Reply #39: Real Estate Pyramids

[54anickel]

http://globaleconomicanalysis.blogspot.com/2005/12/real-estate-pyramids.html

Sfgate.com tells how a couple Buys, Borrows, Buys with leverage to build an empire of eight vacation properties.

In the three years since Sacco and McCook put their faith in real estate, the couple have embarked on what might conservatively be called an E-ticket ride, pulling equity from appreciating properties to provide down payments for the next investment. They have bought eight vacation properties - four homes in Florida, three in California and 100 raw acres on top of a mountain in Lake County.

They move from home to home, depending on which one needs work, which one isn't occupied by vacation renters and where they are shopping for the next property.

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Sacco estimates that along with McCook's mother, who has been a silent partner, they've made $1.3 million since they began their buying spree, but all of this is still in equity on their properties. Their monthly reality is more sobering. They have $2.3 million in mortgage debt and negative cash flow that ranges from $5,000 to $15,000 monthly depending on the season.

So how do they pay the bills?

"We sort of count our equity loans as our income," she says, with the slightest wince. "If we had real jobs, we'd be fine, but we just need to get some money in. Some people call it a pyramid, but I don't like to think about it that way."

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