23 year old with 200K inheritance. Entrepreneurial ideas? Help

[rj.phila]

Originally Posted by alphadore

Well, what happens when the price of the property falls dramatically? What guarantee do we have that U.S. is not going into another recession? There is no such thing as hitting the bottom. You never know where the bottom is. You finance a property then in two years, it is worth half the price you bought it for. You wont get the same rent from your tenants to cover your loan. I dont see this is the time for her to take risks. She can easily invest in a government bond that matures in 5 years and then decide what she wants to do with the capital. No rush.

just a heads up-rents and prop value function independent of one another. rent is more a function of general employment level than prop value.

[alphadore]

Originally Posted by rj.phila

just a heads up-rents and prop value function independent of one another. rent is more a function of general employment level than prop value.

I dont agree. There is a very high corelation between them. If the property value goes down, the rent prices will go down. People will start considering buying houses rather than renting. This would be risky if you loaned to buy a house and relied on paying your loan from the rental income. General employment is a factor in this I agree but only one of the factors.

[rj.phila]

Originally Posted by alphadore

I dont agree. There is a very high corelation between them. If the property value goes down, the rent prices will go down. People will start considering buying houses rather than renting. This would be risky if you loaned to buy a house and relied on paying your loan from the rental income. General employment is a factor in this I agree but only one of the factors.

i own 4 properties. the valuations have popped all over the place in the last 3+ years. rents are all stable to up. dont fight the numbers my friend.

look at figure 1 or 3 here:

The Federal Reserve Bank of San Francisco: Economic Research, Educational Resources, Community Development, Consumer and Banking Information

or

U.S. apartment rents rise, supply tight | Reuters

or

average rents up 5% in Q3:

Third Quarter Apartment Rents Up 5 Percent Nationwide - Rent Jungle

[97guns]

Originally Posted by alphadore

Well, what happens when the price of the property falls dramatically? What guarantee do we have that U.S. is not going into another recession? There is no such thing as hitting the bottom. You never know where the bottom is. You finance a property then in two years, it is worth half the price you bought it for. You wont get the same rent from your tenants to cover your loan. I dont see this is the time for her to take risks. She can easily invest in a government bond that matures in 5 years and then decide what she wants to do with the capital. No rush.

no risk no reward, sure im at risk but my risk is very low compared to trying to open a business. i think the risk is pretty much taken out of real estate meaning it has or is close to hitting bottom. i was paying 75K for houses that were selling for 350K at the peak and ive realized a gain of 15-20K on each already, i hedged myself by buying at the bottom and am even more hedged now that some equity has built..scared money wont make money

[alphadore]

Originally Posted by rj.phila

i own 4 properties. the valuations have popped all over the place in the last 3+ years. rents are all stable to up. dont fight the numbers my friend.

look at figure 1 or 3 here:

The Federal Reserve Bank of San Francisco: Economic Research, Educational Resources, Community Development, Consumer and Banking Information

or

U.S. apartment rents rise, supply tight | Reuters

or

average rents up 5% in Q3:

Third Quarter Apartment Rents Up 5 Percent Nationwide - Rent Jungle

Hi Rj. Looking at the past three year data to arrive a conclusion that there is no correlation between rent and house prices is wrong. Even in the first article you submitted does it clearly say that it is an indication of a bubble.

For a comprehensive study conducted by Federal reserve covering the data from 1970 to 2004, please refer to the following document; http://www.federalreserve.gov/pubs/f.../200450pap.pdf

Hope it helps.

[alphadore]

Originally Posted by 97guns

no risk no reward, sure im at risk but my risk is very low compared to trying to open a business. i think the risk is pretty much taken out of real estate meaning it has or is close to hitting bottom. i was paying 75K for houses that were selling for 350K at the peak and ive realized a gain of 15-20K on each already, i hedged myself by buying at the bottom and am even more hedged now that some equity has built..scared money wont make money

congratulations... buying a house may seem less risky than investing in equities. But buying a zero coupon T-bond is even less risky than investing in real estate. T-bond is a capital guarantee fixed income vehicle. Once it matures, then she can decide what she wants to do with that money. Maybe she will have a brilliant business idea by then. But now she doesnt have an experience nor an idea to proceed with. Why rush? Take your time, safeguard your investment in a government bond against inflation and make the right decision when time comes.

