Real Estate people: I want to buy a house, advice?
 

Just looking for some knowledgable from the people of 2p2 to help point me in the right direction for what i'm trying to do. I do plan to take a good month off from poker/everything just to study this alot before making my decision of what to do, but also just wanted to get some ideas to think about before then as well.

Basically i'm looking to buy a house and maybe a 2nd one just for investment purposes.

My question is... is it better to buy a house just 100% with cash or just put some cash down for a loan? The part that makes me unsure is that I don't have good credit... not because i've ever been delinquent in paying bills but just because I don't use credit cards and never built up good credit... so this would result in a higher interest rate on my loan.

I'm looking to buy a house in a housing market i'm told is low right now but expected to go back up within the next 1-2 years so was considering buying 1 house that i'll be living in and a second one for investment purposes. I've read some books and talked to other people who have experience in real estate but haven't actually ever done anything myself.

I was told that it's better to get a loan because then you can deduct property tax, school tax, county tax, and stuff like that... but that if you just buy the house cash you don't get those same benefits. My concern with getting the loan though is that i'd be paying alot in interest and that if I over extend myself and end up not being able to sell the house after 2 years and am stuck the mortgage payments that I could end up paying more interest than I intend to.

So... assuming I can afford to buy two houses at $120k each or so in cash is it better to do that or to just get the loan and end up getting 30k (just a random guess) tacked onto each? If theres any other information needed from me to get better responses let me know.

Re: Real Estate people: I want to buy a house, advice?
 

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So... assuming I can afford to buy two houses at $120k each or so in cash is it better to do that or to just get the loan and end up getting 30k (just a random guess) tacked onto each? If theres any other information needed from me to get better responses let me know.


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First things FIRST!

We all know the R/E market is quite UGLY,and your post is well thought out .....BUT what AREA of the country are you referring to be able to buy TWO $120k house in cash at this time? [img]/images/graemlins/confused.gif[/img]

Stephen [img]/images/graemlins/cool.gif[/img]

Re: Real Estate people: I want to buy a house, advice?
 

It'll be really hard to get 2 loans in your situation (assuming it's similar to mine in that you are ~22 and haven't previously owned a house). I don't think you should put down 100%, but that would make it easier to get 2 houses obviously. Another problem is that if you have a house as investment property the interest rates are higher.

If you don't have much credit, you'll probably have to put down 20% or so minimum, but after a few months of making your payments on time your credit will go way up (so I've heard, I'm just making my first payment in a few days and I have almost no credit).

There are also a ton of things you have to do when you buy a house, so I recommend getting one then waiting a couple months to get the 2nd one. The banks will also try to screw you with the loan, so much so that it took ~2-3 hours a day of talking to the bank, real estate agent, etc. It's a huge pain.

The one thing you have to do though is get 2 banks competing against each other (ignore them when they say to not have other banks pull your credit, they are just trying to eliminate competition). When they send you a good faith estimate for your loan, send it to the other bank and they will beat it, then send that to the original, etc. etc. On our first house we were offered ~7.5% interest putting 20% down, then when we made them bid against each other we got it down to 5.8%, saving us a ton.

Re: Real Estate people: I want to buy a house, advice?
 

since when does paying cash for a house preclude you from deducting real estate taxes?

Re: Real Estate people: I want to buy a house, advice?
 

I'm really convinced that buying real estate is a bad idea right now, and that's coming from a guy who has about 25% of his net worth in subprime mortgages.

My reasoning is the Fortune article that predicted 5 years of price declines until we get back to normal, based on price to rent ratios. But I read an article in my local (Arizona) paper yesterday that made me wonder if Fortune was being pessimistic enough. Here's my rationale.

Phoenix rental vacancies are increasing. I thought that strange since people being foreclosed on would need to rent, right? Well I think what is happening is too many houses were built over the last 5 years due to the influence of real estate "investors"/speculators buying and flipping. Now they are stuck with homes they can't flip for a profit and those are being dumped into the rental market. This means rents are declining and will decline more until demand for rental units meets supply again.

