Buying a first home: Las Vegas

[Taylor Caby]

Slow,
these are good points. he doesn't need to own a house out in vegas though, he can rent, so the state income tax should work either way. also, from what i have been told, claiming the home office thing is one of the surest ways to get audited. for getting a tax rebate on 1/6th of his mortgage payment, as a professional poker player who probably has some things he wouldn't want the IRS seeing, that might not be the wisest decision.

i guess what i'm thinking about reading all of these replies is that there really is no "right" answer here. i don't think anyone can argue that renting is not the safer course of action here. if i'm an internet poker player (which i am), i'm certainly looking to minimize any other risks in my life over the next two years, at least until we all know more about how the environment in which we work in will change.

tc

[MatthewRyan]

[ QUOTE ]
Waiting to buy a home cheaply is great but there are a few things we must consider.

Good2cu is currently a professional poker player who claimed he has won a lot (we'll take his word for it). Considering that he's also an online player, it's also important for him to operate in an environment where he feels fresh. Here are the advantages of him buying right now.

1. Tax deductible off his mortgage interest to lower some of his income.
2. His home office, which can be 1/5th or 1/6th of the mortgage payment if he choose to operate in a large room.
3. The rent for WSOP.
4. No state income taxes.

The above advantages are monetary and are obvious. Here are the intangibles of owning a Vegas home.

1. Raise his street cred and feel good about himself.
2. Can you imagine the opportunities for boning girls at this house? It's freaking Vegas.
3. Friends visiting him all the time. Ok, maybe not this one.

Lastly, the market outlook. We do not know how much the Vegas RE will go down. The majority consensus is that it will go down with a range of 2 years. I'm going to go ahead and stick my neck out and say no one know whether this range is correct. 2 years is just a number that "seems" right and since everyone is saying it, it must be correct.

But look at the upside, we are saving a lot of taxes. Our quality of life will probably increase. We get to bang more girls. Mostly importantly, OP gets to learn to make a big financial decision at an early age. And this is assuming that the Vegas RE is in deep shiet and will continue to plummet. Now imagine if the Vegas RE manage to depreciate at a lower rate. Compare this amount to the amount that Good2cu saves from taxes, it might be a good investment. That is, assuming Good2cu makes over 150k [an educated random number]. My reasoning is obviously flawed if he makes less than 150k.

[/ QUOTE ]

sh- wow sick good post. It is like you read my mind

[fees]

Last weeks business week has an article on the real estate market and it touches on vegas, I would look into it.. fwiw vegas has 48k homes with no resident that have literally just been built.. LOL donks

[soko]

Even if prices don't drop much further, now is a good time to wait and see. Right now you can rent a place much cheaper without any of the risk involved. All the fundamentals are there that even if housing doesn't fall, it sure isn't going to go up any time soon.

If you took out a $250,000 mortgage fixed for 30 years at 7% interest you would be paying $1,600 per month.

For the first year you will be paying about $1,400 in interest from that loan building a measly $200 in equity per month. It won't be 10 years before you're still flushing $1,200 per month down the drain in interest alone.

Not to mention if your house depreciates at all you not only lose your interest payments your equity would be evaporating faster than you're putting it in.

Right now you can rent a 3 bedroom, 2 bath house for around $1,300 a month, You could find a 2 bedroom apartment for less than $1,000. If you rented for 1-2 years you could easily put the $300-$700 month you save in a good interest earning place for a few years when the market is in less turmoil.

Sure it's a good time to buy now. The chances are very high it will be a BETTER time to buy in the coming months so it's an EVEN BETTER time to rent now.

[DesertCat]

[ QUOTE ]

If you took out a $250,000 mortgage fixed for 30 years at 7% interest you would be paying $1,600 per month.

...

Right now you can rent a 3 bedroom, 2 bath house for around $1,300 a month, You could find a 2 bedroom apartment for less than $1,000. If you rented for 1-2 years you could easily put the $300-$700 month you save in a good interest earning place for a few years when the market is in less turmoil.