[rj.phila]

alphadore: good article, some good stuff there. some clarifications:

1-i wasnt trying to say they had NOTHING to do with one another, merely that drawing a direct causal line from value to rents just isnt accurate, IMO. when i said "rent is more a function of general employment level than prop value", i was saying there is a more direct causal relationship btw employment/rent than prop value/rent. how many landlords slashed their rent in 2008-9 by 40%, when the underlying prop value was slashed by 40%? none that i know of. all i can say is that every landlord i have talked to about this, including myself, sets rents according to what the market can sustain, NOT what the value of the prop is. and what the market can sustain is, without a doubt, a function of the buyers' ability to pay, which is a function of.....employment levels.

2-i'll quote the 1st two lines of your linked article to illustrate what im trying to say:

"Nominal house prices in the United States have risen by about 70 percent since
1994. Over the same period, the indexes for tenants' and owners' equivalent
rent in the consumer price index have increased less than half as much".

that illustrates the point i'm trying to make: when prop values go up, down or sideways, rents dont necessarily follow.

however, on the OTHER hand, rental income is, IME, a much better indicator of valuation than anything else. that is also supported by this quote in your article:

"The results lend empirical support to the view that
the rent-price ratio is an indicator of valuation in the housing market."

or, to just dumb the whole thing down, you could replace all my posts with this:

rent is a much more likely indicator of value, than value will be of rent.

[alphadore]

Good morning RJ. I guess we understand each other better now. Thanks for further clarification. By the way, I hope Irene wont cause much damage to you guys. I am far far away from there.

[97guns]

Originally Posted by alphadore

congratulations... buying a house may seem less risky than investing in equities. But buying a zero coupon is even less risky than investing in real estate. T-bond is a capital guarantee fixed income vehicle. Once it matures, then she can decide what she wants to do with that money. Maybe she will have a brilliant business idea by then. But now she doesnt have an experience nor an idea to proceed with. Why rush? Take your time, safeguard your investment in a government bond against inflation and make the right decision when time comes.

HA, if your holding treasury bonds your getting ponzied, how could you tell her to invest in a company (our gov't) that is bleeding money like theres no tomorrow, with a balance sheet thats 16 trillion dollars in the red. would you invest in such a company on wall street?

[rj.phila]

Originally Posted by alphadore

Good morning RJ. I guess we understand each other better now. Thanks for further clarification. By the way, I hope Irene wont cause much damage to you guys. I am far far away from there.

thanks much. crossing fingers, we'll see here in a bit!!! 7pm on sat, and i can still blather on the internet, that's a civilization win, no?

97guns-it may eventually be one, but technically, it's only a ponzi scheme when interest payments are foregone. we're not there yet. so the sky MAY fall, but until it does, it hasnt and isnt. billions of dollars in global wealth flocked to treasuries AFTER the s&p downgrade.

[grahampmortimer]

Find something that you have a passion for and you're good at. Do whatever business that is. The only way to survive in the early stages of business is to be passionate about it.

[alphadore]

Passion is very important. I agree with you there.

[thefrugaltoad]

What an opportunity for you! I would advise against investing the entire amount in a startup business and instead take at least 150K and invest that in a Roth IRA, you will pay taxes up front but withdrawals are tax free and makes sense given your young age. Of course you will want to diversify your holdings, reinvest dividends, and re-balance quarterly. If you have the skills necessary to start your own business I say go for it, if you do not have the skills stay in your current field and acquire the skills.

[shanecurran]

Originally Posted by alphadore

Well, what happens when the price of the property falls dramatically? What guarantee do we have that U.S. is not going into another recession? There is no such thing as hitting the bottom. You never know where the bottom is. You finance a property then in two years, it is worth half the price you bought it for. You wont get the same rent from your tenants to cover your loan. I dont see this is the time for her to take risks. She can easily invest in a government bond that matures in 5 years and then decide what she wants to do with the capital. No rush.

There is risk inherent in every investment opportunity. Leaving the money in "high risk stocks" is in no way less risky than investment property. If the property brings a positive net cash flow, then it may be worth it. Another thing to consider is that the price for rent is sticky so when property prices fall, the rent will not fall as much.