So if rents decline, price/rent ratios are even more out of whack and we'll need an even bigger housing price decline to return to the historical norm.

And we haven't even discussed what happens if interest rates increase.

Re: Real Estate people: I want to buy a house, advice?
 

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since when does paying cash for a house preclude you from deducting real estate taxes?

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It doesn't.

Re: Real Estate people: I want to buy a house, advice?
 

The main decision as far as paying cash or taking out a mortgage relates to mortgage rates, and what kind of a return you can get investing money in a fairly conservative manner. Right now a 30 fixed mortgage is about 5.9%, and the mortgage interest is deductable so you'll probably get back about a third of it when you file your income taxes. The end result is that your mortgage rate is really about (.66)(5.9) or about 3.9%.

Let's say you have $120,000 cash and are looking at a $120,000 house. You'd be better off putting 20% down, taking a mortgage, and investing the remainder because the cash that you invest, even if you're very conservative with it, will grow at greater than your mortgage rate. Now, if mortgage rates were say 12%, like they were when my parents bought their first home, then buying the house for cash would make a lot more sense.

Re: Real Estate people: I want to buy a house, advice?
 

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We all know the R/E market is quite UGLY,and your post is well thought out .....BUT what AREA of the country are you referring to be able to buy TWO $120k house in cash at this time?

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Well I wouldn't necessarily buy them both at the same exact time, I was just throwing out an idea of something i'd want to do. But the area I was interested in was Austin Texas since I plan to be moving there in the future and would want a house to live in as well as for investing. I would be fine with just getting 1 house though obviously until learning more about it.

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It'll be really hard to get 2 loans in your situation (assuming it's similar to mine in that you are ~22 and haven't previously owned a house). I don't think you should put down 100%, but that would make it easier to get 2 houses obviously. Another problem is that if you have a house as investment property the interest rates are higher.

If you don't have much credit, you'll probably have to put down 20% or so minimum, but after a few months of making your payments on time your credit will go way up (so I've heard, I'm just making my first payment in a few days and I have almost no credit).

There are also a ton of things you have to do when you buy a house, so I recommend getting one then waiting a couple months to get the 2nd one. The banks will also try to screw you with the loan, so much so that it took ~2-3 hours a day of talking to the bank, real estate agent, etc. It's a huge pain.

The one thing you have to do though is get 2 banks competing against each other (ignore them when they say to not have other banks pull your credit, they are just trying to eliminate competition). When they send you a good faith estimate for your loan, send it to the other bank and they will beat it, then send that to the original, etc. etc. On our first house we were offered ~7.5% interest putting 20% down, then when we made them bid against each other we got it down to 5.8%, saving us a ton.


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Hey man thanks for the response. Yeah my situation is pretty much identical, i'm 22 years old and never have built up any good credit which is why I was told it might be better to just buy the house outright instead of get hit with alot of interest. Do they just differentiate between a house thats for investment purposes by simply are you living in it yourself or not?

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The main decision as far as paying cash or taking out a mortgage relates to mortgage rates, and what kind of a return you can get investing money in a fairly conservative manner. Right now a 30 fixed mortgage is about 5.9%, and the mortgage interest is deductable so you'll probably get back about a third of it when you file your income taxes. The end result is that your mortgage rate is really about (.66)(5.9) or about 3.9%.

Let's say you have $120,000 cash and are looking at a $120,000 house. You'd be better off putting 20% down, taking a mortgage, and investing the remainder because the cash that you invest, even if you're very conservative with it, will grow at greater than your mortgage rate. Now, if mortgage rates were say 12%, like they were when my parents bought their first home, then buying the house for cash would make a lot more sense.

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But in my situation would I really be getting 3.9% in interest? My credit isn't good yet.

Also i'm not sure how relevent it is, but the way I would like for it to work out is I would like to basically buy a house to live in for 2-3 years and a house to just own for 2-3 years (investment) in Austin, then after that time I think i'd probably want to move somewhere else and was hoping that within that 2-3 years the housing market would go back up and I could sell at a profit. Not sure how likely/realistic this is since I haven't really began my research yet. If I moved there and then the housing market didn't improve or went down then i'd be pretty disappointed about that.

