patrick.net

yeah, buy the $100K place and then move up.

If area prices fall then your next place will be that much cheaper anyway.

First things first. I have moved around a lot and always recommend that folks rent for at least 6 months in their new local. This gives you time to hit tons of open houses, all the neighborhoods being vetted and explored in hopes of narrowing down your choices to maybe 3-4. (I did go against my own advice when I moved to Vancouver. I could not find a place to rent that would accept our dog. So we purchased basically for the dog. We sold 1 year later at a 100K profit. Our Buster has earned his keep in a major way). While you are checking out neighborhoods, try to establish ties to your new city in anyway possible. Join things, hang at coffee shops, read local mags/papers to get a lay of the land and don't forget to start up local banking presence via a credit union if you can or a small bank....perhaps even contact a few mortgage brokers if you feel you may even have a 10% chance of using one. Anyways, once you settle on a few neighborhoods, hit as many open houses as you can as well as start taking tours of apartment complexes and watch Craigslist to see what is out there and what you get for your money. Also, look at places 25% above and below your target price point...for both rentals AND housing. After 4 months, you should know your situation well enough to see if you will take the plunge and buy something or if you need more time to renew the lease....Lastly, don't ever settle for a 'dump' regardless if you rent or buy. Remember, you and your family DESERVE the best and you will get it. And don't buy into the 'scarcity' trap...there is always a better place around the corner should you not get what you originally planned on. Stay positive and happy shopping. The answers will come to you so don't fret to hard. Best wishes!

Bellingham Bill says

yeah, buy the $100K place and then move up.

If area prices fall then your next place will be that much cheaper anyway.

“Nessuna soluzione . . . nessun problema!„

Yep, if you have no lost enough on one then loose on another one. But hey OP if 100K can save you $1000 rent then go for it. I think it is a good deal.

E-man says

If it were me, I would find a co-signer to obtain an 80% loan with 20% down

yeah I agree with E-man. I think you have to take into account the opportunity cost of losing $100k immediately. It is always good to carry some cash for rainy day, more over there is a recession just around the corner. Look at Europe imploding, which means that we're surely in for another downturn. So cash always helps in a downturn because when opportunities arise (investing, home improvement whatever), you can get good bargains.

Buster makes good solid sense. You have time as far as prices go. Get a m

Get a month to month lease so you are flexible.

I'd go with option 1 for a year. Then re-evaluate.

A rough sketch at a comparison:

Transaction: $8k (Brokers fees + inspection + title. Check to see if you have transfer taxes, et cetera.)
Taxes + insurance for two years: figure $4k. (Might be off by quite a bit, do your own estimate.)
Lost interest: $2k. (You can -and should- get 1% on that money.)
Extra Utilities: 100 * 24 = $2.4k. (Again: figure this out for yourself.)
Maintenance: 0 (Over two years, hopefully you can defer it.)
- -
TCO: $16.4k
Rent for two years: $1.2k*24 = $28.8k

(Note: I didn't consider cost of moving --that's a wash, since you have to move with either strategy.)

Since you plan on moving *up* in two years, buying half of your future house (in housing equity) can be seen as a hedge against increasing future prices. With solid rent support working against oversupply, it would be hard to place an accurate bet on where the market is going in two years. Which is just a long way of saying that I wouldn't worry about which way the market is going for the purpose of doing this evaluation.

lotr1978 says

2) Buying the best house I can get for 100k with the plans to sell it in 2-3 years when I can qualify to buy something more practical to our needs. The 100k is currently sitting in an account earning basically no interest.

Isn't another option to buy a house for something more than $100K and just have a small mortgage that is less than 50% LTV if you are seriously considering option 2? My guess is that you could probably get a better rate if the LTV is lower, or at least you could have a payment that isn't terrible. For example, even at 8% interest, $20,000 loaned would have a $150 payment. This way, you can get a slightly better house, in case you're worried about a $100K house being too crappy.

Alternatively, you could get a small loan of $20-40K even if you buy a $100K house so that you still have a small nest egg remaining.

In either of the above, you could still squirrel away tons of cash, plus you'd have a loan that you're paying as due to show your next bankster.

msilenus says

Lost interest: $2k. (You can -and should- get 1% on that money.)

Yes, you should be getting at least 1%. There are several places where you can get 1% on a liquid savings account. There's no reason you should be getting 0 interest.

If you have cash consider reading up on how to buy a foreclosure at auction. I have read discounts of 20% or so are normal.

However you can also get a decent deal from short sale/foreclosures. We are only talking about saving 20k here at your price point (in california during the bubble this was downpayment on a BMW - chump change, not worth thinking about) but today 20k is hard to come by for most working people. If you start out renting in your sandy flyover city this will give time to research this/visit open houses etc.

Also here is a good tip when house hunting. Let the selling agent double dip commish (do not user buyers agent! offers will get flushed). Talk to as many realtors as you can. I think a high # of 'deals in escrow' fall out of escrow. Tell all these realtors that 'if you gotta deal fall out of escrow call me!' This is secret realtorspeak for 'I will let you double dip the commission in exchange you will leave this listing as 'pending' so that no one else can bid against me while the bank considers by super lowball offer and we both win except the stupid taxpayers/bank fuk them anyway they are my lunch'. No joke this is how it works and its legal (unless you can prove otherwise in a court of law! rotsa ruck)

try to live there for a few month renting at first before you buy anything. This will give you an idea of the area, where the good neighbors are, and where crackheads are.

After that if you really want to stay there long term buy something at an auction or from an owner directly. Avoid middle men, that's where you lose lots of money.

auction.com - has listings for entire nation and patrick is offering some sort of service here as well where you can post what you are looking for and letting the sellers compete for you.

