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Answers (28)
Best Answer
- KevinJR
- Contributions:79
To answer the original posters question - yes, it is stupid. If you are in an area still experiencing price declines, you are crazy to buy. No argument about interest rates, tax savings, wall painting, etc can make it a good decision.
Just wait till the bleeding stops. Then think about it.
Just wait till the bleeding stops. Then think about it.
- Pasadenan
- Contributions:21364
hire --> *higher*
- Pasadenan
- Contributions:21364
Of course rent to buy ratio is an important factor to consider, but let's also consider the net effect of possitive cash flow and decline in value.
Say the property is dropping in value $8k per month, and has been doing so for 6 months, and the trend curves make it look like it will continue to do so for at least another 18 months. And say all your mortgage, insurance, taxes, etc costs come to $2.5 per month, and that the rents in the area for similar properties come to $3.5 per month. Looks pretty optimistic to me, yet when you consider the declining value, you still have a negative return of $7k per month. Why do that instead of waiting the 18 months to buy a similar property for $144k less, and still get the same positive cash flow then?
But you say none of that money was yours, it was all "finance" and all coming from the renter? After 18 months, the cash flow for the original arangement will still be a +$1k/month (assuming no unexpected major repairs), but if you wait the 18 months to save $144k in purchase price, the net cash flow would be $1863 per month. So, you lost $18,000 of potential "income" by waiting. How long before you make that up? 21 months. So, after 39 months you have not only made the same money, but you will continue to have a hire cash flow than if you didn't wait.
And if you end up having to liquidate? Your "cash-out" will be the same in either case.
Does that mean you shouldn't buy? Not necessarily; $1k positive cash flow today may be better than no positive cash flow today, and you can buy another one for the higher cash flow 18 months from now.
But these numbers are very optimistic; there are very few areas where rent exceeds purchase by that much presently.
Say the property is dropping in value $8k per month, and has been doing so for 6 months, and the trend curves make it look like it will continue to do so for at least another 18 months. And say all your mortgage, insurance, taxes, etc costs come to $2.5 per month, and that the rents in the area for similar properties come to $3.5 per month. Looks pretty optimistic to me, yet when you consider the declining value, you still have a negative return of $7k per month. Why do that instead of waiting the 18 months to buy a similar property for $144k less, and still get the same positive cash flow then?
But you say none of that money was yours, it was all "finance" and all coming from the renter? After 18 months, the cash flow for the original arangement will still be a +$1k/month (assuming no unexpected major repairs), but if you wait the 18 months to save $144k in purchase price, the net cash flow would be $1863 per month. So, you lost $18,000 of potential "income" by waiting. How long before you make that up? 21 months. So, after 39 months you have not only made the same money, but you will continue to have a hire cash flow than if you didn't wait.
And if you end up having to liquidate? Your "cash-out" will be the same in either case.
Does that mean you shouldn't buy? Not necessarily; $1k positive cash flow today may be better than no positive cash flow today, and you can buy another one for the higher cash flow 18 months from now.
But these numbers are very optimistic; there are very few areas where rent exceeds purchase by that much presently.
- Walters Consulting
- Contributions:1661
i will buy a house right now if it can turn a substantial possitive rents cash flow!
- Pasadenan
- Contributions:21364
Isn't it stupid to buy a house that will continue to quickly drop in value?
Of course it is, but then so is buying a $50 tv converter box with a $40 government subsidy that is only worth $2 and will become completely obsolete in 2 months, or buying a new telivision for $1200 when you can buy the equivalent telivision 6 months from now for $600, or buying the lastest fastest desktop computer for $3500 when six months from now it will be worth $1200 and when you can buy a 6 month old model that is almost as fast for $1000 today, or buying a $3500 software upgrade when the version of the software that you have is doing everything you need and the new software is no faster and will take you months to master.
Some people just have no patience, and thus must buy even if they know they are losing. And others assume the economy is so bad that they don't notice that somethings are put on the market at 40% of what the neighbors are selling for.
I watch the prices in the store and wait for the "opportunites". Most clothes often go down in price 50 to 75% from the initial price; why would I want to pay the extra overhead and profit if I can wait 3 to 4 months to get it at close to their cost? If I do that in the stores, why wouldn't I do similarly with a much more expensive purchase?
It is a great time to buy; just not houses. How about discounted automobiles?
