patrick.net

The Professor says

Reality says

The broken houses, abandoned houses are the corn, something that is theoretically "food" but nobody wants to eat when chicken is on the offer.

Investers aren't buying corn they are outbidding 1st time house owners and renting them the house for more than they would have paid in mortgage.

We have gone through this numerous times already. Explain what's preventing 1st time home buyers with near-zero down payment FHA loans at 4% or less from out bidding the investor? What kind of moron investor would be chasing rental yield of 4% or less?

The usual answer is because the house is broken or missing major components (like copper pipes) hence can not be mortgaged under FHA program. It may take 6 months to fix the property, the 1st time home buyer simply can not service the debt on the new house for 6 months while still paying rent for the existing home. Hence, your theory about investors outbidding 1st time home buyers is false because the 1st time home buyers who can not stump up the cash to float the house for 6 months during repair isn't even in the bidding.

the fly in his ointment is interest rates.

if the interest rate rises, the property becomes unbearable

patb says

the fly in his ointment is interest rates.

if the interest rate rises, the property becomes unbearable

You can lock a 15-year fixed for 2.75% or 30-year fixed for 3.5% right now. Who cares if interest rate rises. Did you know that FHA loans are assumable? Why pay the high interest rate when you can assume the low interest rate loans?

Man, I love real estate.

David Losh says

There were always distressed properties

Reading skill here... I said weren't MANY. There were of course always distressed properties and i bought one before 2006, too (sold in 2007 for profits.) Like you said, there are always deals, 2006 or 2013. If you are good, you can manage the profit margin. (More demands nowadays but also a lot more supplies.)

robertoaribas says

and a very clear bottom, in most cities 1 to 2 years ago.

A math professor who doesn't even understand the difference between a local bottom and an absolute bottom.

The Professor says

Reality says

Explain what's preventing 1st time home buyers with near-zero down payment FHA loans at 4% or less from out bidding the investor?

The appraiser.

You are grabbing at the straws. Do you honestly believe first time home buyers with near-zero down are suitable candidates for setting new price records?

Besides, a buyer can always pay down cash to make up the difference between his bid and the appraisal value. The appraisal only has to exceed the loan value. So if the market has gone up 10% in 6 months, the 1st time home buyer only needs to put down 10% in order to get the 3.5% loan!

The Professor says

Reality says

These are the people who need other people who can keep roof over their heads, and make all payments into equal monthly payments regardless contingencies.

Are you an invester or a government welfare worker?

Do you think everything that people need should be provided by government monopoly? Like I suspected, at the bottom of your heart, you probably think food production should be run by the government according to people's need too . . . as we know, the result of such a monopoly is starvation.

Government welfare worker is just a government appointed monopolist who gets to dine on the government issued credit card (theoretically for her clients but in reality usually used for the welfare worker herself).

Consumer choice enables food plenty and quality. Likewise, competitive choices in the rental and purchase market enable best bang for the consumers' buck. Many consumers just want houses to live, not houses to maintain. What horse sense does it make for someone to buy and pay 6% realtor fee, several thousand closing cost, and assuming the risk of market volatility, just to live in a place for a year or two or even four (like getting a degree)?

The Professor says

No. I believe in people. I think most are capable of maintaining a house and do not need to pay a rentier "double the PITI" to maintain it for them.

"Most" is only 51%. Where do you think the rest should live? in boxes in the streets? The real numbers break-down seems to be around 65% to 35%. The foreclosure experience in the past half decade seem to prove in spades that artificially pushing people into home ownership doesn't really benefit people in the long run.

Your "double the PITI" claim is also taking statements out of context. For example, the PITI referred to by others in those cases are payments after substantial down payment! For example, the originator of this thread put down $175k cash down, not counting closing cost etc. He will also be responsible for doing all future repairs to his house, instead of being able to count on the housing service provider.

The Professor says

Reality says

Like I suspected, at the bottom of your heart, you probably think food production should be run by the government according to people's need too

Where did you get that idea from?

