It's really interesting how it all works and really complicated.

This article (cover article in the Nov issue of Fortune) explains how it all works and ultimately, the underlying reason for the current situation of the financials.

The money machine breaks down

I got in early
June, 2003

And I bought my house as-is from a distressed seller. Yes, my place has been a money pit but considering the deal I got on a 5300sqft. brand new house in the Hollywood Hills, I'm not complaining about the reinvestments I have had to make back into the property.

I could cover my costs (mortgage, taxes, insurance) by renting plus 100%, (baring any more very expensive repairs.) But even the expensive stuff to fix is still relative peanuts compared to the overall value of the property.

My wife and I are thinking kids soon so it might be time to move west when the market becomes ripe to buy. Brentwood, Westwood, area.
But it doesn't seem as though those markets have dropped yet.

So here's the big question though. Invested properly, safely, you should see 9%-10% in the stock, bond markets - Property, historically yields 4%-5% growth. So, except for diversification, does it even make sense to sit on property when you can have the same money making twice as much in the market, safely invested.... (Of course you can't live in a stock and you should always invest in the home you live in..)

But just some food for thought.

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If you keep your home and rent it out you are gaining appreciation on the home itself, the tenant is paying your note and building equity for you and you will get fairly good tax breaks on your mortgage interest. In the end you will benefit more than 4-5%. Although you are taking risks by putting someone besides yourself in your home. As long as you choose good tenants who take care of your place you should be OK. You also have to worry about taxes and maintaining the home. Stocks can be a great investemnt as well, but there are no guarantees with them either.

It sounds like you own a high-end home, so if you rent and move to another high-end home, you may, or may not, want to have the burden of owning 2 significant pieces of property.

I think you missed my point and his question was about opportunities in the current market. I was merely pointing out that if he was planning on selling, his current home would most likely be less than what it was a year or so ago but he would make it up if he was moving up.

I also don't understand your point about car payments? Most people don't finance cars as an investment and think they will appreciate it value.

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The key is properly and safely. I don't know much about stocks, but I feel stocks tend to be riskier as well, which is generally the case with investments with higher returns. And you never know how safe a stock really is, just look at Enron. With real estate, the market can go south, but it will never go to zero.

You also have to look at the tax break you get with real estate...on top of the mortgage and property tax writeoffs you get, you also get a $250K exemption on your primary residence as long as you live in it for 2 out of the last 5 years (in your case, it would be $500K between you and your wife). How many investments give you that type of tax break? I hope you don't mind, but I took a quick look at what you got your home for and you should still make quite a good profit if you sold, about what you put as a down payment for your home (I don't have a crystal ball as to what you could get for you home, but that's what I estimate based on the comparable sales in the area). Unless you bought Google, I can't think of any other stock that has doubled over the last few years (I'm sure our stock gurus know of a few).

Another thing to consider that FSeth's last post reminded me of is if you decide to keep your current home as a rental, how much of a burden would it be if you couldn't find a tenant for a few months and had to make payments on both homes? If you want to have an investment property along with your primary residence, consider purchasing a multi-unit property. Can you see how that would be a better option? My wife's parents have an old 20 unit apartment building that they still make $50K after expenses, and that's only because they keep the rents low so tenants will be less likely to move out.

I live in the Westwood area, and I know the Westside pretty well, so let me know if I can help in any way.

I have been looking into investment opportunities in the current market, but pretty much gave up in LA/SoCal since it has been next to impossible finding anything that would be considered reasonably priced or a deal. Even going east in the inland empire the homes have OC prices but at least they are larger.

You should keep it and raise your kids in it at least until where they go to school becomes a factor. I think most who are looking at that particular size and location are more likely to want to buy. You could rent it out on a weekly, bi-weekly basis and profit. I have a friend who owns a few properties large and small in the west side who does this and rents them out for $4500-$10,000 a week but it is pretty much a full-time job maintaing them. Most the time they are rented by companies in entertainment industry (Adult/TV/Movie/Music) who need a nice place to shoot a movie, or music video. Occasionally there are foreign government officials or companies who need to throw a party who rent.

Whatever you decide, definitely make sure it won't hurt you too much if you had make payments on the home incase you can not find tenants or they're late with rent, etc. I've had bad experiences in that area where tenants who drove bentleys or other expensive cars yet still are often late paying rent or just move out without notice after they owe you a few months rent, I took enough hits to conclude investing in west LA is no longer worth my while.

In the real world, people are not "just walking away from their mortgages". They agonize about their financial mistakes and even consider taking their lives just so they don't go through this embarrassing ordeal. I just saw a client that will have their two year home on a short sale (in lieu of foreclosure) and I can tell you that each time I finish a meeting with both husband and wife, I get pretty choked up. It's really a sad story to say the least.

Losing your dream home (specially for first time homebuyers) really sucks big time