There's No Shame in Renting, Home Prices Will Fall

[FutureChickenMan]

We're one of the California success stories. We rented apartments from 1996 to 1998. The last apartment we lived in was such a dump, I told my wife "if they raise the rent, we're movin oug and buying a place of our own". And they did, so we talked to my parents about buying a place. They agreed it was best to buy a house. So, the wife and I moved in to my parents garage and lived there for 8 months while we saved up a down payment for a house. We paid marginal rent for utilities. We bought a new house in 1999 for 157k in a crappy part of town, because that's what we could afford and qualify for. We lived there for 2 years. Facing the technology "dot bomb" we had a hard decision to make. Either I would lose my job (layoffs) and we'd have to try and find some way to survive on my wifes income without losing the house. Or, I could choose to take a job in a different state keeping my employment with my current company.

We elected to move, so we did (2002). We moved to Washington State. We retained ownership of the california house and rented it out. We scrounged up enough money to buy a duplex in WA (we took a second on our california house). We lived in one side and rented the other side (highly recommend this as a consideration for "renters"). After we decided we were gonna stay here, we sold the house in california. We purchased the house in 1999 for $157,000 and sold it in 2004 for $420,000.

We walked away with about $200,000 cash. We then took that money, bought another duplex, a four-plex then put $115,000 down on our $230,000 house. Six months ago we picked up 20 acres about an hour and a half from our house for $35,000. Now 5 acre lots in the same area are selling for $20,000 each.

So, from our first home purchase (which my wife thought I was nutts at the time) we took the equity out when we sold it of $200,000 and have turned that in to more than 1.3 million $'s in assets that we owe about $600,000 on in 5 years. We've managed to take $200,000 in capital and if we sold all the assets today our payout would be about $700,000. Show me anywhere that you can get that kind of SAFE return in the same time frame. Essentially we've made $100,000/year on our initial $200,000 investment over the last 5 years. And best of all, sombody else is paying 3 of our 5 mortgages for us.

I'm glad I don't live in CA anymore, it's far to nutts, too many people, too much traffic, too many rules, etc. But I'm glad they gave me such a great going away gift.

You got to know when to hold 'em,
Know when to fold 'em,
Know when to walk away,
Know when to run

 

[mom'sfolly]

You also need to be in the right place at the right time. The California housing market is/was unsustainable, you got out before it tanked. Our first home was bought in what amounted to a company town, and when the company moved the market tanked. We lost thirty percent, not on paper, we were paid 2/3 of what we paid for the house. In our case we were lucky, we had the money to get out of the house, not just walk away from the mortgage. But, that is money that is gone forever....bad investment. We have been in our current home for 13 years, and it has appreciated perhaps $50,000. This does not reflect real income when you factor in what we have paid in interest.

So, owning your own home is good, but not always a wise investment. you can't always see where the market is going, and changes in the market are not under your control. This is true of any investment. Sometimes renting makes more sense, especially if it allows you to invest in other things.

Other advantages to owning have nothing to do with finances. It is nice not to have to follow someone else's rules for your home, to not have to move because your landlord has another use for the property, to be able to make changes to your home without approval, to have your number and type of pets determined by you, not your landlord; to be able to plant what pleases you, to be able to paint, put out lawn ornaments and outlandish Christmas displays and for many other reasons.

 

[plester01]

Some people rent because they can not get financing and they do the best that they can. If lenders get a bit more lenient more folks can own.

 

[MissPrissy]

I don't give these articles much credence. They can't predict the housing market in every part of the U.S.

The person who wrote this never saw the market in metro DC. I have seen houses sell in 1 day and even before listed. Our house took 5 days. Boo hoo we thought it would never sell! Seriously, houses close in general sell in less than a week. Those that linger make you wonder what is wrong.

 

[Blondie]

Oh yes, the market is changing. It's cyclical - just like everything else. Just like the dot-bomb that Future Chicken Man talked about. I am relatively new in selling real estate. I hear all the old-timers at work boo-hoo-ing about how great "it used to be". Yeah, back then buyers and sellers were tripping over each other.

Just because the way they sold real estate 5 or 10 years ago worked then, it doesn't work now.

Sorry Reinbow that your agent didn't listen to you. I am amazed at some of the people who are agents - how in the world did they get their license??? It's about helping people with their housing needs. Not steering them to the builder who is going to pay a little extra commission so his houses get sold.

Off my soapbox. It's a new era in real estate.

 

[FutureChickenMan]

Quote:
Yep, it's cyclical all right. Even things like elections make the "market" go up or down. Let's not forget the folks who use these kinds of articles to manipulate the market too. Just look how the market reacted each time Greenspan opened his mouth. If enough people whine and cry about how bad things are.... guess what? Things will get bad just because of the perception people get from all the whining and crying.

 

[countrygirl4513]

I wonder how many people see that kind of letter and think, "WOO HOO!!! Looky what we can buy!"

Ain't that the truth? As a realtor it is my obligation to treat my clients as I would like to be treated. I always tell them... Just because the lender says you can buy a $450,000 house doesn't mean you should. You have to be sure you can choke down that payment every month, cuz the lender won't do it for you!!
Our market in our area is basically unchanged. Sure it's a buyers market... and yes it has been slow. But housing prices haven't dropped that much here. I've done more business in the last two weeks than I have in 6 months. It's the freakin media that has scared everyone into thinking all this. Just because the sub prime area is hurt doesn't mean that there still isn't good financing out there for those who qualify.​

 

[Reinbeau]

Quote:
But that's what got a whole lotta people into trouble, they weren't in the position to pay for the mortgages they were given - things were too 'lenient', although it really wasn't leniency, it was greed on the part of the mortgage brokers who were raking in the commissions on mortgages they shouldn't have been selling. As some have said here, just because the mortgage company says you can afford a $450K mortgage doesn't mean you should buy a house for that much! Scale that number to whatever applies for a 'nice' house in your area. Same logic applies.

Greed and naiveté is what's wrong. Consumers need to smarten up and mortgage brokers need to take a few ethics courses (not that I believe that'll do much good, so really, it is a buyer beware market!)

 

[FutureChickenMan]

Exactly right Reinbeau. And now Jo Average taxpayer gets stuck holding the bag.

One trick I saw a lot was a 1st mortgage for 80% value of the home (this keeps interest rates on the 1st low) then a 2nd mortgage (on the same house) for the remaining 20% value of the home. This is a 100% finance of the home. But because the 1st mortgage doesn't exceed the 60% of your income threashold, you get approved. Eventhough the 2nd mortgage has to be paid as well. Typically the 2nd mortgage would be a higher percentage (2-3% higher than the 1st.) Either way, if you EVER have a lender propose this type of set up so you can qualify for a particular home, RUN. And I mean RUN like Forrest Gump. If you hear something like "Balloon Payment" jump in the nearest car and drive it like you stole it. You're being set up.

The best thing to do is Pre-Qualify for a loan so you know the maximum amount a bank will lend you. Then shop for a home that costs 15-30% LESS than you are prequalified for. When we bought our first house we prequalified for 180,000 but the house we bought was 157,000.

 

[chickenfeathers]