patrick.net

varmint says

hire a middleman to buy a property cash only then transfer it for a fee.

There are people who go the the Real Estate auctions every week to buy property.

You need to be careful of these people, they can be tricky, but you can go to the auction, and say you want to buy, what area, what criteria.

You hand out the flyers to the auction buyers like any ad.

A true flip is when the auction buyer does nothing, but a short hold of the property. You may find some of these guys Real Estate rich, and cash poor. Some may want to work with you, and some that is all they do is buy, and sell, as quickly as possible.

Also look on Craigslist, or put an ad on Criagslist for what you want. It says Wanting to Buy a two bedroom house in pick your area.

Mark D says

varmint says

The last one I bid 22k (5%) over asking and weren't even selected as a backup.

this has been the normal for the past few months.

some of new constructions have a 1 year occupancy requirement meaning investors can't touch them. so that eliminates half of your competitions. it's best to ask them about this before make the offer.

Interesting observation. I was wondering why there are currently bidding wars on resale housing while new construction properties don't have this issue. The change however is that builders are not as generous with incentives for closing costs/upgrades as they were a few years ago and prices went up due to lower interest rates. This explains it - the bidding wars are heavily influenced by investors vs people who want to live in the principal residence.

dublin hillz says

Interesting observation.

some still have these incentives if they had them when the construction started a few years ago and now they are finishing the last phases. some will not advertise these incentives on the MLS listing so you'll have to ask their agent. there's this condo development area near me that offers a combined rebate of up to $13.5K ($8.5K from the seller and $5K from the lender) if the buyer goes with their preferred lender. then RedFin offers a rebate of 15% of the buyer agent's commission as well. zero closing costs.

they will adjust their prices to reflect market prices though.

varmint says

Should I be contacting the bank and see if they will work with me directly?

Yes. If they are smaller banks (local credit unions or local banks, then you may be able to get in and negotiate a price (sans agent) before they hit the general market. Just be sure your offer is contigent on "satisfactory inspection" and "vacant home".

This is the approach I used, and altough it took a few years to come to fruition, it helped me get the inside track on a fair price.

Hi Varmint,

I think many people in large metropolitan areas in the US are experiencing the same challenges as you of buying a modest home with their middle income salaries. ...OK, rich by median household standards, but middle/poor by major metropolitan standards.

treatmentreport says

treatmentreport

I agree w/ TreatmentReport, that our understanding of the market has changed. If it was left to it's own device, we would probably not have had this housing crisis and or the absurdly low interest rates now which are causing house prices to be out of reach for middle-income people. Manipulation by the Fed, banking, and securities industries, coupled with people's greed have created a very uncertain market situation today.

I live in NYC, and I have also tried to "wait for the market correction", but have came to realized that there's no such thing as good timing, just lucky timing. Rather you need to consider where you are in life and what your needs are for you and your family. Our generation (I'm 35) cannot afford to "wait indefinitely" for what may or may not come. Therefore don't wrack your brains trying to time the market. Look at what your options are today and reconsider what's important to you now.

In other words, it sounds like location is really important to you. Would you reconsider getting a condo instead? (that's what my wife and I ended up doing despite really wanting a house initially also). Would your or her family be willing to sell their house to you as they may be deciding to move somewhere else like Florida to retire? Other poster had good recommendations about looking at other locations or finding ways to save up more cash. The other option, probably not the best is, you may just have to extend yourself and eat ramen every day. I think most who are on these boards would be very against that since most are fiscally prudent. But with the constant money printing from the Fed (QE4), there is greater risk of hyper inflation and buying property now may protect against that.

These are just some thoughts I think we should all consider.

"there is greater risk of hyper inflation and buying property now may protect against that"

I disagree. Gonzollo Lira (gonzalolira.blogspot.com) has done some good research-based writing on what happens to real estate in a hyperinflation. Current Bay Area housing prices are based on the existence of extreme mortgages. In a hyperinflation, one of the things that happens is that interest rates skyrocket, and the mortgage market falls apart. As a result, even though food and commodity prices are increasing, housing prices plunge.

400K wouldn't buy much in CA nowadays. You problem is,that price range has most competition,especially from specuvestors. :)

dofudong says

Would your or her family be willing to sell their house to you as they may be deciding to move somewhere else like Florida to retire?

The parents may be ready to retire, but you can't make a good living in the tech field in Florida. I was thinking more along the lines of having the parents sell there house and moving farther away from the bay area, but still be within commuting distance for the well paying jobs the bay area has to offer.

