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If we expect the market to drop by 15% for the next couple years, then renting even at 3X the cost of owning seems like a good idea to me.
Exactly, it's not just about whether it becomes cheaper to buy or not, but when prices show real signs that the market has stabilized and this cannot happen until inventories decrease to historical norms and the cheap money is completely washed out of the system along with all the FB's that made use of it. I don't see this happening this year.
There really is no telling just how far the prices will drop, but due to the magnitude of the increases, I sure don't want to bet my hard earned dollars against it.
Just like a typical FB, always trying to find a way to beat the system!
Pearlman said it may not be taxable if a taxpayer is insolvent or bankrupt and that can be documented to the satisfaction of the IRS.
The key word here is "may not" because the FB is "insolvent". If you are insolvent, you already lost so it won't matter. If you have a decent job however, they will get you. One way or another you will be screwed!
It's kind of like fighting off an armed robber when you have an empty wallet; it's just not worth it!
theotherside posts a link to the “respected financial journal†known as the Contra Costa Times that Says:
> When a short sale, deed-in-lieu agreement or foreclosure
> occurs and a residential lender loses money on a loan, the
> lender will most likely file the loss with the Internal
> Revenue Service.
Lenders don’t file a 1099 when they “have a loss†they file a 1099 when they “forgive debt†(converting the debt to income).
If I “give†someone $1,000 it is taxable income, but if I “loan†someone $1,000 it is not taxable income. The day I tell the person they don’t have to pay me back the “loan†(I “forgive the debtâ€) it becomes “taxable incomeâ€
Interesting choice of words with “will most likely file†when “are required by law to file†would have been more accurate choice of words.
theotherside,
Can you cite an IRS reg where income in the form of cancellation of debt = $250K home sale exemption? Otherwise it's just an argument and not a very compelling one at that (since debt is characterized quite differently from capital gains).
California slipping in rate of growth and in job creation
http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2007/02/25/ING0BO934F1.DTL
TOC,
First of all, don't believe everything that you read; that is like saying:
"I can steal money from the bank and claim it as an exemption to keep from having to pay taxes on it".
I'm not buying it!
TOS,
Can you give a full citation of that MIT paper?
I find your claims absurd on its face. I know that prices have spiraled outside of affordability in NYC, DC, FL, NV, MA, WA, and AZ. That may not be much space geographically speaking, but it's where the good jobs and the mass of population resides.
Suds Says:
> Back in my home country of India, this statement would
> be pretty much reversed — it usually costs more to own
> than rent! This means that the owners DO subsidize the
> renters.
I’m no expert on India, but I find it hard to believe that many owners are subsidizing renters.
> An amateur investor (like some of my friends here in the Bay
> Area, who bought a second home in another state, like Arizona)
> does not mind “subsidizing†a renter. After a lot of thought, I
> think I understand the real logic behind this.
> It is the reasoning that the cost of owning does not continue
> forever. If one pays $3k a month to own a house on a 30 yr
> FRM and rents it out for $2k a month, then at the end of 30
> years, the owner owns the house outright whereas the renter
> (or collection of renters) owns nothing. My friends make the
> exact opposite claim that FAB does — it is the renter who is
> subsidizing the owner.
Suds you need to get your friends some financial help ASAP since if they are renting a home with a $3K mortgage for $2K they are in big trouble…
Let’s do some basic landlord math:
$3K a month is a ~$500K FRM at 6%, if it is a standard 80% loan they put down $125K.
Income $21.6K per year ($2K per month with an average 10% vacancy/collection loss)
Expenses at least $44K per year ($36K mortgage + $5K typical SFH expenses + taxes)
So your friends are paying well over $20K a year a year out of pocket to own the rental and since they are not getting any return on the down payment they are will have about $30K less money every year (before adjusting for the tax loss)…
P.S. Do your friends (the amateur investors) know that AZ home prices are on the way down?
"Call the law offices of Geoffrey Burns if your loan officer failed to explain that the interest would be added to your principle every month if you have a negative amortization loan. "
The sharks are swimming in a circle.
Dump the house cause you cant sell it and you'll pay income tax on the amt the bank lost.
That sucking sound you here is the peasant class moving back to mexico.
adios
In the end, it will all boil down to
1- SUPPLY / DEMAND (how many people have a strong buy bias versus how many people have a strong sell bias in the next few years)
2- MORTGAGE INTEREST RATES (10 year yields and risk premiums)
3- and INFLATION (the higher inflation is the faster real prices come down even with sideways drifting nominal prices)
You left out the most important factor of all and that is the elimination of idiot loans which were the main driver behind the price runups; and don't forget the $1T of ARMs that are going to reset this year.
TOS,
Himmelberg et al assert that the cost per dollar, that is the cost of borrowing, does not constitute an affordability crisis. And that is all, in their abstract, that they propose.
Since the matter of excess liquidity has been throughly examined here for years now, you have simply provided three more names of people who share the views of the majority here.
Thank you for giving us the unexpected blessing of an MIT publication, though I suspect it was not your intention.
TOS,
Yes, taking a 50% bath in Real Estate eventually will work out assuming you never have to sell. But I'd rather not wait 45 years to break even.
An investment property in the bay area is a bad idea right now.
You'll have negative cash flow for too many years. The risk will be that you wont be able to afford the cash out of pocket every month and lose the property. Your burden would be a minumum of $1000 per month. The maintenance will also eat you alive. There are much better investments available at this point. Money markets are paying a risk free 5%. That's just for starters.
Head for the exits on housing. This bubble has just started to deflate.
Idea for a new thread -
Rent in the city and own a house in the country!
Paul,
Sonoma County real estate dropped almost 10% the past year. Owning a place up there won't be as expensive as it used to be.
If I hadn't bought in the city ages ago I would probably rent a large flat in town and then buy a country place. I'd try to get into a nice building that lets you get long term leases and renovate. One of my friends sold her house and rented a really nice four bedroom apartment on Nob Hill, renovated the bathrooms and kitchen, has a country house on Fisher's Island (the New York one, not the Florida one), and will stay in that rental until she dies.
It sounds to me like what SUDs is saying is that a little bit of spare cash or spare income burns a hole in the pockets of working class people. It's not cool, and it's not hip, to save it conservatively.
It is the liquidity trap on a micro-scale.
theotherside Says:
> Suds, Very smart rebuttal….although the bubble believers
> will very shortly start calling a troll or a real estate agent
> or worse a Casey Serin….
I don’t think that Suds is a troll, I really think he is a guy from India that does not know much about Real Estate or Investing, but I do think that theotherside is a Realtor hoping to convince people that buying a home is always a good investment…
I plead laziness (besetting sin) and an unwillingness to consider an MIT publication to have erred in this way. Evidently Himmelberg and friends do in fact conclude there is no affordability crisis.
As with Forbes, I expected better.
Academic publications are quite fallible, esp. outside of the natural/hard sciences. Otherwise, how can one explain the prevalence of campus Marxist and those Che T-shirt wearing drones?
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From a reader:
Wow, where to start with this guy? How about this:
Patrick
#housing