Welcome to America...It's totally legal, and actually very smart.willthrill81 wrote: ↑Fri Jul 13, 2018 3:50 pmSo start an LLC, buy real estate in that LLC with as much leverage as you can, profit while appreciation is higher than mortgage rates, siphon that profit out of the LLC, and then walk away if things go south?gmaynardkrebs wrote: ↑Fri Jul 13, 2018 3:37 pmThe numbers pale in comparison to those who got rich both before and after the subprime crisis. Note also, their LLC's went bankrupt; they kept the dough they had made from their many previous LLCs.willthrill81 wrote: ↑Fri Jul 13, 2018 3:30 pmSpot on. A lot of professional real estate investors with decades of experience got lulled into thinking that appreciation would always trump mortgage rates and went bankrupt in the last recession as a result (being leveraged to the hilt didn't help matters at all either).danielc wrote: ↑Fri Jul 13, 2018 3:25 pmIf I was certain that houses would grow at 10% then buying a house with a mortgage at 5% would be the steal of the century. What I said (or intended to say) is that the "leverage" people talk about is not a simple multiplicative factor, and the value that it increases is the return difference. This is the kind of point that intellectually everyone knows, but some people often forget. In your example, 10% is more than 5%, so you'd make a fortune. If I knew that would happen, I would buy as many houses as I could get my hands on. As it turns out, I do not feel confidence that I can predict when that will happen, and I know that the typical appreciation rate on a house is very small.gmaynardkrebs wrote: ↑Fri Jul 13, 2018 8:17 amHouses are appreciating 10%-15% a year in some gentrifying neighborhoods around where I live. While they will plateau at some point, it's hard to envision a scenario in which they will decline from what one would pay today. It seems to me like you would say that riding it up for a while with 10% down a 5% mortgage is not a good idea, but I can't see why. When I do the math, it seems pretty lucrative on the upside, even granting that 5% is going to the bank. I guess I don't grasp where you are coming from. I will admit I'm not an RE speculator genius, although I've been tempted lately to try it. A lot of my friends have done pretty well, and they aren't Warren Buffets either.
Just to clarify, however, the developers typically set up separate LLC's for each new project. Siphoning is a not really the right word, because they don't loot the LLC; it just goes bust because they got caught with their shorts down on this particular project. Someone once said that the greatest subsidy in the history of mankind is corporate limited liability. I have to agree.