I consider the whole bay area to be "impacted" as far as housing is concerned, meaning too many people want to live there for the reasons you gave and others, and there is little if any new development. But anywhere there is air to breath a person can find happiness. I liked Dallas, Austin, San Antonio, Arizona, Florida, Nebraska, Montana, Oregon, and Idaho when I lived in each for a time. Each has its own unique beauty and pluses and all are way less expensive. I miss each of these places and visit as often as I can. I think prices in the bay would have come down alot more if not for the federal reserve interference. Also, this problem has to do with population. My opinion, at 200 million people, the USA was a much better place to live.

Zakrajshek says

My opinion, at 200 million people, the USA was a much better place to live.

I'll take it one further. At 3 billion, EARTH was a much better place to live.

"Rent or leave the area."

"I don't see why I should leave."

He didn't say that.

If you can't afford to buy, you should rent a place that fits your lifestyle.
If you can't afford to rent a place that fits your lifestyle then you can't afford to live there.
If you can't afford to live there, but you choose to live there anyway, then you can:

1) put yourself on a payment plan to near-guaranteed financial disaster
or
2) go live someplace else.

Those are the two choices you have. Sounds like you're really interested in the "near guaranteed financial disaster" option.

bmwman91 says

Zakrajshek says

My opinion, at 200 million people, the USA was a much better place to live.

I'll take it one further. At 3 billion, EARTH was a much better place to live.

It feels like bay area is getting overcrowded. Everywhere you turn, there's traffic. Shopping centers are extremely packed this holiday season. Even supermarkets have insane amounts of people there. Maybe economy needs to cool off a little bit. . .

You should move to where a place that is comfortable and has the majority of homes are within you budget!

2-3 homes is no good.

Zakrajshek says

But anywhere there is air to breath a person can find happiness. I liked Dallas, Austin, San Antonio, Arizona, Florida, Nebraska, Montana, Oregon, and Idaho when I lived in each for a time.

Trust me- I know. In fact we spent years debating on whether or not to move from the Bay Area to somewhere else. The unfortunate reality is that if you're in certain fields, you have to more or less live near where the industry is. I work in tech myself and considered Austin. Only problem is that so has everyone else, and despite the claim that its a vibrant tech city, there are far less jobs, more competition for those jobs, and less pay. That said, if you've got cash saved- as in enough to just buy a house somewhere else for cash- then who cares about a high paying job? Work in a big box store. If the house is paid for, then so what? I say this because I considered it for a long time myself.

bmwman91 says

being avidly into the outdoors, the complete lack of weather here is a giant plus.

You live in outer space?

dublin hillz says

It feels like bay area is getting overcrowded. Everywhere you turn, there's traffic. Shopping centers are extremely packed this holiday season. Even supermarkets have insane amounts of people there.

It's like that everywhere else now too.

I have one family member who lives in the SF Bay area. The housing prices alone are enough to keep me from moving there. This particular family member is the only person in my immediate family who actually has a mortgage. Even at CA salaries, it just isn't worth it.

$40,000,000,000/$200,000=200,000 homes every month purchased by the sorcerer's apprentice, with money he makes at his keyboard, and hoarded, left empty, or occupied by squats until the 'right people' get hold of the titles. There's your problem.

Call it Crazy says

taxee says

$40,000,000,000/$200,000=200,000 homes every month purchased by the sorcerer's apprentice, with money he makes at his keyboard, and hoarded, left empty, or occupied by squats until the 'right people' get hold of the titles. There's your problem.

That's a different way to put it... yea, that plan has "Recovery" written all over it!!

It keeps the pension plans 'solvent' and prevents investors from suing the banks. Nominal payments that are correct with reduced buying power will be the norm. Squatters are happy temporarily. And 'our fed' can funnel a ton of real property to their cronies, themselves, the new slum landlords. Three cheers for the rentiers.

Bennie went ahead and established the so called 'bad bank'. No congressional approval necessary. When you think about it, what's in it for a banker if you ever actually get to own your own home free and clear?

Varmint,

I understand your pain, but you don't sound ready to buy yet. You need to wait. For 500k you can buy an apartment complex in San Bernardino, hire management, and have 30-60k per year extra income. Why buy a house in Walnut Creek or whatever with a 1% capitalization rate when you can get 8% elsewhere? Plus you get depreciation from an investment property, so the taxes from the extra income are modest. If you want to get into real estate investing (it is always investing, even if you want to live there), buy something where the rent would more than enough to cover the expenses and mortgage to be safe. However, don't pretend that just because you put 200k down and your mortgage will only be 1500/month that you're getting a deal. You should do the calculation assuming you put zero down. That money could be invested elsewhere!