Re: Real Estate people: I want to buy a house, advice?
 

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I'm really convinced that buying real estate is a bad idea right now, and that's coming from a guy who has about 25% of his net worth in subprime mortgages.

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But if i'm 22 and just graduated college so it's time to move out of my moms house... don't I need to buy a house anyway? I wouldn't imagine that renting right now is better than buying a house although i'm open to the idea it could be. I pretty much just got home from school and am going to move out so I thought buying a house would be the best idea instead of renting.

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since when does paying cash for a house preclude you from deducting real estate taxes?

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It doesn't.

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Yeah, this is what someone was telling me but I didn't read up on it yet myself. They were saying something about itemizing and standard deductions and how you have to itemize a certain amount to be able to deduct real estate taxes... I really don't know how that works yet [img]/images/graemlins/confused.gif[/img]

Re: Real Estate people: I want to buy a house, advice?
 

desertcat, link to fortune article plz?

Re: Real Estate people: I want to buy a house, advice?
 

One thing I've noticed about real estate: don't buy in urban areas with tons of room for development unless you can afford to buy in the impacted center of the population.

Las Vegas, Phoenix, Sacramento, Austin, are surrounded by wide open spaces to build on. I don't know about the Austin market but Las Vegas and Phoenix and Sacramento have tanked badly, precisely because builders overbuilt during a price runup. It's too easy. There's nothing but room. As soon as things go sour, the builders have a backlog of a year's worth of projects still building. Vegas, Sacramento and Phoenix are so flooded with properties that nobody can sell anything anywhere close to what they bought it for in 2005-6.

Places with no room to grow are where you should buy, but of course, they are already pricy. However, they aren't going down. If the housing prices of a major impacted urban center go down, then everyone's in trouble at the time too, but your longterm prospects are even better if you can buy property cheap in a place like that while everyone is negative. (e.g. NYC 2001-2, they were giving property away relatively speaking)

natedogg

Re: Real Estate people: I want to buy a house, advice?
 

It depends on where you are trying to buy property. For houses in the $120k range it sounds like you're probably 50+ miles from a large city. A reliable rent vs. buy calculator will be much more valuable than anything anyone can tell you about the market. It's different for everyone, and it's hard to give good input without a lot of the variables.

Re: Real Estate people: I want to buy a house, advice?
 

OP,

I was in your exact situation almost two years ago.

I'll give you some points to think about:

1) You won't make any money holding a place for 2-3 years and selling, not even close. Even if prices (somehow) do go up somewhat significantly over the next 3 years, your transactions costs, home improvements, repairs, taxes, etc. will eat up any gains you see. Typically you'll want to hold on to a place for 5-6+ years to start to make it a +EV investment over investing the $ and renting, and that is with historical RE returns, which I don't think we will see anytime soon.

2) Don't underestimate how much it costs to maintain a house. You'd be surprised, and it's something you plan for when you are buying.

3) You'll spend a lot of time dealing with/worrying about/etc. issues that you won't have if you just rented a place.

All this said, here is what I'd do if I were you. I'd buy a place in a very good location within Austin that had room for improvement. Not the nicest place, but a place that has some space with which you could improve (adding a pool, rooms, finished basement, landscaping, whatever).

I'd try to find some roommates, and rent out a bedroom or too. If this isn't possible, not a big deal, but it'd be nice to have.

Finally, I would commit to owning the place for 5 years, barring something unforseen in your financial situation. Over the first year or two, I'd make some small improvements in the house and monitor the market situation. If things look okay, I'd keep making improvements and then possibly start to look at acquiring another house.

If you decide to move within 5 years, you can always rent your place out and then go rent or buy somewhere else.

If you don't have a plan to hold for at least 5 years, I really doubt it is in your best interest to be buying a house. Yeah, it's cool to own a house, but realisitcally, it's one hassle you don't really need at 22. I wish I hadn't bought my house, so now when I am considering a move, I have to figure out a way to rent it out, or take a loss on my "investment."

