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

[Python49]

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.

[stephenNUTS]

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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]

[z32fanatic]

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.

[Dmunnee]

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

[DesertCat]

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.

[mmctrab]

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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.

[mmctrab]

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.

[natedogg]

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

[scotchnrocks]

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.

[Taylor Caby]

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