Housing Crisis Bad - people choose to sleep on lawns?

[Gatordoc50]

I think Gatordoc was referring to only successful real estate specuvestors...

People were buying dairy cows for the meat. I'm sorry their "investment" failed. Better luck next time.

 

[glippy]

How about this: 1031 exchange all your little multi-family/rental properties at once in exchange for a small mansion. Live in the mansion for 2 years to make it your primary residence and then sell it. Walking away paying zero cap gains on the first $250k/$500k profit depending if you're single/married because of the cap gains exemption for primary residences.

 

[sheehs1]

For the first time we are seriously looking at the possibility of a 2nd home. With that came the thought ...o.k. we want an option of having it produce income. We have found a short sale at a popular beach destination. Have not put an offer in yet. While I get the depreciation and the stepped up basis at death and the tax deductions...etc. I'm more concerned about what happens while I am on this earth.

So I am asking myself the questions others have brought up. Do I want that much money tied up in one asset that is not liquid? What happens if it doesn't rent? Do I want this headache and this risk?

I'm also finding the marketing on properties interesting..."things like 30% below tax assessment! Great Deal!" Well...if one does their homework and calls the assessors office one realizes that those assessments were 2006/2007 or 2008 assessments with new assessments scheduled to be performed in 2011 and 2012. People who are not in foreclosure or short sale and want to sell their home are trying to sell them now because they know the new assessments are likely to blow them further out of the water.
So in my mind the question for the assessor's office is "What did it assess for in 2002?
And that is the main question I'm asking.

We might just wait for new assessments....to take hold.

As a side note: I read in the Wall Street Journal there is something like some trillions of dollars from this housing mess sitting on the books of our banks with about 70% of it held by the 4 biggest national banks.

Personally I think it is slowly deleveraging...but it will take years to clear out the current and future inventory that will hit the books.
Scary times....

 

[Nords]

So I am asking myself the questions others have brought up. Do I want that much money tied up in one asset that is not liquid? What happens if it doesn't rent? Do I want this headache and this risk?

We're holding on because:
(1) Landlording's not that bad, except when it is, and
(2) Our primary residence is in a good school district. Someday our daughter might want our grandkids to attend her old school (after the statute of limitations expires), so we'd put her family in the primary residence and we'd move into the rental.

And then, of course, the tax situation could get really interesting.

Or maybe none of that will happen. But in the meantime there's no compelling reason to sell.

 

[traineeinvestor]

Has anyone on this board ever met a landlord with an actual exit strategy, other than "probate"?

Well, I did meet one whose exit strategy was "divorce" and a few whose exit startegy was "bankruptcy".

On a more serious note, why do you need an exit strategy at all? If you have brought properties which provide positive cash flow, why sell? Selling is expensive (transaction costs, taxes).

 

[sheehs1]

We're holding on because:
(1) Landlording's not that bad, except when it is, and
(2) Our primary residence is in a good school district. Someday our daughter might want our grandkids to attend her old school (after the statute of limitations expires), so we'd put her family in the primary residence and we'd move into the rental.

And then, of course, the tax situation could get really interesting.

Or maybe none of that will happen. But in the meantime there's no compelling reason to sell.

Nords... That is sound logic as school systems are important. Not selling our primary either. Don't need or want to.

I just don't know if 50% off in this market is enough for me to bite. Some of these properties we've been looking at appreciated a ridiculous amount during the bubble. In some cases it was 300%.

If we can find something closer to the 2003/2004 assessment values which were more realistic then we might do something.

 

[Nords]

Well, I did meet one whose exit strategy was "divorce" and a few whose exit startegy was "bankruptcy".

Ouch. Good point. I wasn't thinking globally enough.

On a more serious note, why do you need an exit strategy at all? If you have brought properties which provide positive cash flow, why sell? Selling is expensive (transaction costs, taxes).

You're right, it's just my time and my labor... both of which the IRS claims are non-deductible, and to everyone else are worth only their barter value. At some point it begins to resemble "work", only with lower pay and fewer benefits.

We've been landlords for 14 of the last 17 years. It can become tiresome, but I suppose in another 20 years we'll know whether it's necessary for the progeny's schooling plans.