I do discounted cash flow (DCF) analysis on my investments, but a rule of thumb can be to pay around 80-160x the rent for a property. A house that rents for $3000 should be bought for a max of 3000x160=480000 if it is in top condition. When buying investment property, I look for 100x rent or better prices, and I usually get them. I did splurge and pay 135x the rent for a condo in a good neighborhood in San Diego. This rule of thumb is sensitive to interest rates.

If you're not used to doing math on investments like this, take a personal finance course or real estate finance course at the community college or online. It will pay off forever. Don't tie yourself to an eternal expense.

I don't know your neighborhood, but with CA tax rates of 1.07% on property (Berkeley is much higher) you would need a 500k house to rent for 3,300 per month in order to be able to rent it out and break even. If it is possible to rent out a house and break even, you are free to move if needed in the future without being slammed by the extra expense of the house you don't want to sell (bad market, underwater, whatever reason). I make assumptions in my calculation such as 11 months of rent received per year (which is typical in my experience).

@parkeld

I'm not interested in being a landlord, I'm interested in a place to live and raise a kid and send them to school.

Never thought I'd get so many comments. Thanks all.

I'm probably going to sit tight and save more money. I should be able to squirrel away about 2k/month (been doing about 1500 but have a raise kicking in Jan 1) plus I'll get my yearly bonus in Q1. I'll probably look at stuff as it comes on but I'm not going to be so urgent about it.

Hopefully the recent price increases will get more people above water and interested in selling. If inventory increases prices *should* stabilize. I'm banking that a lot of the run up is due to there just being so little to buy. The last open house I went to had half a dozen pregnant women at it.

It's not like I can't afford it, I just think a lot of the places are crappy and overpriced. I did find one place I really liked, but didn't do a good job guessing what price it would take to buy it. The open house had half a dozen pregnant women at it. All it takes is one hormonal wife to go WE HAVE TO HAVE THIS NOW and I'm out of luck.

I understand where people are coming from with move away stuff, but I'm just not going to do it. My entire family lives in this area, parents, sisters etc. They aren't going to follow me anywhere; my parents won't be retiring in the next 10 years. You can say it's dumb or whatever but it's what is important to me.

varmint says

I'm probably going to sit tight and save more money.

That is an excellent position to be in.

Without any data let me say that election years always tend to be hot markets as people make bet on who will be elected. This year there was low inventory, so it really became a circus.

In January inventory should start coming in, and yes there will be more people wanting to sell. The good news is that many people bought with 20% down so they should be able to get out clean.

Be patient, I think this will be a good year to buy. I think there will be a lot of confusion as Congress clears the fiscal cliff, and the volitility that will come afterwards.

People will want to sell, and move on.

varmint says

I'm not interested in being a landlord, I'm interested in a place to live and raise a kid and send them to school.

Time is on your side, regardless of what any realtor tells you. People are not getting better, they are slowly going into more debt and it is only a matter of time before another round of defaults on the recent mortgages occur. Don't try to outbid the fools, just out wait them.

Here is my input, from buying in the bay area. While others are saying that the market is over priced, that we will have doom and gloom scenarios all over the place, as you're seeing, this isn't happening. This is what I am seeing happening.

Normally, a housing market runs in a cyclical pattern, but there are always buyers. This time, we lost all those buyers over the extended period where no one could get a loan, and where no one wanted to buy. This left investors. Investors pay 20% off FMV, that is how they do business. They pay cash, they expect a good discount. Normally, appraisals run off home buyers buying off FMV, even during crashes. What we are seeing today, is appraisals based off investor pricing, which is 20% off FMV.

These investors are now paying FMV for these homes because this is the price where it makes sense for them. The first set of homes they picked up where all the cheap single family homes. Then they hit up the condos, and now they're picking up everything they can get their hands on.

Unfortunately, they are offering OVER fmv. Something you can't do. You can offer 450K for a 400K home, but it won't appraise, and you won't get loan for it. The home owners know this, the banks know this, the realtors know this. So they aren't picking you. They are picking the people who they know can close.

By the end of next year, I think we'll see close to a 30% appreciation. We're going to blow through this 20% discount stage, and by that time, people like you will be left paying 20% more AND competing with other frustrated home owners, and I believe, paying 10% above that.

There simply isn't inventory. If people have held on this long, they're able to. They aren't going to sell, unless it's good for them and right now it's not good for them. The primary sellers are short sales, foreclosures and REO properties and they're going to investors.

