Real-estate roller-coaster

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turbo
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I'm thinking of jumping back into real estate as an investment. The situation is far from stable, but at some point a shortage of existing housing should drive up prices. ~20 years ago, my wife and I bought a house in a completely built-up neighborhood with nice houses. We bought from a couple of teachers that had accepted jobs in a coastal town, for what was then a very nice price of $60K. 5 years ago, we could see economic turmoil on the way, so we downsized drastically to a small log house and put our big place on the market. After about 9 months on the market, it sold for ~$120K. The people that bought the place defaulted on the mortgage and lost it to the bank. The bank is pretty desperate to move the place, and listed it with a realtor for $81K, recently reduced to $71K. I'm thinking of making them a low-ball offer, and sitting on the place until housing prices turn around. The problem is that I could clearly see a housing collapse coming 5 years ago, but I don't see any signs of a dramatic recovery. Jobs are evaporating, wages are stagnant, and manufacturing plants in the area (pulp and paper and others) are curtailing activities and taking downtime to avoid building inventory.

There are real bargains out there for people who need housing and can make payments, but buying as an investment... Hmm. Anybody see any leading indicators that might signal an up-tick, or is it just wishful thinking that I might make money (again) on that property?
 

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  • #2
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I'm thinking of jumping back into real estate as an investment. The situation is far from stable, but at some point a shortage of existing housing should drive up prices. ~20 years ago, my wife and I bought a house in a completely built-up neighborhood with nice houses. We bought from a couple of teachers that had accepted jobs in a coastal town, for what was then a very nice price of $60K. 5 years ago, we could see economic turmoil on the way, so we downsized drastically to a small log house and put our big place on the market. After about 9 months on the market, it sold for ~$120K. The people that bought the place defaulted on the mortgage and lost it to the bank. The bank is pretty desperate to move the place, and listed it with a realtor for $81K, recently reduced to $71K. I'm thinking of making them a low-ball offer, and sitting on the place until housing prices turn around. The problem is that I could clearly see a housing collapse coming 5 years ago, but I don't see any signs of a dramatic recovery. Jobs are evaporating, wages are stagnant, and manufacturing plants in the area (pulp and paper and others) are curtailing activities and taking downtime to avoid building inventory.

There are real bargains out there for people who need housing and can make payments, but buying as an investment... Hmm. Anybody see any leading indicators that might signal an up-tick, or is it just wishful thinking that I might make money (again) on that property?
Look at it this way, what would the mortgage (plus tax and insurance) cost per month (at your low ball number)? Next, can you rent it out at 150% of that number or sell it on a land contract for $120k again?

If the numbers work, you can't go wrong - especially since you know the property. By the way, if your low ball number is around $60k - consider offering $30K (you can always go up).
 
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  • #3
turbo
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Look at it this way, what would the mortgage (plus tax and insurance) cost per month? Next, can you rent it out at 150% of that number or sell it on a land contract for
No mortgage. Insurance, and tax, OK. I haven't paid a cent of interest to a bank in over 20 years. Can't afford it? Don't buy it.

BTW, I was thinking not in terms of long-term ownership (I hate being a landlord!), just in terms of short-term resale.
 
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No mortgage. Insurance, and tax, OK. I haven't paid a cent of interest to a bank in over 20 years. Can't afford it? Don't buy it.

BTW, I was thinking not in terms of long-term ownership (I hate being a landlord!), just in terms of short-term resale.
That was the point of my strategy - make sure you can afford to sit on it or carry paper if necessary. If you can buy it low enough and sell it on a land contract - the sale price might be $175k this time around. There are qualified buyers out there that can't get loans. If they default, you keep their payments and get the property back to flip again.
 
  • #5
turbo
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That was the point of my strategy - make sure you can afford to sit on it or carry paper if necessary. If you can buy it low enough and sell it on a land contract - the sale price might be $175k this time around. There are qualified buyers out there that can't get loans. If they default, you keep their payments and get the property back to flip again.
You're right about the speculative nature (qualified, default, flip) of the market and that is a BIG concern to me. Real estate is dead here, so I'd have to sit on this place for a while and hope for a nice up-tick. Between realtors and lenders, lot of interesting stuff can happen.
 
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to determine what your maximum offer should here's what you do.

Take the expected rental rate for your unit, subtract $100 and that is your maximum P & I payment. For example:

Let's assume $1000/month expected rental rate based on research. In that case your maximum monthly payment is $400 (1000/2-100)

Therefore your maximum price to offer on the home is 75k (less 20% down @ 7%)

This insures profitability and factors in things like vancancy rates,taxes, insurance, and maintenance of the property. that's what the other half of your rental income goes towards

Of course if the rental rate is $800/month that hacks the numbers down.

follow these guidelines and you'll make a profit

(800/2-100)=300 which brings your maximum offer to 56,000 (20%down 7% interest)

of course you may want to check around to see what the vacancy rate in that area is, or you may end up carrying 2 mortgages for a long time. 5% is acceptable. 15% could bankrupt you.
 
  • #7
turbo
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Last night, I spent some time on the phone with the broker who sold that house. He is no longer in real-estate, due to market conditions, but he stays in touch with people in the business. He agreed that $71K is a steal and that I could probably knock that down some more, BUT most of the recently-foreclosed properties are still on the market looking for buyers. Even worse, though the rate of new foreclosures has slowed a bit in this region, there are still plenty of foreclosures in the pipeline, so more newly-foreclosed properties will join the current listings for the foreseeable future. Under such a scenario, it's a buyer's market, and prices of existing homes will remain depressed for a long time - perhaps years.

I'm going to pass on re-purchasing the property. If anybody needs a house, and is willing to live in central Maine, drop me a PM, and I'll send you a link to the MLS listing.
 

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