patrick.net

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.

Call it Crazy says

These are the "professional" agents

You don't need to put the term professional in quotes if they are professionals.

Here's a trick most people miss when they are telling professionals what to do. Do what they tell you to do.

They send you stale listings because you go onto the e-mail list. They are establishing contact, and you are telling them what you like, or don't like.

If you want professional service then start acting like a professional.

Get your financing in order. Play along, and actually be productive with your search.

Let them do their job, and over the course of time something may come up, but in the mean time pick to agent you want to be loyal to.

robertoaribas says

I got offers for $20K more the day after I closed on homes

So sell it.

What I am saying is that next year will be a good year to sell, two years from now more reality will set in.

Many agents are hearing this, and telling people this. January is a good time to list. People pick schools in February, and March.

Sell now, or be priced into a declining market,,,,, forever.

* WARING * LONG POST *

It all started for me back in 2001. I made (what I perceived to be) a decent salary, and thought I’d try and buy a small condo. My bank (the one I had been using since I was ten years old) literally laughed at me. They told me I had too much student loan debt, and thus my debt to income ratio was too high. Now back then I was too naïve to shop around, and it wasn’t until a few years later that I discovered that my student loans were listed in duplicate, causing my already high debt burden (about $80,000 at that time) look even worse. Now I swear that’s when If first found Patrick.net –back when it was a small blog with commenter’s mostly from the bay area and/or the Pacific northwest.

That said I didn’t really start seriously looking until 2003. Even then, all I could have afforded was a small condo, and most of the places within my budget were small, ill maintained, in bad / undesirable areas, or some combination thereof. So I put the idea on hold.

The first time I got close was fall of 2004. We were trying go buy a 20 acre parcel not too far from my in-laws. The idea was buy it and sit on it until we either 1) subdivided it and sold it piece by piece 2) flipped it or 3) built on it. The strange part was, although we now live not too far from the area, back when we had made the purchase offer we were living 4+ hours away in a different state.

Anyhow, that one was close. Very close. It was an estate sale, and at first we had an accepted offer. But, to make the loan work, we offered $20k more than asking, with a seller’s concession in the same amount. That way we would have the money to make the down payment. The loan would have been an 80/20 with the 20 being a 5 year ARM. We considered trying a straight up land loan, but even back with the loose lending they would have wanted 30% down . Thankfully, there was a small cottage on the property, but it was dilapidated – any and all value was in the underlying land. The plan was take out a “mortgage” knock down all but one wall, and rebuild. That way the existing structure would still be “grandfathered” in with respect to building codes.

So, after the elation of having our realtor tell us “your offer has been accepted” we had the dejection of having it all fall apart 48 hours later when the sellers lawyer rejected the deal, saying that the dollar value of the concession was too high. Looking back on it it’s a good thing we did not go through with it, but we had gotten a sniff of what the fruit tasted like, and wanted more.

For years we kept looking for that diamond in the rough, off and on. We saw it all. Houses with mold, houses with no kitchens, houses on the side of mountains, houses with no rear wall. (but man did they manage to get that ONE angle that hid such an obvious defect and used that in the advertisements). We learned 1) don’t trust an ad with only one picture and 2) if at all possible do a drive by first.

The next time we were seriously looking wasn’t until 2008. By that time we were in much better position to buy – and were finally more settled after having moved a few times between 2004 and 2008. Side story – 2005 – with only one of us working full time, we were preapproved for $500,000 by a friend who worked for countrywide. Our accountant laughed at us, and told us that if we want to eat, we could only afford half that amount. Needles to say we kept renting and saving. Watching and hoping. At that

So now here we are in 2008 and we were ready. Had the down payment saved up and everything. Saw a gorgeous house for $310,000. Needed work (the kitchen had been ripped out by the previous owner and there were some wholes in the wall) but would have been nice home. Built in 2003 on 2+ acres in a good school district.

Realtor was the type that gives those in the profession a bad name. Smelling a rat I saw him in person. He looked at me and sneered “if you work with me I can get this done”. For whatever reason, I stuck with my buyer’s broker, and, although we had made a HIGER offer than the accepted offer, we didn’t get the house. Two years later it was relisted for $460,000.

