Life of a Landlord

NEW -> Contingent Buyer Assistance Program
I don't think we will see 53% declines before we hit bottom either, not because prices were not inflated by more than 100% at the peak, but because fundamentals of rent and income should continue to rise while prices fall. The intersection of prices and fundamentals in 2010 will likely be a 40% decline from the peak. That being said, we will see individual properties decline more than 50%, particularly some of the undesirable condos.
 
"The intersection of prices and fundamentals in 2010 will likely be a 40% decline from the peak. That being said, we will see individual properties decline more than 50%, particularly some of the undesirable condos. "



I totally agree. We were able to find a house today at 40% off its peak and I expect its resale to be flat for the next 3-5 years. However, we'll get to finally enjoy living in our own home now and over the next 3-5 years we will be building a bit of equity due to some of the mortgage actually going towards the principal. I wouldn't buy a condo today at 40% off its peak unless that was all we could afford and planned to stay in the property at a bare bones minimum of 5 years.



Rents have gone up quite a bit in the last 5 years. Housing in OC is always going to be relatively expensive, whether you rent or buy.
 
this thread is approaching a point where graph's law is needed. let's start from scratch and forget the numbers for a moment.



stepping up, can you explain to me like i'm an idiot. you have a dream home, neighborhood, and lifestyle all picked out. fantastic! what is the point of buying another home for 18-24 months and then eating negative cashflow for the next, by your conservative estimates, several years? what is the difference between renting and owning (translation: borrowing heavily for) a home in CM such a short time frame? because you really really really really want to live in your OWN home... for maybe 2 yrs tops. that just doesn't make any sense to me.



i own my home so don't get me wrong here. rent vs own calcs don't capture the intrinsic value of home ownership. everyone justifies a home purchase as "well, this is for us to <em>LIVE IN</em>." the idea behind that being the home isnt just 4 walls, it's much, much more than that. it's the foundation of your life, where you watch your children grow up and a single, constant place where their memories are made. that all has value...



but we're not talking about if your plan is to live there for 18-24 months. buying that house, in that case, just<em><strong> doesnt make dollars or sense!</strong></em>



please excuse my snark, you seem like a lovely person it's just that i dont think anyone here wants to see more ppl fall into the homedebtor trap.
 
Thank you acpme. I am 39 and hubby is 45. I work from home for a New Zealand software company (3 years directly and 6 indirect), so my job is mobile. However, I travel a lot and the idea of SLO airport isn't pretty for me. Hubby has asked his company about work from home with travelling down to the OC office or the SF office a few times a month. He would stay with his parents when visiting his so cal clients, but he has clients in the central valley and SLO. The company said it's a distinct possibility for him after one more season.



I'm not so convinced that we will just pick up and make the move in 18-24 mos. My job is totally stable right now and so is his, but if mine changes I'm still in my prime earning years. There aren't prime earning opportunities in Paso, but there are opportunities for me here. Hubby will likely have his job for many years.



Yes, I'm being emotional about wanting to live in my own home. Our rental here is relatively inexpensive, but the price is that the flooring is shot and the entire place needs a face lift. I like to grow things and there is only so much you can do with tomatoes in containers. The house we are buying has a big yard and mature fruit trees. One of my closest friends works for a flooring manufacturer, so we've gotten a great price on new flooring for the house. I also have a connection for great pricing on cabinets and countertops. We both love to cook and the kitchen here is dinky. The point of this is that we would really enjoy living in the house.



I've lived with roommates up until a little over a year ago, saving, saving saving for a house. We put 20% down on the Paso house and it's appraising today for $190K more than we owe on it. A similar home on the same street just sold last month for what our esimated value is. We still have cash, emergency fund and retirement accounts that we put 15% and 25% of our income into.



Why we thought the house here made sense is that if we do move in two years, at that time we could rent this house out without a significant negative cash flow. If we move out of it in 2010, I expect it will be cash flow neutral around 2013. If we end up living in it until 2013, it's cash flow neutral then. Whenever we move out of it, the intention is to hold it for long term appreciation and have a little bit of positive cash flow while the tenant is paying our mortgage. In 15 or 20 years, the house has appreciated and we have all the equity from that and our principal payments.