At this point in time, I can't really see any situation where you should buy two houses. You seem to be very inexperienced in RE (not unusual or knocking you), our economy/RE market are going through very uncertain times, and you are 22 years old.

tc

Re: Real Estate people: I want to buy a house, advice?
 

I can't paste from my IPhone. But you can find the fortune article by searching the site.

And no one needs to buy a house. They need rationally gauge the cost of renting vs. buying and make the best decision based on their specific circumstances. Typically renting is cheaper than owning over the short run, but appreciation makes up for it. But today any appreciation looks very iffy over the next 2-5 years.

Re: Real Estate people: I want to buy a house, advice?
 

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2) Don't underestimate how much it costs to maintain a house. You'd be surprised, and it's something you plan for when you are buying.

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This is very true and depends a lot on the age of the property as well. New homes have far less repairs than older homes etc. Condos will have less than homes...

But yeah, it can cost a decent amount to fix the home back up to sell after living in.

Re: Real Estate people: I want to buy a house, advice?
 

Good post/advice Taylor

Stephen [img]/images/graemlins/cool.gif[/img]

Re: Real Estate people: I want to buy a house, advice?
 

Similar topics have been posted on at length recently. Search the forums for a wealth of information. As a general comment, I'll say that 1) with your liquid assets you should have not problem finding a lender for as many properties as you want just about regardless of a short credit history and at very reasonable interest rates; 2) you need to take some time learning how to make money in RE - I'm concerned about the vagueness of your buying an investment property.

Re: Real Estate people: I want to buy a house, advice?
 

Why buy two 120k houses w/ one as investment (when RE investment prospects look anywhere from grim - breakeven) when you can buy a better house to live in ($200-240k) at a better location farther inside Austin?

Re: Real Estate people: I want to buy a house, advice?
 

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Well I wouldn't necessarily buy them both at the same exact time, I was just throwing out an idea of something i'd want to do. But the area I was interested in was Austin Texas since I plan to be moving there in the future and would want a house to live in as well as for investing. I would be fine with just getting 1 house though obviously until learning more about it.

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austin real estate market is doing pretty well. we have had a mild slow down in appreciation and houses are staying a bit longer on the market then in the previous few years but we are not seeing any type of economic meltdown like many cities.

Re: Real Estate people: I want to buy a house, advice?
 

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Why buy two 120k houses w/ one as investment (when RE investment prospects look anywhere from grim - breakeven) when you can buy a better house to live in ($200-240k) at a better location farther inside Austin?

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Because he can live in one home and sell the 2nd when the market goes back up. In the other scenario, if he lives in one home twice as expensive, then when he sells he has to turn around and re-buy back into the same market, which has also already appreciated. So keep one home for utility, and the other for investment.

Doing the one home thing would only work if he planned on re-buying into a cheaper market. In the US, there aren't a heck of a lot of markets cheaper than Austin.

Re: Real Estate people: I want to buy a house, advice?
 

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But if i'm 22 and just graduated college so it's time to move out of my moms house... don't I need to buy a house anyway? I wouldn't imagine that renting right now is better than buying a house

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Don't feel like you have to buy right now. Chr*st, you are 22 years old. Try not to make all your decisions based on math. Although renting right now may be viewed as -EV, you may find it a good learning experience to prep you for owning your own home. When in doubt about such a huge decision, it's probably best to take the safe route and rent until things become more clear. Just my opinion.

Re: Real Estate people: I want to buy a house, advice?
 

Heres a link to that article
http://money.cnn.com/magazines/fortu...e_rent_ratios/

Re: Real Estate people: I want to buy a house, advice?
 

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Heres a link to that article
http://money.cnn.com/magazines/fortu...e_rent_ratios/

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very interesting, yet disconcerting article.

i have a question, and sorry for the hijack:

why are price to rent ratios historically so different across different cities? I can understand why they would have short term fluctuations, but I can't figure out why certain places historically have 2x and 3x P/R ratios of other places.

thanks,
tc

Re: Real Estate people: I want to buy a house, advice?
 

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Heres a link to that article
http://money.cnn.com/magazines/fortu...e_rent_ratios/

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gogogo DFW!

