Looking to buy a SFH rental built 2007. 3 bed, 2 bath 1935 Sq ft in South Puget Sound. Carrying costs $1150/mo at their asking price, $1050/mo at mine. Rent $1500/mo. I probably will walk away if I don't get 170k. Should my walk away price be lower?
Asking price=$184,900. I offered 160k, bank countered, $184k, I countered 161k..
By burritos Follow Fri, 20 Apr 2012, 10:56pm 4,826 views 47 comments
In Newbury Park CA 91320
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You should have countered lower, 159K. That is the sign of power and banks have absolutely no power now in this game. One paper they are bankrupt entities. Your 159K in the positive make them envious.
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burritos says
Here is your reply
"My friend. Thank you a thousand times over for your consideration on buying this beautiful property. I am deeply saddened by the rejection from the Seller. If your Seller is seriously interesting in selling the property I encourage him to again consider this offer from a very serious buyer. I am willing to again offer to purchase the property for the large sum of $160,000, which is very generous considering the current state of the housing market and the overall economy. This offer is only valid as long as I have the means to extend it. There are multiple competing properties on the market and I have many bids outstanding. The first serious Seller to accept my cash will be the winner.
Your truly,
Serious Kickass Buyer"
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Covered Calls :
Everytime you see a 'cant lose' investment ask yourself why isnt everyone doing it ???
Go pull up a 5 year chart of KO - now pretend you pulled this stunt at the beginning of 2008 - things are good, not much to worry about, you buy your stock (at around $65) and sell you matching covered calls.
9 months later your calls expire worthless (yahoo !) and you make your $350. And your stock is now selling for $41.
Congrats you just lost about $21 per share on a $65 (+ commissions) investment.
All investing carries with it a loss of principal, even cash carries such a risk, thanks to the Fed.
There is someone here who kept on pumping the 7% you get from one of the gov bond funds instead of being a landlord. Unfortunately when you pull up a chart the NAV has fluctuated greatly over the last few years.
And we're not even considering things like your broker's clearing firm 's Obama fundraiser CEO stealing all the funds in your supposedly segregated account.
As for being a lanlord right now - no thanks. It's a shitty business to begin with, and right now with the rental bubble (and yes, it is yet another fucking unsustainable bubble just like all the other ones) you see lots of newbies piling in based on the idea that rents are only going to go up from here and will never go down.
Now, where have I heard that before ?
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burritos says
Good man! your doing it right! Two things in life are inevitable: death and taxes. Everything else is negotiable.
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burritos says
significant? That is an understatement. Schiller just said we might not see the housing recover in our lifetime. I completely agree. Any asking price today is tomorrow laughable price. Store the cash! Wait until you can buy two houses for that price. All the advice from people leveraging up on housing will prove to be the worst you have received. Let them lose their shirt because of their greed. Keep your cash (hardly anyone has any that bought over the last 10 years), and wait out the stupidity of multiple bids, unreasonable sellers, etc. You have all the marbles, they have none.
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PockyClipsNow says
If you think that 2001 was pre-bubble, then you are the clueless noob, around here. Prices are already back to 2001 levels or below, in a lot of areas of the country, and, if you paid above asking price, back then, you are already looking at a lost decade, and, you will get at least 2 more.
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E-man says
That's not the point. Why would he want to offer even one cent above his initial offer, if he knows that he will be getting a much better deal 1 year from now?
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E-man says
This argument is just wrong. It is used in the housing and automotive industry by sellers all over. Hey, don't look at the cost, look at the increase in monthly on the credit. So, why can't you argue the opposite. If it works one way then it works the other. 6K less on the purchase is only $30/month to the Seller in a dividend fund that pays the same as a mortgage rate. Are you not going to sell your house over $30/mth.
Down right criminal argument, and I feel like shoving a tire-iron up anyone that uses it on me when I make a purchase.
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Menlo Park, CA
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Covered calls is just selling your upside potential on a stock: you sell the right to someone else to buy a stock that you own. If the stock moves up above the strike price they can buy it from you, and they will buy it from you and you won't get that price gain. So your risk is limited. If you own a stock that pays a dividend and just stays flat, you get both the dividend and the price of the covered call.
It's a reasonable strategy. I wonder if anyone has done it with houses: "Give me $5,000 now and I'll give you the right to buy my house at $500,000 at any time in the next 7 years."