We would like to be able to retire earlier in life and we see the Costa Mesa house as something that will help fund retirement. We either continue to earn on the positive cash flow in 15 years, or we sell and put the proceeds into another income generating vehicle. hubby turns 59 1/2 in 15 years.



It all seems to make so much sense to us, but now I'm worried sick that I've gone out and done something really stupid for our future based on what I've read on this site.
 
<em>"I totally agree. We were able to find a house today at 40% off its peak and I expect its resale to be flat for the next 3-5 years. However, we?ll get to finally enjoy living in our own home now and over the next 3-5 years we will be building a bit of equity due to some of the mortgage actually going towards the principal."</em>

Yeah, stepping, you go girl. Prices can't go down much more than 40%. Build that equity.
 
[quote author="stepping_up" date=1209607239]It all seems to make so much sense to us, but now I'm worried sick that I've gone out and done something really stupid for our future based on what I've read on this site.</blockquote>


That is exactly what we are trying to prevent you from doing. This site came into being because many of us recognized the bubble for what it was, and we wanted to save people from financial ruin. We made a series of predictions for the future of the market based on the practices and conditions in the mortgage lending arena, and we have been proven correct thus far. Most of the problems we identified are still present and likely to get worse. If they weren't, we would say so. There will come a time on this blog when we go bullish. We are not a group of perma-bears. That time is not now. We are maybe 1/2 way through the steepest drop in the decline, and about 1/3 of the way to the bottom. What we have all been trying to say as diplomatically as we can is this: <strong>"Don't buy now. You will regret it."</strong>
 
What I've realized during this dialogue is that my biggest draw to Paso sooner rather than later is because of having a house of our own. My biggest fear of Paso sooner rather than later is what that will translate into for earnings over the long haul.



I'm 39 years old and been ready for ownership for quite some time. I kick myself for not buying a condo in 2000 when I was single, but buying all by myself was too scary. I kept saving though and then I met my husband. In 2004 we had a plan to buy, but even by then we had to change our sites. Every time we changed our sites, it went up. I figured in 2005 things would have to level and then we'd buy in 2006 and just build more cushion. 2006 prices killed it for me.



I thought we would never own here without paying a financial price that was not worth it. We are so jazzed about this house and I'm so looking forward to getting in there. I have the distinct feeling that we will ultimately end up putting off the Paso move. We have a house that is 40% less than it appraised and sold for in 2006, that's good enough for us. It wouldn't surprise me if we stay here 5 years and then we rent it out cash flow neutral. That is probably the smarter thing. We'll see.



I know I won't be regretting it this summer when I plant theyard, have my tomoatos in abundance, actually be able to host a dinner party for more than just one couple, etc... I'll come back in 5 years and let you know if we ended up regretting it.
 
[quote author="stepping_up" date=1209613118]



I know I won't be regretting it this summer when I plant theyard, have my tomoatos in abundance, actually be able to host a dinner party for more than just one couple, etc... I'll come back in 5 years and let you know if we ended up regretting it.</blockquote>




I said before, I wouldn't do this. But, for you, it sounds worth it to risk the potential market loss to live there now.



what I am trying to say (and I suspect others too) is that your upside projections on the back end (renting it out after you move) may be more optimistic than we believe will be the case. you may not realize any real gain for 15 years.



but so long as you are *NOT* relying on the CM house for your retirement money (15-25% in other funds, wow), you will be fine.



Enjoy your new house.
 
Ok step,



It's a personal decision, isn't it. And you mostly have your mind made up. So ... ask yourself, why did you tell of your intentions to a bunch of folks who you know were going to tell you that it is a bad time to buy?



40% off the 2006 price does not mean anything. When you have lost all your equity and are down another 30% in value and you owe so much more on your mortgage than your house is worth, and you realize it will be 15 years before you could break even by renting it out or selling it, how will you feel? Will your tomatoes make you feel any better? You think I am being unrealistic or harsh. The truth is I am being realistic and showing you a very real probability that you need to consider.



Who am I to know or tell you any of this? After all, you are 39 and you deserve a home of your own, right?



It will not be a home you own. The bank will own the home and your income.