Of course it is, but then so is buying a $50 tv converter box with a $40 government subsidy that is only worth $2 and will become completely obsolete in 2 months, or buying a new telivision for $1200 when you can buy the equivalent telivision 6 months from now for $600, or buying the lastest fastest desktop computer for $3500 when six months from now it will be worth $1200 and when you can buy a 6 month old model that is almost as fast for $1000 today, or buying a $3500 software upgrade when the version of the software that you have is doing everything you need and the new software is no faster and will take you months to master.
Some people just have no patience, and thus must buy even if they know they are losing. And others assume the economy is so bad that they don't notice that somethings are put on the market at 40% of what the neighbors are selling for.
I watch the prices in the store and wait for the "opportunites". Most clothes often go down in price 50 to 75% from the initial price; why would I want to pay the extra overhead and profit if I can wait 3 to 4 months to get it at close to their cost? If I do that in the stores, why wouldn't I do similarly with a much more expensive purchase?
It is a great time to buy; just not houses. How about discounted automobiles?
- Bitter Renter Ron
- Contributions:1402
"When we realize the bleeding has stopped, by definition, that is too late."
That is patently FALSE. This will not be a V-shaped crash/rebound. Household GDP is shrinking.
Actually, this kind of thinking from some REAs that post here is not just predicting a V shape. I could live with a V shape and just not get the very bottom. They seem to be predicting that we will touch bottom and the very next moment be back to peak bubble prices.
Buy now at $400,000 because after you miss the $200,000 bottom it will be back up to $600,000! As if $210,000 will not be possible.
That is patently FALSE. This will not be a V-shaped crash/rebound. Household GDP is shrinking.
Actually, this kind of thinking from some REAs that post here is not just predicting a V shape. I could live with a V shape and just not get the very bottom. They seem to be predicting that we will touch bottom and the very next moment be back to peak bubble prices.
Buy now at $400,000 because after you miss the $200,000 bottom it will be back up to $600,000! As if $210,000 will not be possible.
- sunnyview
- Contributions:25115
You shouldn't unless you have some other long term plan that cannot be realized any other way. The market will not have a sustained V shaped rebound in my opinion. I could see that V shape if they dump cheap mortgages into the market for a short time, but the market is like water. It will seek it's own level once that cheap money is gone. That is basically what happened with the ARM's in the first place. Cheap money= higher prices. No cheap money=market dropping to a more realistic level
- klarek the realist
- Contributions:7044
"When we realize the bleeding has stopped, by definition, that is too late."
That is patently FALSE. This will not be a V-shaped crash/rebound. Household GDP is shrinking.
That is patently FALSE. This will not be a V-shaped crash/rebound. Household GDP is shrinking.
- BENNY CHAVEZ, "CHAVEZ GROUP"
- Contributions:89
Well this is why I think and it might not be what others think. Real estate is like stocks, you may buy a 3 bedroom 2 bath today at $200,000 and next year the price drops to $120,000 what does this do for you? Well if you are using your home like a ATM then it puts you way upside down, if you are still making the same income you were when you bought the home then there should be no problem except for the fact that obviously your home is no longer worth what it was when you first purchased it. Now for the definitive question: Are you selling today? If you are then the price of your home matters because you might have to bring in money to sell your home or short sale it. Now lets say your not selling today when your home is $120,000 ..... it doesn't matter cause in the end you are still going to pay whether you rent or own, right? So the only time you should worry about what your home is worth is when in fact you are looking to sell. Other than that prices will always go up and down!
4. "people buy cars, and they drop." well first off, financially more astute people often buy 1 or 2 year old cars, for precisely that reason. I bought my mercedes convertible 1 year old, for $20k less than the original owner did. she spent $1500 a month owning that car. I drove it for 4 years, and sold it for a loss. But my costs, even including maintenance were $400 a month. Not the worst deal ever on a luxury car. Transportation will cost you something per month, so will shelter, thats the nature of life.
5. 'rent is throwing money away'- NO! unless mortage interest, taxes, insurance, and maintenance are also throwing money away! shelter costs something, and the quesion is which one at this time is likely to cost less over the next year? and, if prices keep dropping, how much of a loss are you will to accept to buy today, rather than following a more prudent economic plan?
5. 'rent is throwing money away'- NO! unless mortage interest, taxes, insurance, and maintenance are also throwing money away! shelter costs something, and the quesion is which one at this time is likely to cost less over the next year? and, if prices keep dropping, how much of a loss are you will to accept to buy today, rather than following a more prudent economic plan?
so many agents on here trying to rationalize what is clearly a bad idea: buying in a market that is clearly dropping.
