There is a large part of me that wants to take your advice oneway. I probably will. But the other part of me says go for it you .... Its like that scene in Animal house with the fear and greed on my shoulders. As it better to have money when everyone else gets hammered or is it better to be doing great along with the crowd.
Rental prices lead housing prices?
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Crowds can be correct for quite a while. It is a heady thing....the talk of gatherings, people are all making money, usually on paper though. Usually people get pulled along with the crowd, have big paper gains, and give it all back.
Just like the stock market in early 2000. If you talked negative about the stock market to your friends back then they would have laughed in your face.
I just see too many "danger Will Robinson" signs in my mind right now. I absolutely not interested in buying. I will only buy real estate when there is pain, disinterest, etc. It is like buying stocks after a long run up and thinking they can only go higher. Often they do, but I buy stocks when they have gone down, base, and start heading up again. I have no idea how long or when that will be.
My answer is none of the above. I would rather buy when the time is right. Period. People through history show that they will not own homes for long when the value is depreciating. When it gets too painful they drop the keys off at the bank. Witness Texas 1987, Los Angeles 1990-93.
So say there is this person is Florida who buys a place for 200k. Just five years ago it was 135k but this person did not buy then. He bought when everyone else did at 200k. Although his payment is manageable because of low interest rates, he still has a note due and payable on the home of 200k. But now the market is soft because everyone that wanted a home bought one and all the buying is finished. Greenspan raises rates because inflation finally shows up on his indicators and the real estate market just comes to a halt.
Now the home is worth 180k and the market is not looking very good at all. The price trend is still looking down and worse every month. He gets an offer for a job transfer to Seattle, and since he cannot rent out the house to cover the monthly payment, he has a problem. There are not too many buyers, after 11 months he gets one offer for 168k. He still would have to pay a 6% commision on this, plus his share of closing costs.
Do you think it is better to be the buyer or seller in this situation? Would you rather have rented a house and been just able to walk away?
Guess what, I am the new buyer for 168k. I also get your 6 month old washer/dryer combo, and big screen. I sell the washer/dryer combo in the greensheet, give the big screen to my brother for his birthday, and put a tenant in the house for break even before taxes. When interest rates come back down in five years I re-fi to lower the payment and able to pull money out to go to Australia to boot
You are in Seattle still wondering what happened. Bad entry my friend.
Next.
You are talking a lot of sense! What other books have you read on the subject?
Thanks.
Thanks.
Your 168k would be better tied up in commercial real estate with a positive cash flow to boot. Your same scenario applies but you need positive cash flow after management fees.
Michael B.
Michael B.
If you are looking for distressed sellers you don't need to wait, you simply need to search court records for people who are going through foreclosure. Everything is public record including the assessed value of the property, how much is owed, as well as the phone number and address of the person going through foreclosure. Find the houses that have an LTV of 65%, meaning that there is 35% or better equity in the property (there are a shit load of them in any medium sized county). Get to the owner Before he is foreclosed on (which is when all of the foreclosure players are swarming) and offer him a premium. Not only are interest rates at an all time low foreclosure rates are at all time highs. PM me if you need a hard equity lender to close the deal.
As far as stepping in and buying houses when everyone else is selling, I agree 100%. My point in the earlier post was that just because we are in a sellers market with low interest rates does not mean that it does not make sense to buy a house if your goal is to live in it.
As far as stepping in and buying houses when everyone else is selling, I agree 100%. My point in the earlier post was that just because we are in a sellers market with low interest rates does not mean that it does not make sense to buy a house if your goal is to live in it.
Here's something to ponder:
If you bought a house today for $200K at 5.5% interest, your payment would be about $1130, before taxes and insurance.
If the rates went up to 8.5%, and that houes worth $200K was suddenly worth $150K, your payment would be $1145, before taxes and insurance.
In other words, assuming you don't have cash to pay for a house, there are two components to worry about in terms of housing: one is the price of the house, the other is the cost of the mortgage.