I am 50 and am now leasing, and have been leasing for two years. I have "owned" one home or another since I was 25. I bought one of those homes in 1990 and put 20% down. And had payments I could afford until I paid it off, but when I owed the bank 15% more than I could sell the house for in 1995, it felt lousy. And I am no different than anybody out there. When I hear someone say, "I will not mind if our home depreciates because we plan to live in it, and raise our family there, and ... ", I call b------t! There is no one who doesn't mind when they owe more on their home than it is worth.



Why can't you lease a home and raise tomatoes and have more than one couple over? I bet you can rent such a home for much less than you can buy. You are fooling yourself if you think that paying on a mortgage is different than paying rent.



There will be a time to buy. It may be in two or three years and you may be 41 or 42 then, but you will be 41 or 42 then anyway and you will not have missed out on any part of your life by leasing a nice home rather than paying a mortgage. Actually, my experience is that more time is available to spend with my children now that we are leasing and I have less home maintanance responsibilites. And we sure as heck have alot more money to enjoy ourselves with.



Do you have any idea how much a home really costs? Bought a new roof lately? Had a slab leak lately? You will.
 
[quote author="freedomCM" date=1209622119][quote author="stepping_up" date=1209613118]





"but so long as you are *NOT* relying on the CM house for your retirement money (15-25% in other funds, wow), you will be fine"



We live more like a couple who has half our income. This is something that I'm really good with, which is why I'm so paranoid about risk. I've been lowerish salary for my industry with comm and bonus for years. I always budget to live strictly on the salary, comms and bonus are savings/investment. When hubby gets his raise later this year, he'll increase his contribution %.



You've been looking at the homes in the area, so you know the small closets. I can actually fit my clothes in one of those closets. We just don't spend money on stuff we don't need. The two car garage will house our two modest cars, not a bunch of excess crap that ate up money. I drove my car for 9 years after it was paid for before I bought another one. We don't even have cable because we don't watch TV, which has a side benefit of not being subjected to ads that convince you to buy more stuff :)



I'm kind of digressing here, but I think people can save more than they do. We never would have ended up with this crazy cycle if people just stuck to buying what they could afford with a real down payment and a 30 year fixed mortgage.



We've gotten an amazing mortgage. I think that B of A's risk assessment weights your assets and savings heavily. We qualified for about $100K more purchase price in <strong>today's</strong> lending environment, but we weren't comfortable taking on that much. We had already determined the purchase price/mortgage and terms that we would be comfortable with and stuck with it.





-Enjoy your new house-



Thank you! I had to meet the insurance inspector over there this afternoon. Of course, I was feeling sick about whether I was doing the right thing. After being back in the house and visualizing it all, I'm all jazzed again. I came back via 19th to drop off my last rent check to my landlord who lives in a gorgeous home on the east side and I was rubbernecking the various white picket fence styles. That's one of my projects for the house. I'll keep my retirement contribution at 25%, but I'm going to start spending some of my comms. on projects. It's motivated me to sell more :)
 
It's very expensive to buy for the short-term! Broker's fees are in the neighborhood of 6%. If you're living there just two years, that's 3% extra per year, or almost 50% premium on your payments. Is the house worth it with a 50% increase in the payments?
 
stepping_up,



Please stay in contact with the board. We will be interested in your opinion on this purchase two years from now. We could all be wrong.
 
She's made up her mind.



<img src="http://www.sallys-place.com/food/columns/lydecker/tomato_lydecker.jpg" alt="" />



Say hello to your 100K Tomato.... :down:
 
I went to Paso Robles to pick tomatoes at a friend's brother's place about 15 years ago. It was beginning of October, as I recall, and they had just gotten their first frost. They had stopped watering the plants a little before that. What happens is the first frost plus no water make the vines think (correctly) that they are going to die. So, they invest one last great effort in producing offspring to continue their species. The result is a tomatoe which is extremely tasty because the tomatoes aren't bloated with water.



Man, those were the best tomatoes ever! We jarred them and they made delicious pizza sauces during the winter months.



I envy anyone who can live comfortably in Paso Robles on their own arable plot. Beautiful country out there!
 