Because you assumed anyone providing any necessary service to others should be government social welfare workers. What you don't understand is that people go into government social welfare jobs because can not make as much money in the private sector . . . i.e. counting on the government coercive power to help them stay over-paid! That overpayment comes directly out of the rest of the society.

Again, I believe in people. I think most people want to work and EARN their living. For the most part the government does NOT help the commom person but is set up to enrich the connected; look up "oligarchy".

That's what government loan guarantees do: help the banksters by inducing people to over-pay for houses.

The Professor says

Reality says

as we know, the result of such a monopoly is starvation.

How do "we " know this?

Because government monopoly on food production has been tried numerous times in the 20th century. The result was mass starvation every single time!

The Professor says

Reality says

The appraisal only has to exceed the loan value. So if the market has gone up 10% in 6 months, the 1st time home buyer only needs to put down 10% in order to get the 3.5% loan!

Let them eat cake!

Or the seller can accept the invester's cash offer with no contingencies and avoid the hassle.

Hassle and time delays are no big problem in a rising market, which is assumed if you say lagging appraisal value getting in the way. You can't have the cake and eat it too.

If the buyer doesn't have the cash down payment that is equivalent to the rise in the house value in 6 months, do you really think it's a good idea to encourage home ownership in that situation? The roof can leak, the furnace can break, and the house price can drop just as much in another 6 months, wouldn't the taxpayers then be on the hook for loan default, just like the last time go-around? Wouldn't downloading the risk to an investor actually be a wise solution to the problem?

The Professor says

So you're an investor?

I consider myself a housing service provider.

robertoaribas says

buying in 2006 and 2007 certainly was foolish and very risky, no wonder you have left active real estate.

You have no idea what you are saying or talking about.

My margins in 2006, and 2007 were twice what flippers are getting today. We turn properties, but not today, because the margins are tight.

You are looking solely at your own get rich quick scheme, and trying to make it universal.

The facts are that not all Real Estate market places are rising, as I pointed out about Atlanta. 2008, or 2009 was the bottom of the Real Estate if you wanted to use that phrase.

You claimed banks were stupid to sell properties in 2008, 2009, for less than if they had waited. I said banks know exactly what they are doing.

Banks did pull inventory, and they are getting twice the price for properties by creating an artificial shortage, coupled with historically low interest rates.

Now we have Billions of dollars tied up in Real Estate assets from large investors. Those investors will move on the same as they did after the Savings, and Loan scandal.

There is nothing in you being a college professor, in math, or anything else that would prepapre you for a career in Real Estate. The Real Estate market place is getting more clear, and you are getting more lost.

Have another bottle of wine, look at your sales data, pat yourself on the back again, but you should really come up with some new material.

The Professor says

Real estate agent?

No.

Do you have a job title and description you are willing to claim?

I have several jobs. The one most closely related to the topic at discussion, my customers call me "landlord" but I don't consider myself landlord as I doubt any of them would be interested in renting land from me if the properties that I own were bare land. I manage and repair houses so the people on annual leases can have a place to call home without having to deal with the repairs, up keeps, paying expensive transaction fees or exposed to the gyrations of the housing market prices. Meanwhile, the town gets the tax bills paid and the properties maintained so they don't become eye sores. That's why I call myself a housing service provider in that job capacity.

I teach computer science and applications to college students. I am a teacher. My mission is to inspire confidence and instill ability.

You are a petty bureaucrat. Your primary goal at the college is to draw a tenured check that is better pay than what you can get elsewhere. If you were primarily concerned with inspiring confidence and instill ability, you'd be either volunteering without pay or start your own computer science after-school program so you don't have to deal with the typical college administrative bureaucracy.

The Professor says

If it is to your advantage to see housing costs go up then "housing recovery" sounds good. If you are one car breakdown from poverty, rising rent is a catastrophe.

