Question for the experts on property acquisitions

[KactusKiller]

There have been many great discussions on investments when it comes to land portfolios. As most know the market right now is in a very odd position. The land market especially in metro Texas is still very hot and interest rates even tho still pretty low have climbed some. Here is a scenario I was discussing with a friend yesterday.
With interest rates still at all time lows and land values still at all time highs would you be better off using a 1031 exchange or just using the old standby of cash down payment and financing the rest? Said property would prob be paid off and has really risen in price, also should continue to rise at a pretty high annual rate. Interest rate would be fixed at a sub 4% rate. Common sense would say the better investment monetarily would be to use the current low loan rate for financing and keep the high value land asset. But who wants to be tied to more debt right now even tho it’s at a low annual rate. The rate of return on the land value should continue to far exceed the low fixed annual interest rate even if the market cools off and stabilizes some. The chance that it will have a lower rate of return than 4% is pretty slim.

What say you green screen land investment experts? Hold on to a high value asset but pile on more debt in a turbulent time or use the asset to get a bigger asset and keep long term debt low?

[JBJTX81]

Pile on the cheap debt while you can

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[W E H]

if you can COMFORTABLY service the debt, i would use that method. i am not wanting it but i am afraid the US DOLLAR will continue to devalue. in that light i am putting a lot of purchases that i would normally pay cash for or at least larger down payments into longer term fixed rate loans. i am figuring to be paying them back over time with (unfortunately) devalued dollars.

[KactusKiller]

What happened to all the finance/investment/land "experts"?

[M16]

What happened to all the finance/investment/land "experts"?

I've tried to figure out what you are trying to do. I after studying your post for a while all I've come up with is a headache. Therefore I have withheld my expert opinion. Can you decode your original post?

[ken]

What happened to all the finance/investment/land "experts"?

You might be lucky that all the experts took the day off from TBH

Your question probably too complicated with not enough background information for anyone to give you decent advice.


I don't borrow money but have done several 1031 exchanges. So I can tell you when I have decided to use a 1031 exchange. When I do a 1031 exchange it is because I wanted to sell the property that I am exchanging and the property I want to sell has a lot of capital gains that would be taxed if the property isn't exchanged.

If you are in that situation, then a 1031 exchange is probably the way to go. If you have not done a 1031 exchange before you should educate yourself on 1031 exchanges. There are several criteria that must be met for timing, amount of debt, purchase price etc of the replacement property.

[KactusKiller]

I've tried to figure out what you are trying to do. I after studying your post for a while all I've come up with is a headache. Therefore I have withheld my expert opinion. Can you decode your original post?

LOL, my knowledge can not be interpreted by mere mortals!

The scenario we were discussing was simply this,
You have a property asset that is growing equity at a fast rate(like most texas land)
You have the option of
A-cashing out on the asset and using a 1031 to purchase a larger asset
OR
B-Keep the growing asset and finance more property with sub 4% or lower long term fixed rate debt?

I would think in the long run the rate of return on the growing equity asset would be higher than the new fixed rate long term debt.

[Kingfisher789]

LOL, my knowledge can not be interpreted by mere mortals!

The scenario we were discussing was simply this,
You have a property asset that is growing equity at a fast rate(like most texas land)
You have the option of
A-cashing out on the asset and using a 1031 to purchase a larger asset
OR
B-Keep the growing asset and finance more property with sub 4% or lower long term fixed rate debt?

I would think in the long run the rate of return on the growing equity asset would be higher than the new fixed rate long term debt.

Not necessarily.....I think the trick is as allways is to capture as much good property as you can handle weather that’s one piece or 10.

[KactusKiller]

You might be lucky that all the experts took the day off from TBH

Your question probably too complicated with not enough background information for anyone to give you decent advice.


I don't borrow money but have done several 1031 exchanges. So I can tell you when I have decided to use a 1031 exchange. When I do a 1031 exchange it is because I wanted to sell the property that I am exchanging and the property I want to sell has a lot of capital gains that would be taxed if the property isn't exchanged.

If you are in that situation, then a 1031 exchange is probably the way to go. If you have not done a 1031 exchange before you should educate yourself on 1031 exchanges. There are several criteria that must be met for timing, amount of debt, purchase price etc of the replacement property.

No joke, I have studied on it a good bit and I have different avenues for legal and financial advise from actual professionals. I like the discussions on here from some of the guys who have done it with their money in real world situations. And we have some on here that have been very successful at it and as I have learned theirs always more than one way to skin a cat! I just like ready the experiences and the discussions mainly.

[KactusKiller]

Not necessarily.....I think the trick is as allways is to capture as much good property as you can handle weather that’s one piece or 10.

So your on the side of keep the high equity asset and utilize low rate long term debt to purchase more.

[M16]

So your on the side of keep the high equity asset and utilize low rate long term debt to purchase more.

This is what I would do. Thanks for bringing it down to a level that I could attempt to understand.

[KactusKiller]

This is what I would do. Thanks for bringing it down to a level that I could attempt to understand.

Hey man some times you just have to put it in terms the little people can understand, LOL

Thanks for playing along!!

[Hogmauler]

So the question is how does anyone here know how long they can service the debt? Does anyone here think the economy is teetering or the country is in danger of collapsing or do you just bury your head and roll with it? Not being sarcastic. I , like kactus killer, enjoy and use the knowledge I gain from y’all. So, again, does the present state of our country come into play on any of y’all’s financial decision’s? Why or why not?

[KactusKiller]

Oh its a constant worry for anyone but my main goal is to control what I can control. Right now any variable rate loans or heavy debt not attached to an appreciable asset would scar the crud out of me.
What our discussion was over is how to best utilize the tools and assets at our disposal?
Long term fixed rate debt is a tool. As long as it is for an asset that builds equity at a higher rate than the annual interest rate your getting charged I would think that is a good thing.

As far as the government taking a crap there isn't much I can do about that. It's not a matter of if it when and to what degree. None of us know that information so I'm gonna try to keep doing business as usual until that time comes. Even if the economy crashes it's not bad for everyone, the rich get richer usually and most of the time the economic crisis only majorly effects those who aren't prepared and over extended.