patrick.net

PockyClipsNow says

I hope this is a real world math lesson for some of the 'should I buy now' crowd. Its a tough decision.

Price: 875k
$ Financed: 700k

Pocky, where is this in LA, exactly? Not many hoods w/horse digs, and any of the decent areas in actual LA are $1.2+ for 5 beds. I take it your math is pivotal on the 5/1 ARM?

PockyClipsNow says

one large factor is that I AM NOT MAKING PRINCIPAL PAYMENTS which I believe are for chumps.

WTF?

PockyClipsNow says

Principal payments in a loan are stupid for two reasons:

1. If prices tank and you walk away

In my opinion, that is a real great reason to buy (NOT) with the exit plan of adding to the nightmare created by others? doing the same thing!

Sorry, this type of "walk away" mentality still being said in 2012 disgusts me.

Pocky...did the same thing 75 days ago: 7 year, 2.9% interest only JUMBO (no points) from First Republic. With QE to infinity in play and $40 billion in mortgage backed securities being bought each month and issues in Spain and Italy festering...the greenback will be a safe haven for the short term and the securities bought will exert pressures on the other end ratcheting down interest rates.

I consider it like locking in to a 7 year lease on a place that costs 30% less than immediately comparable homes renting in the area. That's a big money difference - held hostage by our 20% down payment of course...but we thankfully had that to park for the next 7 years. I work from home - so renting 3 prior places in past 10 years was shitty: the permanence of 7 years in one place makes sleeping a bunch easier.

The place was custom built 12 years ago - 2nd place built from scratch by prior owners - so they knew every pratfall and designed it well inside and out. Save an earthquake, not a lot of maintenance needed here (it was built earthquake ready, too...the home inspector was much impressed with the care that went into it)

I fully expect to refinance at 2.5% pretty soon - payback is right damn quick on even 400 basis points on a JUMBO when total refinance costs are under $3k. Each 100 basis points is ~$90 a month saved.

I found Union to be a Big Bank-like pain in the ass to work with so I ditched them for First Republic and they treated me right kindly. If you look to refinance, try them out (I think they have 4 branches in LA....S. Monica, Bel Aire and a couple others north of LAX)

Horses sound nice - only place for horses in LA I know are Palos Verdes, or Eastern or Northern reaches of the county in good neighborhoods. Enjoy - I will be, too.

I don't recommend buying for everyone...but, for Pocky and I it seems to be the best decision. I totally agree if you have 20% down payment and good assets and safe earning prospects for the future...getting interest only is the way to go. I know home costs are being kept high by the artificially low rates...but this is the game one plays on the statists. With so much being saved its either going to a nice cash war chest or gold, silver or precious metals miners - asset classes that rise as the purchasing power of $USD is quantitatively eased away.

Bold.

Your strategy is bold, and as you correctly point out, not for everyone. I hope it works out well for you.

Hey pocky, one input to your plan I don't understand is

"If rates rise, I'll just refinance"

What am I missing here, because that doesn't sound like much of a game plan

I know we are in agreement that rates will only ever go lower, but in the event we are wrong and they magically spike, how is refi a gameplan for you?

Yup says

Housing Bulls on this forum are only bullish when they consider that they can default and walk away!

You just saved me from writing the same.

.
ptiemann says

Suggesting interest-only financing on a perma-bear discussion board takes more than just guts.

Right in the face of those demanding legally enforced minimum down payments, less than 30 year amortization or ideally they wish for an all-cash only market.

Congratulations, to your guts, and to the purchase.

I think a lot demand 20% down regulations only because they know that the system is so corrupt that the TBTFs get bailed out time and time again with their money. In reality there is nothing wrong with his purchase/gamble, because the banks engaging in such loans would go belly up within a couple of years when the rug is pulled again and the people would flock to banks that engage in more solid lending practices (which would then end up with more capital). However it would be much wiser to demand that banks can only lend one dollar per dollar of capital in backed assets they have (no fractional lending) - then those bubbles would either never form or pop much sooner without creating any significant distortions.