You keep the $5,000. But if the house value goes to $600K, they are going to buy it from you, resell it, and make $100K profit.
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Yes, as long as you get permission to trade options.
You can totally bankrupt yourself with options pretty easily, so they make you sign something that say you know what you're doing.
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Oakland, CA
burritos says
You can get actual numbers of shadow inventory by doing a [free] search at foreclosureradar.com. They'll tell you how many homes are REOs, scheduled for auction, and preforeclosures. Of course, there's no way to know how many of those will end up on the MLS (and when), but it can give you a general picture of the area's inventory.
As I mentioned in another thread, in my zip code and an adjacent one (two parts of Oakland where I'd like to buy), there are TWICE as many homes in the shadow inventory as there are active listings. For the city of Oakland as a whole, shadow inventory is 2.5 times the active listings. And a reliable source said that for every house that's received an NOD (i.e., is in 'Preforeclosure' stage), there are two others that have defaulted by against whom the bank has not yet taken action.
Just something you might want to consider in your decision.
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Patrick says
True. The real risky playing of options is when you deal with naked calls. You don't own the underlying stock. That has unlimited downside risk and the source of margin calls. Using the option strategy with a covered call is like Patrick said, selling part of your upside potential in the stock at a price. That price then reduces your cost of ownership of the stock. I set the sell sticker price to a value I am happy to reach. In effect, I am reducing my downside by limiting my upside. On companies like Coke that pay a decent dividend I think it works perfect. The dividend (3%) becomes the back-bone for the stock price. As long as they continue to pay it (they have since 1920), the stock hovers around your purchase price. You basically don't need it to appreciate to get the 7% return.
No one has every committed suicide for taking a profit. :)
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Burritos,
So instead of $1,050, now your obligation is $1,080/month. Your return is about $5k on about $60k investment. It's an 8.3% vs. 9% cash on cash return. You're borrowing at 4.5%, which is positive leverage. When inflation kicks in, you're essentially borrowing at 0%.
Well, unless you think deflation will kick in first then it's a different story.
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Newbury Park, CA
E-man says
Yeah. I know. I'll play the waiting game.
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Burritos,
That's a loaded question without a lot of info. Is the property in move-in condition? How much additional money do you have to spend on it to make it rentable? What's the FMV on the property? How's the housing inventory there? How's the rental market there?
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Newbury Park, CA
E-man says
1. Move in ready. I do have to buy a frig, washer, dryer, and a few blind(estimating 5k). No carpet, paint and wall repairs like I had to do with the grow house I got a year ago.
2. FMV is 180k for move in ready, though the last few that were sold, sold at 160k(they were fixers needing carpet, painting).
3. There's an ample supply of homes of that size, though most are short sales. The prices that are being dangled out there are between 180k and 200k. 50/50 are being purchased by primary home owners/investors.
4. This area has about 1100 new homes that were built and sold 2004-2007. We're at the tail end of the ARM resets though of course the casualties will linger for years. As an investor, the cash flow has been positive for the last 2 years with 20% down for these properties, though the cash flow has slowly improved with with drop in prices.
5. Rental market is strong. Of the properties I've acquired and rented out, I've never had to wait more than a month to get it rented out. The last 2 properties I've gotten took less than 2 weeks to get rented out.
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That's the way to do it, Burritos. They go down only 1k, you do too.
Hope you get the property at your price!
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San Leandro, CA
You are dealing with a business, not a families emotional ties. They focus on ONE thing, the highest return. If you were dying of thirst, they would not offer you the sweat off their assets.
They will violate you smiling.
Find at least three better properties and offer them the honor of your business. Remind them, it will be worth 20% less next year !
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Newbury Park, CA
TMAC54 says
Yeah. My realtor sent them the last 2 sales which where sub 160, thought those were fixer uppers.
I REALLY want to pay under 170k. But I also REALLY want the property also, cause I think the cash flow works well. I just can't decide which REALLY is more important.
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My realtor got an email from the seller:
"Thank you for submitting an offer on the above referenced property, however the Seller has decided to REJECT your offer at this time due to offer price being too low. If your client is seriously interested in pursuing the property, you may submit a revised offer to be presented to the Seller through their *********.com website."
I resent the implication that I'm not seriously interested. I could argue that seller(which was bailed out by my tax dollars) isn't seriously interested in selling the property.