The good side of that one was 1) we found a great real estate attorney and 2) learned much about the pros and cons of the 403(k) rehab loan program.

The last near miss was in spring of 2012. We found a nice house on an astounding 10 acres. It was mostly wooded, with a small stream running through the back of the property. Although not useable – I have always had a love of land. Not a need by any stretch – just a want, that goes back to my childhood. I grew up in you typical 1950’s era ranch on 1/3 acre. But there was a state forest nearby, and that became my refuge from the chaos of life, particularly during my teenage years. I always thought if I could have the means to own some land, I would – just because.

Anyhow, we saw it and like it enough to make a low ball offer just to see if they would bite. Next thing you know we ended up in a bidding war. Then I did the smartest thing ever. Did another drive by, and also drove around the surrounding neighborhoods. Turns out that about ½ mile away was an old landfill, that was being remediated by the DEC. That nice brook – it started upstream at the dump. Needless to say we did not walk, but RAN from it. Lesson learned? ALWAYS do your own due diligence.

And that brings me to the house we are finally in. All told it was a two years ordeal, but with many fits and starts. The highs and lows are fairly well documented across this site, including a synopsis here.

Now that we’re starting to get settled in, alls well that ends well. Patience, persistence and getting in first were all keys to our success, but it was a long hard slog, and many valuable lessons were learned along the way. If I can impart some of these on Patrick’s fellow readers, then I feel I have done his site well, and am glad that my musings were of use. If not, well, at least I’ve laid my card out there, for all to digest, criticize and ignore as they so choose. Thanks for reading!

robertoaribas says

you have about a 0.1% chance of getting an FHA offer accepted on a short sale in a tight market

OK, last Spring the husband of freind was a VA buyer who didn't stand a chance. I showed some places that were dumps that were crawling with agents, and multiple offers.

I couldn't help so I referred, and my referral couldn't help him.

Then just before Thanksgiving he goes into a Real Estate office, and they write him up for a great house, good location, his price point, and VA.

The market had changed that much, from no inventory, to what he wanted for the terms he had.

You just never know, but he was in the right place, at the right time.

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.

Their choice is that they have no choice. Underwater mortgage holders are stuck, so even if they wanted to sell they can't unless they want to negotiate a short sale or add money to the mix. Add to it that people are slowly but surely being educated that owning a mortgage is not the best financial situation. You either rent money or rent a home. Anyone that hasn't jumped into the fire, is now doing the math. ;)

Call it Crazy says

These are the "professional" agents

Save the word "professional" for people that actually deserve it. Realtors are very unprofessional by their job definition. If they don't land the sale, then they don't really have a job now do they. Total conflict of everything.

parkeld says

$3000 should be bought for a max of 3000x160=480000 if it is in top condition

Hah. I rent a 1.1million in Pleasanton (actually appraisal value from the landlord who wants me to buy) for $3000/mth! I got a 2yr lease, so no way in hell I will rent money to lose money. ;)

I'm not the only one. Recently I have seen many rentals in the same range for overpriced houses. Don't be some banks biatch for 30 years. Save your cash and get the upper hand when this comes to roost. It will, don't believe the owners and realtors that are preaching the same chorus they have been for eons.

RentingForHalfTheCost says

Realtors are very unprofessional

It depends on the person.

You can say there is a conflict in everything, about everything.

The question is if this person, or any person, is finding the right individual to help them in a professional manner.

David Losh says

You can say there is a conflict in everything, about everything.

Not in my job. I design computer hardware in the shortest duration for the cheapest cost to the company to make it successful. If I don't meet these goals then I risk the company and my job. Pretty simple.

Realtors need to get transactions. There is little in that formula about helping the buyer or seller get the best value. All they care about is that they can convince one or both sides so that a transaction happens. If they speak the truth (maybe now is not a good time to buy or sell) then they just worked themselves out of a job. It would be their death.