The entire system is rigged. We all (should) know that. If you play by the ethical, moral, and societal rules that are in place for the common folks, you will lose. The banks, the government, the major corporations.... They do NOT play by these rules. "If you can't beat 'em, join 'em" has never been truer than the housing market of the last few (and future many) years. The fact is "We" the people, CAN NOT beat them. They have power and secrecy and printing presses. It's a sad state of affairs, but I will not smugly sit on my mound of principles, and watch life pass me by. I am trying to buy a short sale now. Been renting for over 6 years. If I get it, and things go badly down the road, I will stick it to the bank as hard as I possibly can. Thank you. :)

I might call First republic to check rates out. When I say 'if rates rise I will just refi' im mean that if rates were say 7% I could get the same payment as now by paying down 400k of the loan and having a 7% loan - it would be ok. (zero chance we will ever see a 7% mortgages again IMO -other than subprime/hard money loan)

I was perfectly happy back in 06 and 07 when I was renting to bubble sit- making 5-6% on CD's - now they crashed rates to under 1% and RE prices are headed up- so that strategy is dead. I feel like I'm being herded like cattle out of cash and into hard assets by Bernanke (which is his plan of course) but it makes zero sense to pay 1400 in rent for a 1 bd apt when for like 1992 a month I can have 5 times the property. Remember cash is earning zero now and RE is going up in price for the next 2 years for sure (low inventory will last at least 2 years-foreclosures are way way down, bernanke says 3 years of super low rates and he aint lying)

I know my girlfriend is sure happy as hell now. Never seen her this happy! lol (of course I'm only buying in my own name and will never get married....fastest way to go broke is to get married/buy house/have kids/get divorced but thats a different message board!)

My friend just bought a house for 550 vs my 875. we both put 20% down and have same payment. The difference is the IO ARM i have vs his 30 year fixed. My attitude about the 30 year fixed is that you are going to the bank and saying 'give me the highest intrest rate you currently have!'. lol

You know what you're doing and it doesn't sound like bad strategy. Any plan is only as good as its implementation. And I agree that rates are never going up, and should continue lower.

Women love all that sq ft, regardless of what it costs nor what you have to sacrifice to afford and maintain the big spread, but there ain't no arguing with um. Just keep um happy. The girl I'm seeing has her eyes set on buying the place she's renting. Rent =1400 per month, purchase price =265k. Now by my math, if you think the rent is pricey at 1400, then shouldn't you figure the purchase price to be expensive at anything north of 150k?? However, I haven't bothered running the numbers because its not my money, but id imagine an I/O mort at current rates would probably make some kind of sense. If it was me, id be ecstatic renting such a nice place for 1400/month (if I felt the place was worth 265k,,,,,

PockyClipsNow says

1. If prices tank and you walk away you lose DP+all principal payments made

As long as you plan on walking away some day how can you lose?

PockyClipsNow says

(zero chance we will ever see a 7% mortgages again IMO -other than subprime/hard money loan)

Famous last words - never discount anything - people who are extremely wealthy don't care either way (although hedging against hyperinflation requires more effort) and there comes a time where deflation is the lesser of two evils compared to hyperinflation. Also, walking away at least destroys your credit, which is not a big issue if you have enough reserves to weather bad times and know you won't depend on credit by the banks.

PockyClipsNow says

I know my girlfriend is sure happy as hell now. Never seen her this happy! lol (of course I'm only buying in my own name and will never get married....fastest way to go broke is to get married/buy house/have kids/get divorced but thats a different message board!)

Well no sh_t sherlock. Of course she's happy. If your girlfriend is happy, you will be inversely happy eventually because you have been subliminally conditioned by her over time to want what she wants yet you think it's what you want.

To help break the spell, before you sign the papers drive far far away to a luxury resort and get yourself an 18 year old call girl. Then relax and ask yourself, "do I really need this house?" See if your true inner being tells you yes. :) If that doesn't work simply imagine yourself living there alone.

War says

Rents are falling my friend.

War, why don't you actually address these facts this time?

http://online.wsj.com/article/SB10001424052702303933404577505260835025948.html

Wow, from my viewpoint where I am standing, that is ballsy.