"Why can?t you lease a home and raise tomatoes and have more than one couple over? I bet you can rent such a home for much less than you can buy. You are fooling yourself if you think that paying on a mortgage is different than paying rent. "



I've run the numbers and with the tax break, it is the same as leasing a house. I'm not a fool to think that paying on a mortgage is different than paying rent. In one year my out of pocket monthly expenses are the same on this house as they would be on a lease, but at the end of one year I've actually paid some of the loan balance down and have built equity. I know you think it's going to decline another 30% in value during that year, but that is just ridiculous. Year two landlord raises the rent, but my mortgage is the same and I've built a little more equity, and so on.



I'm curious as to what the present day value is of the home you bought in 1990? If you had a 30 year fixed mortgage in 1990, what would you owe on that house today? How much would your mortgage and property taxes be today if you just kept your original mortgage?
 
<em>"I?m curious as to what the present day value is of the home you bought in 1990? If you had a 30 year fixed mortgage in 1990, what would you owe on that house today? How much would your mortgage and property taxes be today if you just kept your original mortgage?"</em><p>

Sorry, I don't know. We sold that home in 2000 for a profit, although I do not remember exactly how much, and bought another more expensive home that we sold in 2005. But, I think it is a mistake to somehow think that because one can make a profit over a ten year period through the decline, that it shows that it is a good time to buy now. Wouldn't I have been better off if I had not bought the home in 1990, saved my profits and bought in 1995 or 1996? And don't you think it opportune to have sold in the summer of 2005 and now wait? Of course I do not know you from Adam, but I would advise you to recalculate your numbers and make sure you are taking all ownership expenses into account. I guess I am a little skeptical that owning would cost the same as renting right now, especially when taking cost of funds into account.
 
stepping up, if you're wondering whether holding the home long enough will guarantee the numbers come out in your favor, i'm afraid you might be disappointed.



lets use a easy round number like 20 yrs. median home in OC back in '88 was 200k. median home was about $630k at the end of '07. the avg person too often looks at just the raw numbers. the value of your home tripled, but that breaks down to merely an annualized gain of less than 6%! lop off a <em>very </em>conservative 2% for inflation over that time period and you're left with <4%. not that impressive, eh? too bad NAR never publishes that number.



assuming you never refi'd, you would have paid $285k in interest and $55k in principal over that time frame. you would still owe $105k on that home.



i've not taken into acct prop taxes or tax deductions because i'm feeling lazy, but in general, you can see that you might have done just as well that entire time by having your money earning slightly above risk-free rates.



like has been said many times, if you love the home, good for you. there's no need to justify that to us; we all understand the intrinsic value of home ownership. what you shouldn't do is attempt to justify the merits of buying a home and leveraging it to buy another, regardless of the short or long-term outlook.
 
I was really ready to buy in 2005, but at early 2004 prices, not 2005 prices. While the realtors tell you that you can never time the market, buying in '06 and early '07 was insane. So yes, I whole heartedly agree that buying during an unsustainable upswing isn't wise. You likely would have been better off buying in '95 or '96, but timing the market isn't possible. Heck, if you had timed the market, you would have sold in 2006 :)



We had to replace the sewer line on the Paso house this year. Cost $3K, cost after taxes because it's a rental, $1,950. There may be unexpected repairs on this house as well during the time we are living in it. Had a good inspection, foundation and roof are fine. Overall, good house, just ugly. A few cosmetic improvements and it's going to be adorable. Eventually I will have to put a roof on it, but will do that when it's a rental so that the government subisdizes it for me. The tax break is what makes buying this home as a primary equivalent to leasing. We are dual income no kids and currently just below the threshold of where itemizing vs standard deduction makes sense. The improvements I make to it now will be added to my cost basis for the depreciation when it's a rental, so I will eventually be able to depreciate what I'm putting into it now. The government loves real estate!



Yes, if we bought a house at the current asking prices of non distressed and even some of the distressed, owning would be quite a bit more. But, the price of this foreclosure was quite a bit lower than average asking prices. As far as the cost of funds.... my eTrade complete savings account is paying 3% and the Feds just lowered the darn rates again. Inflation is running at 4%, so currently my funds have a negative return. My loan for the remainder is 5.875, but the real rate after tax deduction is closer to 4.8 and the real rate with inflation at 4% is actually .8%. That is awfully cheap money.
 
You must log in or register to reply here.
Back
Top