Very Basic Lessons in Real Estate

Posted by Richard Russell - Dow Theory Letters

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Brief excerpt from Richard Russell – Dow Theory Letters. Richard has made his subscribers fortunes. One of the best values anywhere in the financial world at only a $300 subscription to get his DAILY report for a year. HERE to subscribe. Amongst his achievements Richard was in cash before the 2008/2009 Crash and he has been Bullish Gold since below $300

Very Basic Lessons in Real Estate – My dad was a very smart fellow. His formula was that if you bought a house, it will ALWAYS cost you 10% of the purchase price to carry that house, and this includes, repairs, loss of interest on the money you invested, taxes, depreciation, general upkeep. One way or another, it will always end up costing you 10% of the buying price. A lot of buyers don’t believe that, but then are shocked to find out that 10% is correct.

My dad’s formula, if you buy a house — then after that 10% expense, if you can rent the house and make a profit, you’ve probably got a reasonably good deal. To illustrate, if I buy a house for $500,000 in expensive La Jolla, then after figuring $50,000 to carry that house, if I can rent the house for at least $50,000 or better I have a good deal.

There’s no way in the world I can buy a house here for $500,000 and rent it for $50,000 or better. To me, this means that houses in La Jolla are selling for at least twice what they are actually worth.

Times change. A few days I was talking to an older-lady real estate agent. She had moved to La Jolla from Colorado in 1961, She told me that in 1961 you could “buy” a house in La Jolla simply by taking over the monthly payments. A friend of hers who had some capital bought 22 houses by taking over the payments. Since then this friend has paid off the mortgages on all 22 houses and now owns them free and clear. Of course her friend is now a multimillionaire with a fat income.

Russell Comment — Money is made in the BUYING, and that also applies to the stock market. If I buy anything cheap enough, I’ll make money. But if I overpay, I’m buying a guaranteed loss. In the stock market, the time-proven best test of values is still price/earnings and dividends. Buy ’em rightl and “All comes to he or she who waits.”

The key to profits — buy great values, and then sit on your keyster.. The key to losses, overpay for items and sit on them. If you do that, then in time, you’ll be wearing patched pants and shoes with holes in them.

Memories — My grandmother owned a cute little house in Far Rockaway, New York, not for from the ocean. I remember grandma had a cherry tree in her garden. That tree was her pride and joy and when the cherries appeared each spring, we were invited out to pick and feast on those delicious cherries. Grandma died during the Great Depression, and my parents had the task of disposing with grandma’s “estate.” Grannie’s entire estate consisted of that Far Rockaway house. My parents advertised the house for weeks. The best offer they received was $2,500. Finally they sold the house for two thousand, five hundred. Those were the days! Nobody wanted to part with a dollar.

During the Depression my father zeroed in on one NYC hotel. The price to buy that hotel was $120,000. The bar alone at the hotel was making $120,000. The whole package was a terrific bargain. My dad went to a number of wealthy New Yorkers and presented the picture. Not one was willing to put up the money. I’ll never forget my dad’s frustration and disappointment.