Re: Real Estate people: I want to buy a house, advice?
 

Wow, lots of good information in here.

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It depends on where you are trying to buy property. For houses in the $120k range it sounds like you're probably 50+ miles from a large city. A reliable rent vs. buy calculator will be much more valuable than anything anyone can tell you about the market. It's different for everyone, and it's hard to give good input without a lot of the variables.

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Friend of mine told me that if you got a good deal on a foreclosure you can get a good house for around $110k thats like 10mins from the night life in Austin. I'll look into this soon.

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I'd try to find some roommates, and rent out a bedroom or too. If this isn't possible, not a big deal, but it'd be nice to have.

Finally, I would commit to owning the place for 5 years, barring something unforseen in your financial situation. Over the first year or two, I'd make some small improvements in the house and monitor the market situation. If things look okay, I'd keep making improvements and then possibly start to look at acquiring another house.


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I already have a room mate that's moving down there with me so that would be good. The only concern for me is that since I plan to do alot of traveling for fun, some for poker (don't poker players who travel alot to poker events own houses?), that I don't want to really commit myself to staying in a certain location for the long term.

That's something I only want to do when i'm older with a wife and ready to settle down, I kind of feel like right now i'm not even sure where I want to live long term. I could end up wanting to move to Vegas after 2 years or something, but since I figure my option would either be to rent or buy a house I thought buying the house was assumed to always be the better option. Instead of paying rent to a landlord i'd be paying it towards something I own that I could get back when selling... was my logic. I guess though if I plan to be traveling and changing locations then common sense would say renting is the better option. I could commit to 2 years but 5 is a bit much.

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And no one needs to buy a house. They need rationally gauge the cost of renting vs. buying and make the best decision based on their specific circumstances. Typically renting is cheaper than owning over the short run, but appreciation makes up for it. But today any appreciation looks very iffy over the next 2-5 years.

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This part i'm not really understanding, if I were to lets say buy a house being foreclosed for $110k thats worth $180k and I live there for 2 years and I sell in 2 years for $180k because there was no appreciation then I would be profiting like $70k right? Maybe more if I fix the place up some. I would also have a place to live basically while making money.. whereas if I rent that same house I could just end up paying $700 a month for 2 years and have a net loss of $700 x 24.

Even if a house didn't appreciate and you can't get a good deal on it... wouldn't it just be, you buy it for $120k, you live there for 2 years, you sell for $120k and pretty much break even vs paying rent for 2 years? Or I guess the fees TC mentioned along with:
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your transactions costs, home improvements, repairs, taxes

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can come out to make buying more expensive.

A friend of mine I was just talking to says that one of the worst declines in property value in housing markets has been like 3%, so even if you were to buy a $120k house and take a 3% loss, thats $3600 loss in value, but wouldn't that still be cheaper than the amount of money you'd pay in renting? Also, thats a "worst" case scenario... so don't you just save money as opposed to renting, while giving your self a possible chance that it might even go up within 2 years? Seems like a free roll in that sense?

Yeah, i'm inexperienced obviously, just trying to make sense of this stuff [img]/images/graemlins/smile.gif[/img]

Re: Real Estate people: I want to buy a house, advice?
 

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I already have a room mate that's moving down there with me so that would be good. The only concern for me is that since I plan to do alot of traveling for fun, some for poker (don't poker players who travel alot to poker events own houses?), that I don't want to really commit myself to staying in a certain location for the long term.

That's something I only want to do when i'm older with a wife and ready to settle down, I kind of feel like right now i'm not even sure where I want to live long term. I could end up wanting to move to Vegas after 2 years or something, but since I figure my option would either be to rent or buy a house I thought buying the house was assumed to always be the better option. Instead of paying rent to a landlord i'd be paying it towards something I own that I could get back when selling... was my logic. I guess though if I plan to be traveling and changing locations then common sense would say renting is the better option. I could commit to 2 years but 5 is a bit much.