The bottom line is that if the rates are going up, then the house may be no more affordable than it is right now, even if houses take a pretty good haircut.
OldTrader
If you bought a house today for $200K at 5.5% interest, your payment would be about $1130, before taxes and insurance.
If the rates went up to 8.5%, and that houes worth $200K was suddenly worth $150K, your payment would be $1145, before taxes and insurance.
In other words, assuming you don't have cash to pay for a house, there are two components to worry about in terms of housing: one is the price of the house, the other is the cost of the mortgage.
The bottom line is that if the rates are going up, then the house may be no more affordable than it is right now, even if houses take a pretty good haircut.
OldTrader
There is a big difference between the two examples. In the second example I would only owe 150k, 25% less than the person who bought in higher.
With a 200k note on the house, an owner without deep pockets to back himself up is absolutely trapped when the market goes down a bit. If he has to sell (50% divorce rate, job transfer, etc) he is screwed big time. Check the property tax roles, most owners do not stay in their houses anything like 20 years or more.
With a smaller note on the house, I would wait to re-fi when better rates come along. It might take a few years, then I would really be in the sweet spot.
I would rather take the higher interest/smaller note any day.
You're right, there's a big difference. But the difference does not lie in affordability. It only lies in flexibility assuming that the price of residential real estate goes down.
The problem is that you're leaving part of the risk-reward scenario out. The part you leave out is that rates stay low and attractive for a while (although they may move somewhat higher). The strength in the economy continues to build. Corporations start to hire people in bigger numbers. All of these things are positive factors for real estate. There's no rule that real estate is going to go down.
Now lets assume that sometime over the next few years, inflation starts to pick. Let's assume that people want to own 'things' rather than paper. Real estate continues to rise eventhough rates rise. You think this scenario can't happen? It's happened in my lifetime.
I think it's safe to say that we all would like to buy a house 25% cheaper than it is right now. The funny thing is that in some areas you could have bought it 25% cheaper a couple of years ago! The problem is that a couple of years ago people were busy predicting the real estate crash!
The one question that no one ever answers for me is what is going to cause all these people to sell their houses when a) they have to live somewhere and b) it may be nearly as expensive after tax to rent as it is to own.
Stock market guys always think that real estate fluctuates just like the stock market. It doesn't. Part of the reason is that most people are living in houses, not day trading them.
I don't suppose anyone here remembers Harry Helmsley. At one time this guy was the richest guy in the US (he's dead now). He made it in real estate. He was a owner of the Empire State building at one time.
I heard Helmsley interviewed on 60 minutes years ago....he bragged at the time that he had never sold a piece of real estate, ever. He only bought.
One rule of thumb...you ARE going to buy a house. It's only a question of WHO you buy it for...yourself, or the landlord.
OldTrader
The only thing that makes buying more than renting more attractive is the appreciation you get when owning. EVEN IF YOU WILL LIVE IN THE PLACE. Now as far as buying a single family residence and renting it out....this is a bad investment compared to other choices you have to invest/trade your money with. Ok, oldtrader maybe it is better in other parts of the country..but commercial real estate in those places would be better also, most likely. To invest to get the discount, appreciation and build equity gets eaten up without positive cash flow....Most people pencil it out wrong, and the gurus make their money on their seminars. Again I say, SINGLE FAMILY RESIDENCES ARE NOT GOOD RENTALS.
Building equity is a non-issue as the extra costs involved eat that up when comparing to rent. This also assumes you put your savings from renting vs. buying to work and not spend them.
I have enclosed an analysis worksheet for evaluation just fill in the blanks.
http://www.mortgage101.com/partner-scripts/1177.asp?p=mtg101&pw=760
Michael B.
Building equity is a non-issue as the extra costs involved eat that up when comparing to rent. This also assumes you put your savings from renting vs. buying to work and not spend them.
I have enclosed an analysis worksheet for evaluation just fill in the blanks.
http://www.mortgage101.com/partner-scripts/1177.asp?p=mtg101&pw=760
Michael B.