[/ QUOTE ]

I think you are on the right track. It's impossible for the vast majority of us to time markets. But it's possible to compare the cost of owning vs. the cost of renting. Though owning has some intangible benefits, you really want the costs to be at least similar before you own. After all if you make a mistake purchasing a home it's a very expensive and time consuming mistake to undo. And if you are a renter it's a lot less hassle because you don't have to maintain the place.

In this example, we haven't considered property taxes, insurance costs, maintenance, and lost interest/investment gains on our downpayment. Assuming this $250k mortgage is on a $300k home with $3K per year property taxes, $1k per year insurance, $1k per year maintenance and required a $50k downpayment, which could have been earning $2.5k per year in interest (5%). Your gross costs are $25k per year, or almost $2,100 per month.

Then you need to figure out how much of a tax deduction you will get. First you have to itemize, and if you make over $100k per year, you may lose some or most of your tax deduction because of the AMT calculation. But assuming you can keep all of it, and that you are in the 28% federal bracket, you'd be able to benefit around $5500 per year. So your net costs are about $1,600 per month.

Note: Don't get hung up on my estimates, use your own accurate numbers, I'm just showing you the template to doing the math.

But if you did estimate your ownership costs at $1,600 per month, and renting a similar place cost a similar amount, owning probably makes sense if you are planning to stay at least five years. Eventually you'll see some appreciation. You need at least 7% appreciation just to pay the realtor fees when you sell the place and break even, but everything over that will be gravy, so the longer you stay in the place the better ownership will work out.

If you are only going to own for a couple years, I'd just avoid the hassle and rent if the costs were similar.

[PanchoVilla]

I much prefer owning to renting as I think the extra freedom is worth some premium. That said there are only a few places that if I moved to right now I would not buy a home. Vegas and Phoenix are at the top of that list. They had massive runups based on speculative california buyers. I would seriously consider leasing a place for a year or two, or maybe even some type of lease-option. Do I know that the market will lose money over the next 2 years? No, but it seems far, far more likely there, than in many other places. There are many, many investor owned properties there.

The one exception I might make is if I came across a property that priced in a 8-10% decrease per year over the next two years. If you can get that sort of discount, then you might be worth considering. That is just my .02.

[stephenNUTS]

Hey Taylor,

Your comment is abit different,as you are talking about buying a second/vacation home for yourself which has a totally different set of paramaters,such as higher mortgage rates for second homes,selling it first before your PRIMARY home in an emergency,maintanence,lack of a rental income maybe,etc.

He is talking about his FIRST primary home. If he plans on living there for 5+ years its another story.I have many years of R/E experience,good and bad(including the 1990's R/E collapse after the stock market crash where the sky was falling then too),but over time you I would rather own R/E than ANY instrument in the world.

There are a TON of steals,forclosures,even "short sales by banks"...which is the bank selling at a severe discount to the mortgage/mortgages held on the property(this was unheard of years back)in Las Vegas right now.The fact L/V has a vibrant economy,jobs,low taxes compared to us in the bigger cities...he will not get hurt if he does his home work beforehand

True ...prices "may" drift south in the next few years,but alot of the damge is done.There are PLENTY of scared sellers NOW,and by the time he "actually buys" will be a few months foward anyway which should offer him even more bidding flexibilty?

Some of the prices of homes I looked at during the WSOP in June in LV are already 30+% lower since then,and MUCH lower from their 2006 highs.

IMO Las Vegas incurred one of the greatest % rises,but also one of fastest to fall the last year or so.If a particular property owner was speculating/flipping the house with 0% down,then he has already felt the wrath of the damage,and anyone NOT speculating/flipping or also subject to one of those ridiculous ARM's are not going to give their homes away ,if they LIVE there.
Yes their net worth may have dropped,but if they have a job,retired,or paid CASH....they are not going anwhere.

Once this inventory has subsided,prices will slowly begin to appreciate,and a young person buying a home vs. renting or playing the stock market is well on his way $$$ long term.Just based on the #'s he mentioned above...he can be a [censored] MANSION compared to us in NY,Chicago,Boston,ect.!

As the supply dwindles(new home builders are DONE as of now)the market should be fine in next few years,but TIMING that is impossible!

