BC towns .. make sure though the town is not going away as some BC forest towns are ..

hard to find in large cities like Red Deer, Edmonton, Toronto, Vancouver ... but maybe in sub-urbs like Camrose, Burnaby ...

Thanks for all this information, it was a great question that was asked, and we also benefitted from it. Thank you

 

[Thomas Beyer]

QUOTE (invst4profit @ Jun 18 2008, 08:43 AM) ...

If you buy something based on it`s expected future value regardless of how educated you may be you are speculating that it will increase in value. It may well be a highly educated speculation but it is speculation just the same.
Keeping in mind speculation is a accepted form of wealth growth.

rents go up, on average, with inflation. Thus, values, a function of rents, go up too, on average, with inflation .. with possibly pro-longed periods of ups or downs higher or lower than inflation !

You canNOT buy a piece of real estate with an assumption: it may be flat in value forever .. then 90% of all commercial deals would not get done today ..

While you must assess the "as is" situation .. you must make some PRUDENT assumptions about the future ! Why do you buy Google or IBM or Microsoft shares ? You make some assumptions about their current and future value ! Why buy gold ? because you make an assumption about the economy, inflation, monetary value ... similar in real estate .. you make (hopefully) prudent assumptions about current and future income, potential improvements to the property or area, interest rates, the economy, the geography, the in- or ex-migration, and the property`s value !

 

[Smitty]

QUOTE (invst4profit @ Jun 18 2008, 08:43 AM) If you buy something based on it`s expected future value regardless of how educated you may be you are speculating that it will increase in value. It may well be a highly educated speculation but it is speculation just the same.
Keeping in mind speculation is a accepted form of wealth growth.

Invest4profit:

Yes, I can understand your point, no question.

But then, take your point to its logical conclusion; everyone in REIN, then, is in some form, a speculator.

No one invests in real estate hoping properties go down. Let`s be realistic; the reason everyone is trying to buy up Edmonton is that the research indicates we have one of the greatest probabilities in Alberta`s history that our property will appreciate 5% to 9% for the next 5, perhaps 10 years.

Additionally, what if you bought a cash-flowing property in the US right now, and you get a decent pay-cheque every month, but 1 yr, 2yrs, 5yrs from now the house value has dropped another 20% to 30%? Speculation or investing? You bought a cash-flowing property, right?

Is the measure and qualification process of what is defined as an investment strictly based on the present value of cash flow? Does my -$50 a month cash flow speculative house `suddenly` blooms and mutates into an `investment` a year from now simply because I was able to raise rents $100, and now I am +$50? How did my caterpillar suddenly turn into a butterfly?

Answer: It either was and still is speculation, or it was and still is an investment, or you could say it has characteristics of both. If my opinion seems contrary, then I guess I believe at some level we`re all speculating, no sense in dancing around that truth.

You`re not going to convince me that 2100 REIN members buying 17,000+ properties worth 1.xx billion dollars weren`t investing in all that glorious Alberta property without recognizing the hope/anticipation (based on sound due diligence and fundamental "investing" principles taught by Don/REIN) that those properties won`t increase in value...

Maybe its splitting hairs, but in my mind there is still a vast difference between a diligently bought property in Edmonton that may start out slightly negative, vs what Don defines as a true speculation; buying pre-builds based on a piece of paper and a non-existent structure. That`s not apples and oranges, its apples and zebras.


Smitty

 

[invst4profit]

Smitty I believe we can both agree it is a truly grey area. I am in a position to speculate on the future value of my properties due to the fact that the monthly return on my investments affords me the option to wait. Regardless of whether the value goes up, down or stays flat I make a return on my investment.
I suppose one could say I am speculating that I will not be forced to sell when they are down or that refinancing at higher interest rates won`t tip the scale.

When you purchase a property with a documented positive cash flow you are investing with a certain level of risk.
When you purchase a property with a negative or zero cash flow with the expectation it will be positive in 6 months due to factors beyond your control based on historic evidence you are speculating with a certain level of risk.

To declare that the sun will rise again tomorrow is speculation.

 

[Thomas Beyer]

QUOTE (invst4profit @ Jun 20 2008, 01:46 PM) Smitty I believe we can both agree it is a truly grey area.
...
To declare that the sun will rise again tomorrow is speculation.

interesting thread .. as a CERTAIN assumptions is a FACT .. hence not speculation .. so how likely is it that the sun rises tomorrow or that we will have inflation or a bouyant Alberta economy: quite likely but not 100% ..

 

[Smitty]

Yes, that`s what it comes down to - probabilities. Always about probabilities.Everyone`s tolerances, approaches, and strategies of course are selected on the basis of what works for them. The best, of course, is to have the best of both worlds; present value cash flow right now in a market that has a strong future. Edmonton real estate offers both right now.

My only point was that some "speculative" ventures are far safer and offer better, more profitable overall risk / reward profiles for the patient investor over some "investments" that offer cash flow in the present.

Remember that cash flow too is also speculative - your cash flow is only as good as you last, past rent deposit. To expand on this, if there`s a chance the sun won`t come up tomorrow (I suddenly envision a Broadway musical about a red-haired girl, but I digress), then there`s certainly a much greater chance that a)tenants can break leases, b) rent can be not paid, c)you could have vacancies, d)stuff breaks. So therefore, but every single "investment" depends then on an uknown tomorrow, and therefore, are speculative in nature. Getting the previous 6 months of rent in a twelve month lease is nice, but there`s no guarantees the rent will be paid for the remaining 6, future (speculative) months. Yeah, sure, you have a contract, but then you get into the expense, time, and effort to collect. Etc Etc.

It`s just a matter of degree. All you can do is make good choices, control risk, get some education, look at our fundamentals, and get as much probability on your side. Going from - to B/E to + cash flow inside a 2 year window is too narrow or arbitrary a measurement -for me anyways - to decide whether to apply a label of something being "speculative" or an "investment". Much easier to draw a line in the sand when, say, you`re talking about my earlier post about pre-builds.

As Don once said "there are no guarantees, but if you were to grade this market on a scale of 0 to 100 stars, I`d give it a 99". Sounds good to me, + cash flow or not in the first 12-24 months. It`s an no brainer to select properties in Edmonton with + cash flow - right now (thank-you Mr. "Plateau" aka "fear") -, but I also wouldn`t be sitting on the sidelines either if we weren`t in a plateau and cash flow in the first year was very difficult to find.

But hey, we`re all here for our personal Belize, so how ever we slice the onion, here`s to everyone achieving it.

If Nepoez is still reading this, cash flow indeed has come back into Edmonton, and I can say for sure, if you want it to cover your HELOC payment, have a look at Fort McMurray.

And if the sun doesn`t come up tomorrow, at least any property management issues will be completely moot.

Good Investing,
Smitty