Novice needs some Real Estate advice

JJSea · Feb 6, 2006

Hello. I'm totally new to investing (having inherited a little bit of money) and would like a little real estate advice, if possible.

I'm in the Seattle area, which has been appreciating out of sight the past couple years. They expect a slowdown, but it hasn't happened yet. I really need to buy some sort of a place to live (not strictly an investment, I need a primary residence, having been a renter all my life). I seem to have lingered a little too long looking about these past couple years and now interest rates are inching up, and prices as well, making it more difficult, as I have a very modest income. My investment advisor says not to buy right now, wait till things come down a little, but I don't see them doing that, they only ever seem to go up, and I'm afraid I will miss the bottom rung of the ladder.

Should I go for broke and try and get in now while things are at their "peak", or hang about another six months or a year and hope for a price drop? Just curious to see what you money-savvy folks might have to say.

Also, I was wondering how feasible the idea might be of finding an investor to go in with me on a property, since I would ideally like to try and build. Are there people around who might want to buy the land as an investment, with me building a little house on it, and share the equity? I have enough to build a house, but not buy the land with it (land prices are getting real high here, too). Is this a good idea or totally impractical?

Thanks for any advice!

JJSea

zf trader · Feb 6, 2006

You need to figure out what is greater rent or interest payments on a mortgage and then factor in taxes, insurance etc. In a lot of markets you will be further ahead renting.

steve46 · Feb 6, 2006

Well, you need to re-orient yourself as regards real estate.
Its never a good idea to "go for broke" in any market much less a real estate market in that is in the late innings.
If you want to own a home then you should be sure that it will improve your quality of life.
Then you need to be able to afford it, and you should know the local market (in the place you wish to live).
Finally you have to have a way to decide what constitutes fair value in your market.
So what we are saying here is you need to educate yourself first, then you can think about risk and whether you want to speculate.
Your current orientation is pretty much a sure loser.

Good luck
Steve

Arnie · Feb 6, 2006

Even if a market is over valued it is very unlikley that you benefit by waiting. #1 your timing would have to be perfect, which is hard to do in any market, much less one that is as illiquid as real estate. #2 you are most likely going to be paying rent anyway, so why not pay a little more and own your home. #3 There are always good deals out there. Look at foreclosures, REO's, distressed sales like divorce, job transfer etc...Find a REALLY GOOD agent that is willing to work FOR YOU. Most agents suck when it comes to putting in the time necessary to find a below market sale, but they are out there.

NKNY · Feb 6, 2006

Also look into construction loans if you want to build... No need to partner with anyone.

Just make sure you avoid loans with double closings and make sure you have enough cash to complete the first phase of the job(usually the foundation).

The bank will not release the first draw unless the first phase is complete.. Obviously understand what the phases are for your institution.

look around, there are even some programs that bundle the land purchase but most do not.

Indymac has some good programs. Try and avoid brokers and deal directly with institutions. If that doesn't work then use a broker, you'll pay more and be lied to but they may find a lender to fund you.

Nick

shfly · Feb 6, 2006

Could also put your $$$ in a CD at 5ish%, that should pay the rent for awhile...

Buy a fixer-upper if a little handy; some sweat equity should/maybe/hopefully work out

Wait a couple of years, look for some blood in the streets...for a buying opportunity.

Just look at where the S&P 500 was in 2002, that might get you to sit up and take notice...

Good luck!

prt_systems · Feb 6, 2006

Quote from Arnie:

.....Find a REALLY GOOD agent that is willing to work FOR YOU. Most agents suck when it comes to putting in the time necessary to find a below market sale, but they are out there.

If you know nothing about real estate then this is good advice: Ask a potential agent specifically how they find and how many clients they have placed into a below market deal in the last 5 or 10 years. If the answer is zero move to the next one ----- there are many, many agents. Generally I have found (when I used agents) that certain agencies have more expertise in this than others ......

Rent Versus own depends upon your goals - If you know where you want to live and you plan on staying in the property for more than a few years then the calculation for renting versus owning is quite differnet than if you just want a safe investment to park some of your cash and you also desire to live in the place for an indefinte time because your plans or living situtation might change .....

In todays market in many locations renting have have a short term advantage - over the long term however it is usually better to own .... run the numbers

zf trader · Feb 6, 2006

Quote from Arnie:

Even if a market is over valued it is very unlikely that you benefit by waiting. #1 your timing would have to be perfect, which is hard to do in any market, much less one that is as illiquid as real estate. #2 you are most likely going to be paying rent anyway, so why not pay a little more and own your home. #3 There are always good deals out there. Look at foreclosures, REO's, distressed sales like divorce, job transfer etc...Find a REALLY GOOD agent that is willing to work FOR YOU. Most agents suck when it comes to putting in the time necessary to find a below market sale, but they are out there.

#2 is dead wrong, why pay more to take on huge price risk, responsibility for repairs and to become tied down to one spot. This is part of the flawed thinking that is driving up prices. There is no magical need to own a house.

Arnie · Feb 6, 2006

Quote from zf trader:

#2 is dead wrong, why pay more to take on huge price risk, responsibility for repairs and to become tied down to one spot. This is part of the flawed thinking that is driving up prices. There is no magical need to own a house.

I can think of a couple of reasons to own versus rent.

#1 you lock in your price by buying. Any increase in value is equity in your pocket when you sell. With rent, you are exposed to ever increasing costs that you don't share in..

#2 The govt will effectively make a part of your mortgage payment in the form of a write off on the mortgage interest deduction.

#3 Real estate, on a national level, has NEVER gone down in value over a prolonged period of time....NEVER. It's true you will have declines in certain markets for short periods, but overall, real estate has always gone up. It is the best inflation hedge there is for most people.

And as far as being "tied down", you have a point, but I would assume anyone contemplating home ownership doesn't mind this. Now if his holding time is under 5 years, maybe renting is the way to go. But yuor other arguments don't hold water.

TruthTeller · Feb 6, 2006

Quote from JJSea:

Hello. I'm totally new to investing (having inherited a little bit of money) and would like a little real estate advice, if possible.

JJSea

From the perspective of 30 years of buying homes, I offer the following advice.

(1) Don't wait. Buy when you are ready, but buy intelligently. Good homes, like good stocks, can be bought at a good price even in a strong market. It takes some patience and work, but it can be done. Many sellers are open to lower offers. If you don't ask, you don't get. Don't be afraid to make low offers, so long as they are somewhat reasonable. You may be surprised at what you can get. If you are working with an agent, and they balk at writing low offers, then move on to another agent.

(2) Avoid taking on partners, .especially in real estate. It will just complicate your life.

(3) Don't build unless you are experienced in the market (which evidently you aren't), and unless you have strong contacts in the industry to get things done (which you probably don't).

(4) Connect with a really good mortgage lender and accountant who can advise you on how much you can afford, how much to put down, etc. These decisions will be very important over time. Don't take this advice from an agent, unless they are very highly experienced and you trust them completely.

Because of the tax benefits and appreciation, over time there is no better investment that a single family home. Within reason, take on as much as you can, and continue trading up as the tax laws permit. In 20-30 years, you'll be very happy you started the process. I bought my first home in 1979 for 59K and 3K down. I now have 800K in equity, and I've never added a cent other than continued appreciation and trading up. That's the value of a single family home.