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If you have never lived in the area, you should at least rent for 1 year just to see if you like the place for long term, and where exactly in the city you would want to live. It sounds like you really have no clue about your future plans in terms of this city. Combining that with an illiquid asset like a house in this bad real estate market would be a disaster.
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And no one needs to buy a house. They need rationally gauge the cost of renting vs. buying and make the best decision based on their specific circumstances. Typically renting is cheaper than owning over the short run, but appreciation makes up for it. But today any appreciation looks very iffy over the next 2-5 years.

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This part i'm not really understanding, if I were to lets say buy a house being foreclosed for $110k thats worth $180k and I live there for 2 years and I sell in 2 years for $180k because there was no appreciation then I would be profiting like $70k right? Maybe more if I fix the place up some. I would also have a place to live basically while making money.. whereas if I rent that same house I could just end up paying $700 a month for 2 years and have a net loss of $700 x 24.

Even if a house didn't appreciate and you can't get a good deal on it... wouldn't it just be, you buy it for $120k, you live there for 2 years, you sell for $120k and pretty much break even vs paying rent for 2 years? Or I guess the fees TC mentioned along with:
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your transactions costs, home improvements, repairs, taxes

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can come out to make buying more expensive.


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This is a separate issue. Its always a good idea to buy an asset for less than its intrinsic value. Thats how you make big bucks in RE. These types of deals are not easy to find, and certainly the average person doesn't make them. You will rarely find these deals through the normal (agents, MLS) channels. Most of the discussion in this thread has been centered on paying market price for a property, since thats what most people do. If you can buy something below market price, then you'll have to evaluate that specific deal to find out if its a good investment compared to renting.

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A friend of mine I was just talking to says that one of the worst declines in property value in housing markets has been like 3%, so even if you were to buy a $120k house and take a 3% loss, thats $3600 loss in value, but wouldn't that still be cheaper than the amount of money you'd pay in renting? Also, thats a "worst" case scenario... so don't you just save money as opposed to renting, while giving your self a possible chance that it might even go up within 2 years? Seems like a free roll in that sense?

Yeah, i'm inexperienced obviously, just trying to make sense of this stuff [img]/images/graemlins/smile.gif[/img]

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Your friend is wrong. Ask Californians what happened in the early 90s. The 3% decline your friend is talking about is probably a nationwide average. I don't know about Austin, but you need to look into the specifics of the deal and the city market, not nationwide averages. If you can purchase a place for less than the price of renting then its a good deal. If you can't then stay away. Be realistic about appreciation in the next 5 years (there probably won't be much if any) and use a rent vs. own calculator when figuring out what to do with a potential purchase. Check out dinkytown.net for one of these. Perhaps more elaborate ones exist.

Bottomline: You need to read a lot more about this. Search this forum for other discussions. It comes up a lot.

Re: Real Estate people: I want to buy a house, advice?
 

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Heres a link to that article
http://money.cnn.com/magazines/fortu...e_rent_ratios/

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Thanks for the article. That is pretty eye-opening speculation.

I have a dumb question but I'd like to know thoughts on it:
If US housing prices are going to drop virtually across-the-board over the next 5 years, and the dollar is getting murdered against the Euro (among other currencies), would we not see a large influx of foreigners moving into this country and buying homes for "cheap"?

Is there something that would keep them from doing this that I haven't thought of? Obviously it's not easy for someone from Germany to just move here arbitrarily, but couldn't they purchase homes here as investments?

Thanks to anyone who can give input here. [img]/images/graemlins/smirk.gif[/img]

Re: Real Estate people: I want to buy a house, advice?
 

pro,

this is already happening. there are lots of europeans buying investment properties in desireable areas to live. nyc, florida, south carolina, california, etc. are great places for a 3rd of 4th home for some of Europe's richest.

tc

Re: Real Estate people: I want to buy a house, advice?
 

Your friend is way wrong, that's the same logic buyers had after the great crash of 1929, and they suffered enormous losses for three years. This is the greatest real estate crash in history and it just started. No one knows how severe or mild it will be. Read the fortune article for one perspective. Another perspective is that homes can only appreciate around 4% a year on average over long periods, otherwise the average % of income needed to buy one would approach 100%. To restore that long term baseline to 4% after the bubble, we either need a substantial decline in prices over a short period, or no appreciation for 7-10 years. Look at measures like inventory for sale and ave sale time and you will see a huge overhang of houses in most markets and that implies lower prices are needed to move them.