On a side note..I think you live in Chicago?
Well I am seeing the R/E markets drop abit HERE now in New York as well,along with the other "bulletproof" big markets that have not felt the pain yet.I dont think they will fall anywhere near as hard... but a flat to lower market is expected here as well the the next year here also

IMO R/E markets that have gotten SLAUGHTERED first with a sound economic base ...will see a recovery FIRST (ala Las Vegas)

According to what he claims to be putting down 30% and a high FICO score,getting ONE FIXED RATE mortgage,along with this being a long term primary residence,he will not get "hurt" by any means if he shops around prudently now.

I am seing deals that are ludicrous(i am paying cash and that may be the reason) but they sure are out there

I also would reco. that he get a pre-approved FIRST mortgage before he bargains,as that holds alot of weight to with a potential seller,and hungry brokers willing to hunt around for you

The real recovery IMHO will not be when buyers return,but when credit standards are loosened on the consumers end,and that has already started with last months .50% Fed cut!

I do have a concern though if the Stock Market were to collapse,(then all bets are off)but I dont think that would happen with rates still historically low,as our dear FED GOV'T will do whatever they have to do,to save the economy and their asses from past debacles

~stephen feraca [img]/images/graemlins/cool.gif[/img]

**I mean i'd rather own a home that MAY go down abit than have a $100k+ laying around on PokerStars and Fulltilt earning me ZERO interest...no?

[scotchnrocks]

For those who are saying to wait because Las Vegas real estate is trending down, isn't it feasible that at least some of the property out there has already been corrected to a price near its actual value? And the additional declines that ya'll are expecting to see over the next year will primarily be a result of stubborn sellers who are slowly backing off their listed prices and getting closer to where the builders are?

[eastbay]

[ QUOTE ]

The real recovery IMHO will not be when buyers return,but when credit standards are loosened on the consumers end,and that has already started with last months .50% Fed cut!


[/ QUOTE ]

In my area, I believe the ballooning of the jumbo rates is very meaningful. Since median prices are way above 417k, a great deal of loans need to be jumbo, or other "tricks" need to be played. With the "trick bag" dried up, it's the jumbo rates that have a great many otherwise willing buyers on the sidelines. If the currently ridiculous (IMO) premium comes off of the jumbo rates in the next 6 mo. to a year, IMO this period will have been a narrow window where a market "dislocation" created a great opportunity for the very few who have the cash to put down 150k+ on top of a conforming loan, because the pool of buyers is artificially and temporarily low. Heck, cops make six figures around here. Add a wife's teacher's salary and $500k is a blue collar buying range, it is simply not an expensive house or a large loan for the incomes in this area. Jumbo rates have already started to trend back in-line with conforming rates.

Also, reading this thread I'm reminded of the old saying about when to be greedy and when to be fearful. It's practically viral that you "have to be on the sidelines" now, almost as bad as it was viral that you "had to get in or be priced out forever" two years ago. The virus was wrong then, and I believe it's wrong now.

eastbay

[Jimbo232]

I've posted my thoughts on the rent/buy decision in some of the other recent "Should I buy a home" threads, but I wanted to make an additional observation.

Assuming most people are taking out a mortgage for a significant portion of their home - if you are tying to time the housing market by waiting X amount of months to purchase, by the same reasoning shouldn't you be taking into account potential interest rate changes and the effects on your housing costs? If we are going to try to time one market that the experts can't even figure out, why not try to time them all?

If you save $20,000 on a $400K home (5% decline) by waiting 12 months, but in that time the going rate on a mortgage increases by 1% (from 6.5% to 7.5%) the increase in monthly payments will eat away the costs savings in less than 7 years of payments. While we are in a time of historically high housing prices, we are also in a time of historically low interest rates. Just something else to think about if we are recommending trying to time markets.

I believe if OP feels the #'s from a buy/rent analysis show it is prudent for him to buy, and his lifestyle preferences making owning desirable; then by all means if you can find a good deal now there is no need to wait. Buying a primary residence should not be purely a numbers game - the biggest factors should be the OP's lifestyle preferences.