But, appreciate the different viewpoints.

Who knows? someday I may post some much lower end property I bought. As of yet, haven't come close.

$4k/mo rent for a horse property in LA is reasonable. The house right across the street from mine is renting for $3k/mo and I am in Riverside. It's a horse property, and it's a 4000 s/f tract home on an acre. This home was bought for $420k in late 2010. It also has ZERO landscaping, basically just like it came from the builder in 2004. Nice homes in this area are easily renting for $3500/mo. Again I am in the IE! Down here buying is currently WAY, WAY cheaper than renting.

soopercommuter says

Down here buying is currently WAY, WAY cheaper than renting.

Good luck to you.

2.875% on an ARM isn't realistic over the long term either. Surprised nobody's mentioned this. When that goes up, not only is your monthly carry going to be significantly worse, but the price of the house should decline as well.

Long term assets should always use long-term financing in the calculations.

PockyClipsNow says

Principal payments in a loan are stupid for two reasons:

1. If prices tank and you walk away you lose DP+all principal payments made

2. Most people just get a heloc anyway after a number of years to buy a dumb car or send kids to school.

3. the principal payment will blow up your debt to income ratio which limits your acquistion of other loans/mortgages. (we are year one of the next up cycle of real estate, time to buy quality properties located well at a good price - if you can find them, not easy)

4.If you think you can pay off a gigantic 500k+ loan rotsa ruck buddy, i am relying on future price appreciation then selling to make money.

You are advocating maximum leverage, one of the main causes of the real estate mess. If you always leverage yourself to the max, it will only be a matter of time before you go bankrupt with the very next down turn.
The best strategy is to ensure enough cash flow to see you through a downturn.

I don't know what rental rates are doing in LA. I'm in Riverside and they are not falling here. Average rents went up 3.5% in 2011 and another 2% up so far this year. When I bought my current home in 2010 I kept my old house as a rental. That home would be worth about $140k and I have it rented for $1600/mo. And that is why the low end properties out here were selling in a matter of hours. Currently there is nothing to buy at the low end.
I don't know what will happen to rental rates. They might go up, or down or stay the same. I don't really care as my rental will be paid off soon. I really do think the rates have to come down with the ownership costs being so much less than the cost of renting. It's likely the only thing keeping them up is the fact that so few people can qualify for a mortgage. But as of right now, rents are going up and there is no shortage of people looking to rent. Believe what you want, but that does not change the facts.

soopercommuter says

Down here buying is currently WAY, WAY cheaper than renting.

Can you give an example with my calculator?

So the best case scenario to convert it into rental and recoup your $175K downpayment in 15 years, 30 years if you include maintanence/fixing on that huge house?

I don't think this is a good deal.

I'm still waiting to hear where this house is. In LA, $875k barely buys you a 3/2 in an okay zipcode--certainly not with acreage and horsies.

War says

LieWog is a known liar and misrepresenter.

The truth?

Rental rates are falling across the board when measured in price per square foot.

DO NOT buy housing now. Spread the word.

Do you realize if investors stop buying there would be less homes available for renting, and rental rates would rise? If you want rents to fall you should be busy convincing investors to buy.

War says

Do you realize that housing demand is at 15 year lows and falling?

Do you realize housing is NEVER an investment and always depreciates?

Do you realize "War" is "Raw" spelt backwards?
I use facts, you use BS.

Yup says

Housing is the new American stock market, a bunch of "Investors" buying, with average Joe American saying nope not this time......

Hehe - nice word. There's always "something" that can only go up, but that "something" gets recycled every decade or so. It was tech in 99, then housing/stocks until 2008, then stocks again after turning on the printing presses and now that the stock market is trading mostly sideways again it's housing's turn again.

War says

LieWog.... the lying coward.

ROFL LMAO LOL LOL
Look who's talking.

Damn I ever so hope Romney is telling the truth when he says he will cap deductions at $20 or $25K for federal income tax returns.

OP would still get his interest deduction, but no state tax deduction, no property tax deduction, no other deductions.

