1) You don’t need to have 100% financing, neither 95%. 80% financing is also a good formula. For example, you put down 100K and bought a 500K house, 400K is borrowed. If you can make 400K cash flow even (I know it’s hard), you’ll have made it. For me, I focus on 300K house, borrow 250K and put down 50K, cash flow will be a lot easier. Of course, 100% financing will maximize your leverage, but if that’ll put you into too much risk, then reduce the leverage. You want to balance the leverage with the cash flow, reducing the risk yet maximize the return.

Over the years, I find that the best investment tips can often be found in the most unlikely places: Government political debates and planning policies. As a great example, in today’s Washington Post newspaper, there is this artile which reveals what may lie ahead for the local property market. With this information in hand, you can invest with confidence.

The full article is here:

http://www.washingtonpost.com/wp-dyn/content/article/2007/10/02/AR2007100200636.html

http://www.washingtonpost.com/wp-dyn/content/article/2007/10/02/AR2007100200636.html

I quoted some discussions here:

SF Bay area. SF Bay area is not a traditional real estate investment market. It’s a very bad investment market not due to its lack of rise potential (sure, it may double again in next 10-15 years), but due to its awfully bad cash flow. Basically, the huge price versus rent ratio has probably permanently crippled this market as investable from a cash flow point of view. Of course, if you have tons of cash, you can still invest. But that would become a utterly bad usage of buying power, you could buy 5 houses in a different location and guaranteed all nice cash flow in a different location.

If you studied the US housing market history, you will find this ripple effect: Near the end of a bubble, second tier cities start to see fast price appreciations that were only experienced by first tier cities in the early stages. Investors seeing less profit potential in first tier cities, they started to migrate to second tier cities and bid the price up very fast. Bubble was spreading to second tier cities. When you see that happening, it’s a sign that the bubble was getting ready to burst. As we can see, starting 2004 and peaking in 2005, second tier cities in the US, namely Phoenix, Las Vegas, Portland and probably San Diego were experiencing this second tier wave. Then the bubble bursted in 2006.

A house can not avoid inflation, but it can hedge against inflation. Inflation can’t be avoidable, it stays with us as long as the society has liquidity needs. Like the current economy, Fed is creating inflation by reducing short term borrowing rate, it potentially stir up bigger inflation pressure going forward. More liguidity in financial market, more cash, it will all end up with reduced buying power for the money.