Analogous to my job, if the requirements being ask of me are not possible to meet, and I ignore that fact and promise anyway, then when the deadline comes and goes without product then I am accountable. It is in the interest of my job and pay to be honest. Dishonestly will come back to get me. However, it is not like anyone who bought in 2007 and lost their shirt is going to hold the realtor accountable. Even if they knew that buying in 2007 was a foolish thing to do.

Realtors are by definition dishonest. The honest one wouldn't have made any transactions during 2007-2009. How would they upgrade to the latest Mercedes? How would they install that backyard oasis? Crooks...

RentingForHalfTheCost says

Realtors need to get transactions. There is little in that formula about helping the buyer or seller get the best value. All they care about is that they can convince one or both sides so that a transaction happens. If they speak the truth (maybe now is not a good time to buy or sell) then they just worked themselves out of a job. It would be their death.

Yup, that's the conflict inherent in being commission-based.

One solution is for realtors to work by the hour instead, like a lawyer. But it's hard to market that because people then actually see how much they're spending on the realtor. In the current model, the commission is deliberately rolled into the transaction cost, so it looks like the realtor is free, even when he's really very expensive.

RentingForHalfTheCost says

The honest one wouldn't have made any transactions during 2007-2009.

There were plenty of Real Estate agents who urged people to sell in 2006, 2007, and 2008.

It's a two way street for transactions.

@patrick my gold star as a premium member is missing.

David Losh says

There were plenty of Real Estate agents who urged people to sell in 2006, 2007, and 2008.

It's a two way street for transactions.

So, by urging to sell, what are they saying to the buyer? Hey, now is not a good time to buy. They play both sides all the time. "It is a great time to sell". Oh, but also, "It is a great time to buy". They will always look brilliant when you show just one side of their transaction scam.

RentingForHalfTheCost says

by urging to sell

People had plenty of equity in 2006, 2007, and 2008, they could sell fro below market value, and many people did.

There were a lot of people who saw the hand writing on the wall, and made Real Estate moves accordingly. You are saying you didn't see the bubble, even though prices were going up by double digits each year for the first time ever.

Well, most Real Estate agents did see the bubble, and turned business around. Many people sold in 2006, 2007, and bought again in 2008, 2009, 2010, and 2011.

Real Estate is a business.

David Losh says

RentingForHalfTheCost says

by urging to sell

People had plenty of equity in 2006, 2007, and 2008, they could sell fro below market value, and many people did.

There were a lot of people who saw the hand writing on the wall, and made Real Estate moves accordingly. You are saying you didn't see the bubble, even though prices were going up by double digits each year for the first time ever.

Well, most Real Estate agents did see the bubble, and turned business around. Many people sold in 2006, 2007, and bought again in 2008, 2009, 2010, and 2011.

Real Estate is a business.

I actually saw it and benefited. However, I also saw the same realtor who sold my house, telling people to buy. Remember, it takes both a seller and buyer to make a transaction happen. There is no such thing as below market. The market is the actually transaction. Don't fool yourself. People don't give away money for any reason. They might say they sold under market, but that is not true.

RentingForHalfTheCost says

People don't give away money

People give away money every day. Many people didn't care about how much they were making, they were trading out equity. It depends on the deal.

People sold because it made sense to sell. People bought because it made sense for them to buy.

OK, look at today's market, prices are rising, and if some people are smart they are refinancing to pay down the principal balance faster.

It's a game you are either good at, or not, so it's in your best interest to get an agent who is good at the game.

David Losh says

People give away money every day.

Don't agree. If there is money to be had, then people will take it. If there is two buyers out there and one will give more (with all things equal) then I have never seen anyone take the lesser. Just common sense. Saying, people are selling below market to a stranger just isn't true. They could do it to a friend or relative.

If you think there are people giving money away, I'll send you my bank info and I'll then sit back and see it grow. ;)

ducsingle5313 says

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.

Why, so he can think straight and benefit from all the real estate fools? Buy now because interest rates can't go lower. That has been the moto for the last 5 years. Guess what, interest rates are lower and they will keep going lower. So, why buy now when you can buy later and have a monthly payment of a box of chocolates. ;)

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.

I do not see this ending well.