1. "you can't time the bottom" really? you don't think supply/demand, job creation/loss, county/city/state budget crisis that are in the paper can be observed? Isn't it fairly obvious that when supply is at a record high, and demand is not too good, that economic forces will drive prices down? The number of foreclosures is easy to find, is it really hard to predict that an area with growing numbers of foreclosures on the market will continue to spiral down?
2. "if you hold it a long time, it doesn't matter" why is that? why would I be happier to pay more each month than I could have? lets say my payment today would be $2000 a month, and next year, it would be $1800 a month, wouldn't that $200 each month for as long as I own the house be of some value to me?
3. "your home is not an investment" oh contrare! you are investing a considerable amount of money in it, it IS an investment! You can get the same emotional happy life in a rental home, while you wait a year or two as the market crashes.
1. "you can't time the bottom" really? you don't think supply/demand, job creation/loss, county/city/state budget crisis that are in the paper can be observed? Isn't it fairly obvious that when supply is at a record high, and demand is not too good, that economic forces will drive prices down? The number of foreclosures is easy to find, is it really hard to predict that an area with growing numbers of foreclosures on the market will continue to spiral down?
2. "if you hold it a long time, it doesn't matter" why is that? why would I be happier to pay more each month than I could have? lets say my payment today would be $2000 a month, and next year, it would be $1800 a month, wouldn't that $200 each month for as long as I own the house be of some value to me?
3. "your home is not an investment" oh contrare! you are investing a considerable amount of money in it, it IS an investment! You can get the same emotional happy life in a rental home, while you wait a year or two as the market crashes.
bump
- James Ryan, "GreatRateFolks"
- Contributions:1037
Well, yes it is stupid, but it is impossible to time the market as well. When we realize the bleeding has stopped, by definition, that is too late.
That being said, let's look a bit deeper. Certainly, I think, we all agree, that in long term, at least before we are dead (apologies to Keynes), home prices will recover.
Now, if we compare rent payment vs a mortgage payment, you are buying a home either way. Either you are paying your landlord's mortgage, or your own. Add to the equation the definitive tax benefits of paying a mortgage, the deductiblity of potential MI payments, some closing costs etc I think a rational person can still come to the conclusion that buying in this market still makes sense. Especially if you can purchase the home with a payment less than the rent for the same size and style home. With today's interest rates, that may well be possible.
Just my two cents, and probably worth what you paid for it! Best wishes, Jim.
- klarek the realist
- Contributions:7044
It's the absolute truth. Honest, straightforward, truthful.
- broker_GRI
- Contributions:3454
Kevin gets my "helpful" vote o' the day
- broker_GRI
- Contributions:3454
"That's why investors from all over are buying up inexpensive properties now......because they know in a few years they will be cashing in!"
Most investors do not "cash in" in a few years time.
In some areas you can expect a continued decline for the next few years.
Given the cost just to sell a property it is likely your buyers will still be negative for quite some time.
Most investors do not "cash in" in a few years time.
In some areas you can expect a continued decline for the next few years.
Given the cost just to sell a property it is likely your buyers will still be negative for quite some time.
- klarek the realist
- Contributions:7044
That's right, and it's something nobody bothers to mention until you're at the closing table to sell and you realize they are all taking you to town.
- Space_Truss
- Contributions:177
Agents know the market much better than anyone. Slow sales, huge inventory. Frustrated sellers also know even better than the agents.
Lets give them a hope here : Economy is in great shape, watch TV to hear. Big companies are hiring, two million new jobs ( or losses?) are on the way. There are many indicators showing the real estate market will be so strong next year.
Next summer we will be one year closer to the bottom.
Buyers don't forget : When you sign the contract, you lose 6 to 10% of the houses value to selling expenses (agent commish, tax etc) A 10% price drop on top of this will eat all of your down payment. Then you will understand why this is a great time to buy now.
- nancy gould, "msgould"
- Contributions:75
How do you know when the bottom of the market is? Â It is fairly difficult to time that.Â
 And for most people the home is a place to live.  It is not a get rich quick scheme. In the long term the home will likely gain value.  You are buying a home not because you think you can triple your equity in a year, but because you want to live in the house.  And the tax benefits generally make that home more affordable than a comparable rental.Â
 And for most people the home is a place to live.  It is not a get rich quick scheme. In the long term the home will likely gain value.  You are buying a home not because you think you can triple your equity in a year, but because you want to live in the house.  And the tax benefits generally make that home more affordable than a comparable rental.Â
- CubsfaninWA
- Contributions:567
Klarek,
I see the light and bow to your wisdom. I apologize for raining on your parade. Have a pleasant day.