And do you really think someone is going to sell you a $180k house for $120k in foreclosure? If it sells for $120k in foreclosure, its market value ain't much higher, banks may want quick sales but they aren't fools. They might sell you a house that you can put $20k in and make a small profit, but selling in this market is swimming against the current. The house could lose $15k in value during the refurb. But if you can buy a house for $120k that would cost $1200 per month to rent, you don't have to worry about selling it because you can always rent it and have positive cash flow.

Re: Real Estate people: I want to buy a house, advice?
 

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pro,

this is already happening. there are lots of europeans buying investment properties in desireable areas to live. nyc, florida, south carolina, california, etc. are great places for a 3rd of 4th home for some of Europe's richest.

tc

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Uggg...that's not what I wanted to hear. lol.

Re: Real Estate people: I want to buy a house, advice?
 

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desertcat, link to fortune article plz?

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Finally I am using a real computer, here it is.

Re: Real Estate people: I want to buy a house, advice?
 

FWIW I don't think spex or any of my RE friends are going to find themselves unemployed soon. Specific markets like the high end LV strip condo things might end up taking a bath for long periods, but I'd be more hesitant to thing housing prices are going to drop considerably for extended periods.

Re: Real Estate people: I want to buy a house, advice?
 

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FWIW I don't think spex or any of my RE friends are going to find themselves unemployed soon. Specific markets like the high end LV strip condo things might end up taking a bath for long periods, but I'd be more hesitant to thing housing prices are going to drop considerably for extended periods.

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Are your friends investors or realtors? Realtors will make money regardless of the direction. There is a huge overhang of houses, in PHX unsold inventory has increased 150% over the last two years. They will eventually be sold, and I can't imagine any other scenario than fire-sale prices, but either way the realtors will get their commissions.

Investors are in a tougher boat. But regardless of macro conditions, if you make smart decisions, i.e. buy the few homes that will rent at positive cash flow, you'll probably do fine.

Re: Real Estate people: I want to buy a house, advice?
 

It really sounds like you don't have any idea what buying houses entails. Also, you don't know where you want to live... And you're 22. Are you sure you're even responsible enough to care for your own place?

I would say renting is your best bet.

Re: Real Estate people: I want to buy a house, advice?
 

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Investors are in a tougher boat. But regardless of macro conditions, if you make smart decisions, i.e. buy the few homes that will rent at positive cash flow, you'll probably do fine.

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In any market it is hard to find properties that you can get a decent cash flow from. Thats because you always have to buy for less than market value in order to make decent cash flow. I've pointed out numerous times on this board that just because a price is lower than it was a year ago, that doesn't mean that its a good deal as an investment. Its possible that in some markets prices will remain flat or decline for several more years. That is neither here not there necessarily. You can likely find as good of deals now as you will be able to in a few years, just maybe not as many.

As a professional RE investor, my opinion is what DesertCat alluded to above: you need to have multiple options for exiting from any property.

Re: Real Estate people: I want to buy a house, advice?
 

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This part i'm not really understanding, if I were to lets say buy a house being foreclosed for $110k thats worth $180k and I live there for 2 years and I sell in 2 years for $180k because there was no appreciation then I would be profiting like $70k right?

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Desert Cat called it. You're not going to buy a house that's worth $180 for $110k. Do you think everyone in Austin is stupid, and would let that happen? There are a lot of people in that game that are tied in better than you, and would be in there ahead of you.

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Even if a house didn't appreciate and you can't get a good deal on it... wouldn't it just be, you buy it for $120k, you live there for 2 years, you sell for $120k and pretty much break even vs paying rent for 2 years? Or I guess the fees TC mentioned along with:

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Closing costs to sell are going to be 10-15%. That's 18 grand IF it doesn't go down in value.