What do you think would drive rent down? More housing service providers on the supply side! It's no different from encouraging private food production by farmers would result in plenty food for everyone, whereas government bureaucratically run "fair" food production schemes always end up in mass starvation. Every time I finish renovate a house, guess what I have to do in order to attract customers? I have to offer a price lower than my competitors in order to get my units filled quickly! Time/occupancy is a perishable good.

Reality says

The Professor says

If it is to your advantage to see housing costs go up then "housing recovery" sounds good. If you are one car breakdown from poverty, rising rent is a catastrophe.

What do you think would drive rent down? More housing service providers on the supply side! It's no different from encouraging private food production by farmers would result in plenty food for everyone, whereas government bureaucratically run "fair" food production schemes always end up in mass starvation. Every time I finish renovate a house, guess what I have to do in order to attract tenant? I have to offer a price lower than my competitors in order to get my units filled quickly!

But your willingness to hold out for the price you want to get strongly depends on how much your financing and upkeep costs are for keeping it vacant. And if you have access to close to zero interest rates you can certainly wait much longer, thus reducing the pressure to underprice for anybody.

mell says

But your willingness to hold out for the price you want to get strongly depends on how much your financing and upkeep costs are for keeping it vacant. And if you have access to close to zero interest rates you can certainly wait much longer, thus reducing the pressure to underprice for anybody.

Do the math, every month of vacancy would require 9% higher rent in the next 11 months to make up! If you were ever on the supplier side, you'd know that vacancy is extremely costly, usually the result of the owner getting distracted by something else in his/her life and unable to manage the property efficiently, not a deliberate strategy.

Reality says

mell says

But your willingness to hold out for the price you want to get strongly depends on how much your financing and upkeep costs are for keeping it vacant. And if you have access to close to zero interest rates you can certainly wait much longer, thus reducing the pressure to underprice for anybody.

Do the math, every month of vacancy would require 9% higher rent in the next 11 months to make up! If you were ever on the supplier side, you'd know that vacancy is extremely costly, usually the result of the owner getting distracted by something else in his/her life and unable to manage the property efficiently, not a deliberate strategy.

Sure, but what do you think about the reports a couple of years ago about big real estate trusts that just let their mostly commercial complexes sit and rot until they get an acceptable offer by the city/state to fill it or buy them out because it was better for them to roll over, especially if they financed those properties mostly and hardly had any down-payment at stake?

mell says

Sure, but what do you think about the reports a couple of years ago about big real estate trusts that just let their mostly commercial complexes sit and rot until they get an acceptable offer by the city/state to fill it or buy them out because it was better for them to roll over, especially if they financed those properties mostly and hardly had any down-payment at stake?

They needed more competition. The city/state should never be in a position to be able to fill them or buy them out to begin with. Talk about messed up incentives.

The Professor says

You go volunteer. I have bills to pay.

Actually I do/did. I volunteered at local schools and colleges when I had more time.

The Professor says

There is no shame in being a landlord. As you explained you provide a needed service. Would you prefer the title "Keeper of Houses"?

I may consider that. Thanks. I don't like the term "landlord" because the term's imprecision: the primary asset of value is not land but the house, and there is no "lordship" but a service, me and my workers being at the service of the customers. The appropriate medieval analogy would be the innkeeper not the feudal lord. It's a two-way negotiation for service at pay, not overlordship.

The Professor says

Banks have done the math. In their calculus not only can they go without collecting mortgage they will also pay a delinquent loanowners taxes and insurance.

Banks do that in order to avoid recognizing losses on bad loans. It's a form of fraudulent book keeping. The hope is to punt to the next bank manager or wait for taxpayer bailout.

The typical housing service provider however have no such luxury. He/she would have to eat the lost revenue by him/herself.

To the original poster's numbers:

At 1% annual repair reserve, the $875k house needs a $730/mo repair and "honey-do" reserve (most home improvements demanded by the wife will have very little resale value in the future). So between the $3800 rental potential and $2588 PIT, there's only less than $500/mo left for insurance and water/sewer bill, which just about cover the $500/mo for such a house.

