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

[prohornblower]

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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.

[maxtower]

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

[Taylor Caby]

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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

[raptor517]

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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!

[Python49]

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]

[maxtower]

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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.

[prohornblower]

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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]

[Taylor Caby]

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

[DesertCat]

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.

[prohornblower]

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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.