Thanks for the all comments. One thing, I lived in PHX for five years and know the area so that argument for renting is less valid. I had considered a hard money loan, putting up 100k and borrowing say 40-50k for a 3 year time frame. Quoted rates are in the teens interest wise. But the point is well taken. There is a big difference in a 115k vs 140k house where I am looking - about 1500 square feet.

I've looked into the foreclosure route, unsure if its worth the hassle.

Honestly the best scenario would be to go into a local bank and lay the cards on the table. Here is my credit issue, GSEs won't take the loan off your books, I have 100k in cash, how much would you be willing to loan on a short time frame (

You can rebuild credit faster than you think. While you may not be able to access a 4% loan from Fannie or Freddie I would be that if you go to a local Savings and Loan that keeps in-house mortgages and offer to put 50% down. you will rebuild your credit much faster than just waiting. With enough equity you will be able to find a lender to hep you build your credit. Negotiate hard and find a good deal, be sure to check comps and buy something that is better than other recent sales. You will do OK buying a house .

Good Luck

Robert

lotr1978 says

Thanks for the all comments. One thing, I lived in PHX for five years and know the area so that argument for renting is less valid. I had considered a hard money loan, putting up 100k and borrowing say 40-50k for a 3 year time frame. Quoted rates are in the teens interest wise. But the point is well taken. There is a big difference in a 115k vs 140k house where I am looking - about 1500 square feet.

I've looked into the foreclosure route, unsure if its worth the hassle.

Honestly the best scenario would be to go into a local bank and lay the cards on the table. Here is my credit issue, GSEs won't take the loan off your books, I have 100k in cash, how much would you be willing to loan on a short time frame (

if you are putting 100000 down, don't let them bs you. They can't lose on the deal even if you foreclose. Demand low rates and shop around.

Having said that, don't give up all your cash, you need at least 1 year reserve for bad years.

Avoid ARM loans unless absolutely sure to pay off before it resets. It's like a free pass to let the lender screw you later.

Hi lor1978,

If I were interested in buying versus renting here in the Bay Area, which is the focus of this website, I certainly would not be asking denizens of Phoenix for Serious Advice.

Probably, same thing oughta go for you: you probably already know more about Life IN Phoenix than almost all Bay Areans.

But, there is a fellow in Phoenix who posts on patrick.net sometimes who is a College Professor in Phoenix and a Realtor® in Phoenix and a real estate investor in Phoenix, and not a Cool-Aid drinker. Maybe he has some insights for you.

http://www.scottsdalecc.edu/academics/faculty/roberto-ribas

BACAH, thanks I am familiar with Roberto's posts. Point taken about the Bay Area focus here. My question was less about Phoenix housing per se and more about the strategy one would take to accomplish the end goal. The issue of keeping more of the money as down payment is appreciated but the goal is to be mortgage free.

Anyway thanks for all the ideas. I will look into East West Bank when the time comes. USAA persona loans are 10.99% for 48 months, not a great deal. I also don't know if they'd loan someone 50l+ with that type of loan program.

But another difference between the (Cool and Hip) Bay Area, and Phoenix, would be the strategy itself.

Different strategies for different regions or settings. Like the military has to consider different strategies in Iraq vs Afghanistan. Or like Mitt Romney has to use in Massachusettes vs Iowa.

Bay Areas will have some strategies about the Bay Area based upon their situations here. But as many of them like to say, "it's different here".

I don't see why a 1300 sq ft house wouldn't be okay with 2 teenagers (assuming it's a 3BR). Given that you're familiar with the area, buying a house outright sounds like a good option. You'll have a place to live, and with no ongoing house payments (besides taxes and insurance), you should be able to save up a decent amount to help your kids w/ college or starting out on their own. (And they're likely to be living in a small space w/ roommates at that point anyhow.)

Bellingham Bill says

yeah, buy the $100K place and then move up.

Yeah but his current house would be worth considerably less by then. What ever you buy now, expect it to depreciate, until further notice.

You're far safer saving up, who knows by time you have 150K, some of those houses going for 200K or more now, will be in the 150K mix later.

100K money to work with though, should go along way with credit worthiness.

1300 sq ft is a tiny 3 br.
It's a modest 2br but a tight 3br.

When you do finally buy, buy the most house for the least amount of money. In this market, I considered nothing smaller than 1900 ish sq ft. And I also held out for at least a 1/4 acre lot. That way even if the price does go down in the foreseeable future, I figured when RE does come back to reality and things like location and features play back into value. Having space room and options for expansion, will play heavy in how much how fast my house will rebound.

If you buy the bottom of the barrel to get in the game, it will just be further down the barrel when that day does come. Get the most you can while you can.

Professor Ribas, please post another comment! Your profile says you have posted 666 comments.
Not a good number.

lotr1978 says

I had considered a hard money loan, putting up 100k and borrowing say 40-50k for a 3 year time frame. Quoted rates are in the teens interest wise. But the point is well taken. There is a big difference in a 115k vs 140k house where I am looking - about 1500 square feet.

Is your credit so bad that you can't get anything other than hard money? Do you have an 8-year old bankruptcy or something? Honestly, I don't know that many people with credit that bad who can save $100K, so that's why I'm surprised. Still, $40K for a $140K house at 13% is still under $500/mo, vs. what you pay now, you'd still save a good bit per month.

FortWayne says

Avoid ARM loans unless absolutely sure to pay off before it resets. It's like a free pass to let the lender screw you later.

Depends on the ARM. I've pointed out a great ARM on this site before to the point where people might start accusing me of working there -- the PenFed 5/5 ARM. Now they added a 3/5 ARM.

http://patrick.net/?p=1157368#comment-777759