So the original poster is getting almost 0% return on his $190k or so down payment and purchasing/closing cost, as far as cash flow is concerned. The only gain since buying would have to come from home appreciation.

What's there to be jealous about again?

Just as I suspected, the "rent being double the ownership cost" is pure figment of imagination. The doubling can not possibly be there when the house' rental yield is so low.

Well 20% price appreciation is pretty sweet. I will let you all know what my best offer is - plan to sell in June.

Roberto,

Budgeting 1% of house value as annual repair reserve is fairly standard practice for basic home ownership financial planning. Water heater replacement is a miniscule cost in the scheme of things. The more expensive items are like roof etc. More expensive houses tend to have bigger more expensive roofs and are located in areas with higher cost of labor.

In the cases similar to the original poster, where the house price to rent yield ratio is close to 20:1 (both of us would probably pause at somewhere close to 10:1), I was also counting the typical wife's demand on frivolous home improvements towards that 1%. Improvements that will add very little to house value at sale time. It's just a matter of keeping up with the Joneses in those neighborhoods and keeping a wife.

As for banks being slow at recognizing losses, what I wrote was not a statement on whether they are doing it, but a reason for why they did it once upon a time (if they did), as The Professor raised the issue.

robertoaribas says

the home owner is on the thread, why not ask him what he spent in his 9 months of ownership?

What he has done in 9 months in anticipation of selling after less than a year of ownership is not necessarily reflective of the long term ownership cost. A roof has to be replaced after a couple decades. The gradual deterioration takes place over time, not in the single year prior to replacement.

robertoaribas says

My girlfriend leaves all home improvement decisions to me, since I'm the expert...

That's why you and I keep girlfriends instead of wives. OTOH, girlfriends have their own problems due to lack of commitment from us. There is no perfect solution in life. Sometimes we can be slaves to what we own.

Roberto,

We are not talking about a million dollar two BR condo in NYC, but in the original poster's words a "huge estate home on acreage, zoned for horses" There are probably substantial on-going landscaping and grounds keeping expenses in addition to maintaining the "huge estate home" house structure itself.

Reality says

in the original poster's words a "huge estate home on acreage, zoned for horses" There are probably substantial on-going landscaping and grounds keeping expenses in addition to maintaining the "huge estate home" house structure itself

Not even sure where in LA such a house for $875k would exist. This sounds more like a Valley-or-north area, or, worse, Inland Empire. This is like bragging you bought 30 acres in Gainseville, FL. Big whoop.

robertoaribas says

he just noted a smaller, less improved property selling for something like 1.2 million..

I have no problem with this as a mere business transaction. My problem is with saying this property is in LA, when I know for a fact that 900k-1.3 mill barely buys you a 4/3 2500 sqft house on a 10,000 sqft lot. Unless you want to live in Crenshaw.

The Valley and Inland Empire are not LA. You can buy spacious "estates" out there for $875k no problem. But that's like buying a house in Elizabeth, NJ and saying you bought in NYC.

I'm not in the IE.

KarlRoveIsScum says

28% tax rate and you can afford a $1M home and multiple properties?

Sounds fishy!

If your income is that low how the hell did you qualify?

I put down 20%.
Make 100k a year.
Got an IO ARM.
Pretty much maxed out what they would lend me. At first they denied the loan, then saw my major cash position in the bank and approved it. What would be fishy - I'm making shit up? lol

Philistine says

The Valley and Inland Empire are not LA. You can buy spacious "estates" out there for $875k no problem. But that's like buying a house in Elizabeth, NJ and saying you bought in NYC.

The Valley is definitely part of Los Angeles... It may not be Beverly Hills.. but it's not Crenshaw either. LA is made up of a bunch of rich and poor areas.. But it's still all Los Angeles.

KarlRoveIsScum says

it's your marginal rate, i understand.

