Real Estate Market. Thoughts?

[Dave_L]

You aren't supposed to sell something that is appreciating to pay off one that is depreciating.


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But what if those depreciating items free up $900-1000 a month in cash flow? That's more than the rental brings in and helps reduce my outgoing by a ton.

[ChunkyMonkey]

Okay,
so you buy a house that's around $400,000 for $470,000. The market crashes say 2 years later, and the house is now worth $300,00 on its best day. You're in the ditch $170K. You walk away from the house and let it go back to the bank. Then at the end of the year you get a $170k 1099 for the loss....

I have seen in more than once.

Upto last year, irs forgives the debt. There is talk to extend this.. But nothing out of the committee.

http://www.irs.gov/uac/Home-Foreclos...t-Cancellation


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[ChunkyMonkey]

But what if those depreciating items free up $900-1000 a month in cash flow? That's more than the rental brings in and helps reduce my outgoing by a ton.

One will continue to give you increasing cash flow, the other is short term cost. The first will increase in value and beat the inflation rate (counting in market crashes etc) the later simply drop in value constantly.

I personally don't like to finance cars for this reason.

Obviously there are exceptions etc etc etc. I am just stating the rule of thumb.


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[ChunkyMonkey]

You're right in most of them are job loss or medical issues where they and up walking. I've seen situations where people own a house, buy another bigger better house with the intention of selling the original smaller house, and simply walk away from the original home and let it foreclose. Sometimes intentionally....aka 'strategic foreclosures'. Its really tough to qualify for 2 homes nowadays from what I gather...

It used to happen all the time. Nowadays instead of claim loss, some lenders will go after you and put lien against the new property. Ouch!

To qualify for 2nd home is abit tougher.. The funny part is to qualify to purchase a portfolio aka 10 houses or more or 100 rental unit, it is much easier-- given the portfolio has ongoing income.


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[Dave_L]

Monky, I completely understand what you're saying. I look at it as clearing outgoing debt to free up purchase power at the next crash. I couldn't sell my rental for 145k 2 years ago and now they're going for 200k+. I don't want to miss that train because I bought it a little before the first crash. I want to get back in but buy when the market is at the very bottom. And yeah, no more car loans after these are paid off.

[ChunkyMonkey]

There is your exception! Are you coming to the range? Call Simon!


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[Great-Kazoo]

My question is. How does one pay for a $400K home? Do any of you have fall back plans, IF one or both household incomes were to stop? The idea of walking away from a loan because one cannot sell their home for what they paid for it is , insulting.
Then again the idea of paying more than $1K per month for a mortgage is strange. Shouldering a payment of $2-3K monthly unheard of. The places we're looking at (downsizing) are still in the $5-875 mth payment. Then again the spouse is close to retirement age, i'm done.

[Dave_L]

Nah, have to finish up the contract on the new house and my suppressors still aren't approved yet. next time!

[hurley842002]

My question is. How does one pay for a $400K home? Do any of you have fall back plans, IF one or both household incomes were to stop? The idea of walking away from a loan because one cannot sell their home for what they paid for it is , insulting.
Then again the idea of paying more than $1K per month for a mortgage is strange. Shouldering a payment of $2-3K monthly unheard of. The places we're looking at (downsizing) are still in the $5-875 mth payment. Then again the spouse is close to retirement age, i'm done.

Have you SEEN some of the toys our members buy, or the number of "stamps" people send off for? Not hating at all, just some folks made much better life/career choices than I did. Okay back on topic.

[Skip]

Been watching this thread a bit.

My question is. How does one pay for a $400K home? Do any of you have fall back plans, IF one or both household incomes were to stop? The idea of walking away from a loan because one cannot sell their home for what they paid for it is , insulting.
Then again the idea of paying more than $1K per month for a mortgage is strange. Shouldering a payment of $2-3K monthly unheard of. The places we're looking at (downsizing) are still in the $5-875 mth payment. Then again the spouse is close to retirement age, i'm done.

I have that same question. There is one down the street from me for sale at ~$450K. These are very "middle class" homes (not what you would think of in that price range). I've done the math and don't understand how that is affordable. And if it stretches the budget then there is less opportunity to save.

We bought the smallest model in the development in 2008 and were still a bit uncomfortable with the amount, but it was affordable for us (we were well under the finance limits and had 20% down).

I just don't get why folks would do that to themselves... Being one paycheck away from disaster is no way to live. If that is what is keeping these prices up then I worry about the sustainability at that level.

What I do know is that payments on $450K @ 4% are $2,148 P&I + ~$400 escrows = $2500/month. With the math they used to use, a borrower would need ~$80K in annual income to qualify with no other obligations (debt, child support, etc).

Add in maintenance, other cost of living, etc... and you'd need $100K to be comfortable. That doesn't even include saving for retirement.