Gaming of the system by high income and wealthy people has gone on long enough.

Well done PockyClipsNow! For the next 5 years you will save $24k / year versus renting a comparable property = you save around $125k already in the first few years and therefore recoup most of your down payment. Besides that you now have a really happy girlfriend and if (God forbid!) for any reason your sexy girlfriend leaves you later on you will be in good shape as an owner of a horse property to quickly find a replacement for her. Just don't depend too much on the option to refinance later on, that was promised in the past to all subprime borrowers and made them only loose their home. There is quiet a possibility that your home in 5 years from now will have drop from $875k down to $700k or so, leaving you with no equity, but if you got another $100k cash or so to drop in the bucket you might be able to refinance. The reason I say the value might drop is because as we all know we are right now in an artificial market manipulated by banks and government. Maybe this will change sometime in the future (? or maybe not?)

Good luck to you in 5 years when your monthly turns into $6500/mth and the bank isn't returning your calls. This will be great timing, because you will probably be getting about $1500/mth in unemployment insurance, so all will be good.

War says

Bigsby,

You, Roberto and LIEWog have long since been established as liars.

And if Darrell in Phoenix says it...

Reader says

What all other? I don't know what your reading or intellectual skill level is at either that .pdf states a number of major cities not just three in decline. It lists six major citieis in decline out of eleven, that is a majority.

It's called an example, not a reference to his pdf, an out-of-date pdf at that (and it lists 10 cities not 11 - perhaps it is you who needs to improve your reading skills).

And explain to me what is happening to prices nationally. What does the Case-Shiller index say about house prices?

War says

1) The data is quarterly. It's only 3 months old. And you ran from it like a coward 3 months ago.

2) RENTAL RATES ARE FALLING in price per square foot IRRESPECTIVE OF LOCATION.

3) You are LYING to the public about housing. That is why you are known as LIEWog.

And what should we know you as? Darrell Not in Phoenix?

War says

I'm glad you like it.

It shows rental rates falling in the majority of cities.

why run from it?

There are only ten cities in the US? I thought it was bigger.

War says

Bigsby says

There are only ten cities in the US? I thought it was bigger.

Liewog...... tsk tsk.

So it's not just your own name that you are confused about.

War says

Now LieWog.... it indeed show falling rental rates in the majority of cities.

Your stunts and lies grow larger by the day.

So you use data from a report 6 months ago that shows the national average went up 4.4%, and you focus on the fact that rents declined in 6 cities. OK. Maybe you can explain why those 6 cities are more important than the national average.

Bigsby says

And explain to me what is happening to prices nationally. What does the Case-Shiller index say about house prices?

I am not concerned about "pricing" in the sales market because I know anyone can ask anything for their real estate like any other for sale item. Also a few grossly overpriced properties can and will skew an average like mad.

The listed prices both for sale and rentals will adjust, as they always do but what is going down is going down (no owner has a pecunary interest in a stat of something going down in price,) while fact is that stats showing upward movement can and are often manipulated for pecunary reasons.

It is clear to me what has and is happening, and that stated I personally am not buying any real estate right now. I do feel property has a way to go down. I feel rents are grossly inflated.

Here is where the REAL money is going

http://www.sothebys.com/en/auctions/2012/contemporary-art-evening-auction-l12024/videos.html?bctid=1901038146001&bclid=1876577103001

Reader says

I am not concerned about "pricing" in the sales market because I know anyone can ask anything for their real estate like any other for sale item. Also a few grossly overpriced properties can and will skew an average like mad.

The listed prices both for sale and rentals will adjust, as they always do but what is going down is going down (no owner has a pecunary interest in a stat of something going down in price,) while fact is that stats showing upward movement can and are often manipulated for pecunary reasons.

It is clear to me what has and is happening, and that stated I personally am not buying any real estate right now. I do feel property has a way to go down. I feel rents are grossly inflated.

Rents may or may not be 'grossly inflated' and the same for house prices, but that is irrelevant to War's claims of falling rental prices that you were defending. His own link from 6 months ago shows rents are rising nationally.