 

[sheehs1]

For those that might be interested...on short sales. I was told by our agent that the bank involved is paying the seller a $33K moving fee. This particular seller has been out of the house for a year. So if by chance we actually did get the short sale...at settlement the previous owners who are severely upside down on their mortgage get paid a 33K moving fee. I told my husband this and he went "Huh? How does that work?".

So all sorts of hidden stuff goes on during a short sale.

 

[chinaco]

If someone is careful with their purchases and can fix them up themselves, they can probably make some money. This seems to be a unique time and it can provide an opportunity for those that want to work it.

Landlord/Renting single family homes is usually a small business with the owner being the manager/worker. Fixing them up is a job (labor equity).

One might use the opportunity to transition to this type of arrangement (semi-retirement) if they are ready to quit their day job (and willing to take some business risk). It is a longer term proposition... It has to be run like a business. As far as the exit goes, even in good times, real estate is somewhat illiquid.

 

[Enuff2Eat]

excellent discussion here on real estate and being landlords. I think exist strategy in real estate is like any other business. Sell take the profits (if any) and pay IRS and commission fee PERIOD. How is it different from selling a business, stocks, golds or any other assets

Of course, real estate investment is a business. You're in it to make money, just like you're go to work 8-9 hours a day to make money. Unless you're an expert in picking stocks and you buy gold and both of those investment appreciate then you "don't" really have to work or put money in the bank and get 1% in return.

 

[oldtrig]

You think we might actually be in a depression? Not sure about others here but my part of the country is not good. There are 17 homes in my neighborhood for sale and have been for two years. Good time to buy?? Who can guess that one. oldtrig

 

[sheehs1]

Sell take the profits (if any) and pay IRS and commission fee PERIOD. How is it different from selling a business, stocks, golds or any other assets

Still don't think real estate is as liquid as some of those other assets you mentioned. If I want to sell my jewelry or gold there is a market. Want to sell stocks, it's a click on the computer or a phone call away. Any business with decent assets and generating a profit should sell rather well. We've had my parents home on the market since 2006 (over 5 years). It's 51 years old, well built but the younger generations want newer, better (granite, stainless steel appliances, soaring ceilings, views..etc). It's a catch 22. To take advantage of appreciation you have to hold it for 20 years plus. By the time you get there, there are newer things on the market that are more desirable. Plus ...for primary homes...if it is over a certain price point, buyers think to themselves..."why don't we build ourselves and get what we want" (that's what I did)

 

[sheehs1]

Of course, real estate investment is a business. You're in it to make money, just like you're go to work 8-9 hours a day to make money. Unless you're an expert in picking stocks and you buy gold and both of those investment appreciate then you "don't" really have to work or put money in the bank and get 1% in return.

And there are some CEF's out there yielding 8%+....

But...back to your main point. Some of the better yielding properties seem to be student housing in a university setting or vacation rental properties. Unless you can be very hands on doing all the work yourself...property management fees eat up 15% or more of your proceeds off the top.

I did the math on this property we are looking at and asked my husband "O.K....this thing has a positive cash flow of 3% of the mortgage balance a year and/or 3% of the downpayment. All expenses plus property management fees total 91% of projected profit. This was a straight line calculation and didn't include depreciation or tax advantages. It showed me we absolutely had to get good rentals in order for the property to carry itself.

So my questions/points were:
1. How long will it take us to pay off the mortgage if I throw the 3% back in against the mortgage? (we were going to put 50% down). The answer is 15 years. If I doubled down against it ...then may be cut to 7 years.

2. 3% doesn't sound like a lot for the risks

If I just kept my money and invested it...then I make money only for myself. On properties such as vacation properties, I make money for a ton of people such as the property management company, insurance company, utility companies, housecleaning, pool maintenance..etc..etc. (We are 3 hours away and there is no way we can do all of it ourselves).

Everyone gets a piece of the pie but I have all the risks. With that thought...I thought to myself..."Am I crazy or what?"


Other properties where it is not as important to have a property manager...might do better...

 

[arebelspy]

Still don't think real estate is as liquid as some of those other assets you mentioned. If I want to sell my jewelry or gold there is a market. