OPM is the key element that makes RE investment so power. OPM == Other People’s Money. The key for RE investment is leveraging OPM to make money for you. It’s kind of like setting up a stock option position but with much less risks and basically has no expiration risks like that inherently associated with stock option. The key is to spend about 10-20% down payment, and borrow 80-90% OPM (bank’s money). When the market is good, like you said, the magnitude and speed of return is huge. However, what makes it hard is the 7-9 years down curve. Like Donald Trump said it clearly, the real successful investor is who he can survive the down turn. However, if you have the commitment to rent the house out during bad times and maintain positive cashflow, you would be able to minimize the risk. In so doing, you not only setup a option-like position using OPM (mortgage loan), but also digesting this loan using a second form of OPM (rental income). Thus, doubling dosage of the powerful OPM scheme. Carrying it out can be harder than said, but definitely doable if you planned it well.

In the short term, RE might not be a good choice, but for the long term, it is a much better one on the average return.

If you can get an average return of 10% from the stock market, you are doing very well. But on the RE market, you can do much better in normal conditions.

In the large metro areas, 7% annual increase in RE price is common. If you put 5% down, you borrow 95% from the bank, your capital increase 20 times. If your rent can cover the interest, tax, insurance, HOA, and maintenance, your return is 20*7% which is 140%. Isn’t this simple enough? This kind of leverage is really great. If you can pay down the capital by the same time, this leverage is even larger.

Home loan tips

Read carefully

If you are sent an ad for a mortgage, beware of phrases like these:

Low fixed rate!

The rate may last for as little as 30 days.

Very low rates!

Making payments based on such low rates may cause your loan balance to rise or force you to make a “balloon payment” at the end of the mortgage’s term.

Important information about your loan from XYZ Capital!

Another company may have obtained your lender’s name and your loan amount from public records. Read the fine print to see whether the letter is really from your mortgage company.

Los Angeles-based money management giant TCW Group Inc. is making a move into commercial real estate investing, a decade after folding up its first such venture.

TCW, parent of Trust Co. of the West, is expected to announce today that it’s buying a majority stake in Buchanan Street Partners, a Newport Beach-based real estate investment banker and portfolio manager.

TCW, which manages $150 billion in bond and stock assets for clients, said it was adding commercial real estate to its menu of investment options because of continuing interest in the property market from pension funds and other big-money investors.