Your best bet is to find a short sale, or a regular sale and talk to the owners and try and convince them you're the right fit. I wouldn't be too picky with what you buy, because by this time next year, you're going to be scratching your head thinking 30% in a year? how?

Doing a "case shiller" comparison, on a complex I own, 140K last march for a 2/2 condo. 160K last dec, 180K in july this year, 205K cash this sept. We've already gone up from 140K to 205K over about 18 months, and I expect it to jump 30% next year, and at 30% the property will return to a normal CAP rate for investors and they will back off and start looking for deals again.

varmint says

I understand where people are coming from with move away stuff, but I'm just not going to do it. My entire family lives in this area, parents, sisters etc. They aren't going to follow me anywhere; my parents won't be retiring in the next 10 years. You can say it's dumb or whatever but it's what is important to me.

I don't think it's dumb at all. It might not make make the most sense financially, but a lot of buying a home is tied up in intangible benefits.

It's a matter of deciding whether you can live with the sacrifices necessary to live here. For example, renting longer than you would like, or buying and spending more money than you would like to spend on a house that doesn't meet your value expectations.

pkennedy says

By the end of next year, I think we'll see close to a 30% appreciation.

You should really lay off the crack.

http://patrick.net/?p=1219671&c=911265#comment-911265

I posted this comment on another post, but my question here is if any one has seen any decent houses Varmint may have missed in his, or her search?

There must be good houses out there.

Want space? Rent a house. We renting house in OC for 1800 in area they sell for 400k. We pay less than our friends renting newish apartments because our house is 1950s. But we have a big yard!!

pkennedy says

There simply isn't inventory. If people have held on this long, they're able to. They aren't going to sell, unless it's good for them and right now it's not good for them. The primary sellers are short sales, foreclosures and REO properties and they're going to investors.

Really? There is plenty of inventory. There are still plenty of people living in houses for free. Eventually banks will have to sell these or rent them out. Also, with birth rate falling in the entire world, we will not need to build as many houses as before to keep up with population growth.

If interest rates ever normalize to 1% above inflation on the 10 year, housing market will experience a correction of the magnitude similar to the appreciation since the rates dropped in August 2011.

Right now investors are chasing yield and hence buying houses. Real estate yields look attractive because everything else sucks. Everything goes in cycles as you said.

treatmentreport says

Real estate yields look attractive because everything else sucks.

That is exactly right. Money went into Real Estate because alot of investments look like crap.

I think though there is a lot of innovation globally, and as the global economy gets more cooperative more opportunities will present themselves.

The Professor says

It's not the fools you have to outbid it's the investers.

They buy for cash looking for that cap.

The poor soul that scrimps and saves and waits is being robbed by the fed which is controlled by the criminal bankstas who pull the strings of the tweedle dee tweedle dum "leaders" of US.

Wait them out while rents rise. One way or another they "own" you.

This seems to be the unfortunate reality of the day for fiscally conservative individuals.

They need to launder a whole lot of digital 'money' while they can.

It's Sunday evening, and there isn't any one who saw an Open House today? or a FSBO?

A Real Estate search is constant. Sundays are a great time to test the market, meet prospects, and move the search process ahead.

I started a conversation with another buyer yesterday about purchasing coastal acreage using a tenants in common arrangement. There is a lot of high end property sitting on the market and it pencils out better per acre. For resident owners it could be a very doable solution. Necessity may be the antidote to the divide and conquer system. Anyone have any experience or interest in joint owners of large parcels?

Call it Crazy says

Ain't much new out there

but there will be in January, and most agents who are working are having conversations with potential sellers.

Your best bet to finding what you want is by networking with agents who might know something.

I am in the same boat as you Varmint- been at job for 2 years in the BA but not willing to overpay 1-2 million for a crapshack in Sunnyvale or Santa Clara. Looking into Mountain House or Tracy and commuting to Santa Clara twice a week with a fuel efficient car if the boss lets me do this. Lots of guys in the office live in the east bay and commute to Santa Clara and work remote half time. Homes in Mountain House and Tracy are way cheaper than Santa Clara.

Call it Crazy says

even after I said DON'T send over existing listings

OK, this is good, are these top producing agents or just people you happened to meet?

robertoaribas says

foreclosure filings are much lower than last year in California (and Arizona)

I have this discussion all the time, because the entire market place is broader than distressed properties.

I'm talking about the people who want to sell, need to sell, or just plain want to jettison 30 year debt.