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  #1  
Old 11-23-2007, 03:15 AM
Python49 Python49 is offline
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Default 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.
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  #2  
Old 11-23-2007, 06:46 AM
stephenNUTS stephenNUTS is offline
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Default Re: Real Estate people: I want to buy a house, advice?

[ QUOTE ]
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.


[/ QUOTE ]

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]
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  #3  
Old 11-23-2007, 10:22 AM
z32fanatic z32fanatic is offline
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Default 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.
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  #4  
Old 11-23-2007, 12:06 PM
Dmunnee Dmunnee is offline
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Default 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?
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  #5  
Old 11-23-2007, 12:22 PM
DesertCat DesertCat is offline
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Default 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.
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  #6  
Old 11-23-2007, 12:32 PM
mmctrab mmctrab is offline
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Default Re: Real Estate people: I want to buy a house, advice?

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

[/ QUOTE ]

It doesn't.
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  #7  
Old 11-23-2007, 12:41 PM
mmctrab mmctrab is offline
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Default 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.
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  #8  
Old 11-23-2007, 05:17 PM
Python49 Python49 is offline
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Default Re: Real Estate people: I want to buy a house, advice?

[ QUOTE ]
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?

[/ QUOTE ]
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.

[ QUOTE ]
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.


[/ QUOTE ]
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?

[ QUOTE ]
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.

[/ QUOTE ]
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.
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  #9  
Old 11-23-2007, 05:27 PM
Python49 Python49 is offline
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Default Re: Real Estate people: I want to buy a house, advice?

[ QUOTE ]
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.

[/ QUOTE ]
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.

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

[/ QUOTE ]

It doesn't.

[/ QUOTE ]

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]
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  #10  
Old 11-23-2007, 05:27 PM
ahnuld ahnuld is offline
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Default Re: Real Estate people: I want to buy a house, advice?

desertcat, link to fortune article plz?
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