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A friend of mine I was just talking to says that one of the worst declines in property value in housing markets has been like 3%, so even if you were to buy a $120k house and take a 3% loss, thats $3600 loss in value, but wouldn't that still be cheaper than the amount of money you'd pay in renting? Also, thats a "worst" case scenario... so don't you just save money as opposed to renting, while giving your self a possible chance that it might even go up within 2 years? Seems like a free roll in that sense?

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Find friends that know something about real estate, or stop listening to them. California has gone through 20% drawdowns multiple times. Many areas are down over 20% in this latest drawdown, with more to come.

But if you MUST buy a house now, look for real-estate owned. That is real estate that a bank or mortgage company is holding after they've foreclosed. For example, Countrywide has an 1800 sq ft house in Austin they are selling for $83,900.

Re: Real Estate people: I want to buy a house, advice?
 

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It really sounds like you don't have any idea what buying houses entails. Also, you don't know where you want to live... And you're 22. Are you sure you're even responsible enough to care for your own place?

I would say renting is your best bet.


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As mentioned in my OP, I haven't begun any serious research on the subject and was just starting here so I could get some discussion going on it and go from there. I would never make any serious decisions without feeling confident I knew what I was doing. Definitely got something out of the thread though.

Re: Real Estate people: I want to buy a house, advice?
 

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This part i'm not really understanding, if I were to lets say buy a house being foreclosed for $110k thats worth $180k and I live there for 2 years and I sell in 2 years for $180k because there was no appreciation then I would be profiting like $70k right? Maybe more if I fix the place up some. I would also have a place to live basically while making money.. whereas if I rent that same house I could just end up paying $700 a month for 2 years and have a net loss of $700 x 24.

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Yes, you are exactly right. If you put a deal together like this you would profit $70,000 (less transaction costs and other expenses that I won't go into here). The problem is that a deal like this would be very difficult to find for lots of reasons. Not impossible, but difficult. The competition for that deal would be pretty stiff and other investors would likely bid much higher than 110k for a 180k property, especially if the property needs only minor work.

Buying real cheap foreclosed properties usually is only possible if the property is distressed. A property in saleable condition will be put on the market by the bank. A distressed property could be bought at a sufficient discount to make a flip possible.

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Even if a house didn't appreciate and you can't get a good deal on it... wouldn't it just be, you buy it for $120k, you live there for 2 years, you sell for $120k and pretty much break even vs paying rent for 2 years? Or I guess the fees TC mentioned along with:

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Sure, if you found the right deal. On the other hand, if you found a juicy deal, why not just flip it in three months and take the profit and use that to flip another one? Why sit on $70k for 2 years when you could take that $70k and make anther $30k. Then you could take that $100k and do 2 $30k deals simultaneously. Then you could take that $160k and buy and flip a 20 unit apartment complex for another $160k profit. You see what I'm getting at? In two years you could do a hell of a lot better than $70k if you want to get into the flipping game.

Re: Real Estate people: I want to buy a house, advice?
 

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Sure, if you found the right deal. On the other hand, if you found a juicy deal, why not just flip it in three months and take the profit and use that to flip another one? Why sit on $70k for 2 years when you could take that $70k and make anther $30k. Then you could take that $100k and do 2 $30k deals simultaneously. Then you could take that $160k and buy and flip a 20 unit apartment complex for another $160k profit. You see what I'm getting at? In two years you could do a hell of a lot better than $70k if you want to get into the flipping game.

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spex, what kind of experience do you have w/ apartments? from your posts (which are usually very informative) ive only seen you mention residential w/ the exception of the mobile home park you were considering. im curious about your commercial experience.

one reason i ask my friend is a commercial real estate broker and runs his own biz. we've talked about going in on a deal together down the road. initially we spoke about a small apartment but he tends to think there's better money in storage units.

he says the best deals he's seen in the biz are on a small place w/ extra land and high vacancy rate, build extra units and lower vacancy rate and sell. timeline would be 1-2 years. any thoughts or experience w/ this?

Re: Real Estate people: I want to buy a house, advice?
 

Spex,

One of the things that is freaking me out is the increasing vacancy rates in PHX. I am worried about all these failed flips being dumped on the rental market and forcing rents lower. Are you renting units right now and if so do rents look like they are softening to you?