- klarek the realist
- Contributions:7044
gaclaudy is mad that we're not throwing flower pedals in the air and saying that buying is smart. It sounds like somebody got their first dose of reality and really feals stupid. Not my fault. I started this thread so that people would at least THINK about how dumb it is to buy right now rather than just let the typical propaganda rule the discussion. Move to North Korea, gaclaudy, nobody is allowed to question anything there.
- aapostrophe
- Contributions:593
ding! kevin wins.
hey carol- would those "investors" you write about cashing in be the same ones who are trying to unload 20 houses each at a time as "pre-forclosures" in my city?
- CubsfaninWA
- Contributions:567
WOW! For a website dedicated to the selling and buying of real estate, there are some really bitter people about buying a house! If you don’t want to buy a house (*Here’s a little hint for you*) DON’T BUY A FREAKIN’ HOUSE! No one and I mean no one will make you. Stay in your rental property, pay your rent and be happy that you don’t have to pay to fix anything, the house you live will rise or fall in value and some other schmuck will take the hit in the wallet and you get the benefit of a beautiful house at a better rate than the guy who is paying the mortgage. For those of us that are still in our only little world and still want to buy a house and still think it’s the American dream to own property, just so we can paint it any color we want, or because it does have a yard or even so I can say in 30 years after paying twice the cost due to interest that this house is my home. Then let me be and let me be happy in my over-priced, under-valued, I-gotta-fix-everything-myself house. I don’t call you names for living your life don’t insult my dreams. Let the flaming begin for my stupidity.
- klarek the realist
- Contributions:7044
So if I buy a house, I get a yard. What about the quarter acre yard of the house I'm renting? Is that not a yard?
So if I buy a house, I get tax benefits. Wouldn't those "benefits" actually be nothing more than deducting the interest and taxes I'm paying with money I've already been taxed on?
So I should buy because prices are down. Wouldn't that be the same as a 30% discount on an item that was just previously doubled in price?
So if I buy a house, I get tax benefits. Wouldn't those "benefits" actually be nothing more than deducting the interest and taxes I'm paying with money I've already been taxed on?
So I should buy because prices are down. Wouldn't that be the same as a 30% discount on an item that was just previously doubled in price?
- slowbubblecar
- Contributions:12
There are many benefits associated with owning a house such as:
-having a yard
-tax savings
-having the ability to eventually own the place you buy
-appreciation over time (it is hard to build more houses in heavily populated areas so values will always increase in the long term)
I have bought a few in this market and made quite a bit of money off them.
-having a yard
-tax savings
-having the ability to eventually own the place you buy
-appreciation over time (it is hard to build more houses in heavily populated areas so values will always increase in the long term)
I have bought a few in this market and made quite a bit of money off them.
- Carol Tymchenko, "caroltymchenko"
- Contributions:2
Dear Klarek,
Home values have declined the past year. However, real estate values have their ups and downs just like everything else. The market will stabilize, just like it always has in the past. And those who purchase in a down market benefit financially when it it goes back up. That's why investors from all over are buying up inexpensive properties now......because they know in a few years they will be cashing in!
- Ray & Audrey Santos, "Team Santos"
- Contributions:101
Well there are some benefits of being a homeowner. First are you considering buying for investment or to occupy the home and use as your primary residence? Second how long do you intend to hold the home for?
There are several benefits of buying in this market...prices are low and interest rates are historic lows as well. If you were priced out of the market before, it benefits you to talk to a Real Estate professional to find out your options and see if owning a home will benefit you or as you say is stupid. I dont think owning a home is stupid it just might not be right for some people.
For investment...well there if you are in a position to do so, its a great time to look into it.
There are several benefits of buying in this market...prices are low and interest rates are historic lows as well. If you were priced out of the market before, it benefits you to talk to a Real Estate professional to find out your options and see if owning a home will benefit you or as you say is stupid. I dont think owning a home is stupid it just might not be right for some people.
For investment...well there if you are in a position to do so, its a great time to look into it.
- silent_observer
- Contributions:1603
I know my car depreciates but i still buy it so a house has become a car of yesterday. i buy it to live in it knowing that the value will go down and i also try to pay it off faster so that eventually i'll have a place where i don't have to pay rents. i know i can give that money to madoff or any equivalents to run ponzi scheme instead i decided to give to the previous owner. i love owning a place so i buy it.
Why should I buy a house that I know will continue to plummet in value? Isn't that stupid???
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