Do you know how much you could get a loan for in the UK on $100k

a max of $350k

Wouldnt that vary wildly with the variable intrest rates?
I mean with 2.8% IO loan that is a wildly different payment than the same amount financed at 7.25 30 year fixed( i had a loan like that in 2001).
So now I should be able to finance double the loan since rates are half what they were in 2001. This is how they let us have 'affordable housing' - prices are not allowed to go down for long.

robertoaribas says

nobody gives a rat's tail with what you consider to be LA,

Actually, Redfin and Zillow do. So does the state government. Between zipcodes and real estate maps, nobody considers Thousand Oaks to be Los Angeles. BTW, Thousand Oaks is a good 90 minute commute to most work centers in LA, and is a paradise of '80s stucco box living and chain restaurants. Now I see why you are so fit for Phoenix.

Thousand Oaks is pretty much LA....but way nicer. Half the town is actually in LA county I think.

PockyClipsNow says

Thousand Oaks is pretty much LA....but way nicer. Half the town is actually in LA county I think.

I think Thouand Oaks is in Ventura County. I used to live in Westlake Village which straddles both sides of the county. I love that whole area of the Conejo valley-got a very nice feel to it and the beach is a short hop away. Lovely hiking and plenty of activities. But the commute can be a pain if you have to commute to say downtown or Burbank etc. But know a few people who do it and love it. It has a nice feel to it.

Philistine says

Actually, Redfin and Zillow do. So does the state government. Between zipcodes and real estate maps, nobody considers Thousand Oaks to be Los Angeles. BTW, Thousand Oaks is a good 90 minute commute to most work centers in LA, and is a paradise of '80s stucco box living and chain restaurants. Now I see why you are so fit for Phoenix.

Thousand Oaks is quite a commute away during rush hour.. Only 30-40 minutes on off peak times to Hollywood.. And yes, i believe it's Ventura County.. a neighbor county of LA.

But it's a pretty UPPER middle class area from when I've visited. I'd actually love to live there if it weren't for the commute on the 101. Homes are still pricey though...

Thousand Oaks is fine if you are not a city person. I just find it ironic all the people that live in LA and hate city living. LA is a sprawling mess, and the least urban of any city I've lived in.

My entire point is not "what is LA", which is a nonstarter. My point is a place like Thousand Oaks (to run with this example) is 20 miles away. We are talking the suburbs. Trying to compare a suburban real estate market with a major city market is apples-to-oranges.

BoomAndBustCycle says

Only 30-40 minutes on off peak times to Hollywood

Yes, maybe to H'wood off peak. I live in Mid-Wilshire, which is more central, and it takes 90 minutes to get to Topanga on a Saturday afternoon. It's the traffic, not the distance (26 miles).

Again, you miss the point. All real estate is local. I know you like to be insulting, but really you should be more interested in advancing the conversation.

robertoaribas says

what the hell is he supposed to do, every time anyone asks where he lives, give out precise latitude and longitude?

Nope. I merely asked Pocky where in LA he bought (a long while back in this thread). LA is a pretty spread out area, and where you buy here makes a pretty huge difference in price/quality/amenities.

It's still valid: Thousand Oaks is 40 miles from LA. So is Malibu. Two completely different kinds of markets. You have my permission to call them both "LA" if you like.

PockyClipsNow says

Well 20% price appreciation is pretty sweet. I will let you all know what my best offer is - plan to sell in June.

Already? You just barely moved in. Imagine after you cashed out and we get hit with hyperinflation. Isn't that going to wipe you out? :)

Why sell now and pay capital gain? Wait until you hit the 2 year ownership mark and get $250k capital gain exclusion. $500k if you're married or your significant other is also on the title.

PockyClipsNow says

Price: 875k

$ Financed: 700k

Loan: 5/1 Interest Only ARM at 2.875 with .25 points (union bank)

What is the fully indexed rate? Like 8.874%?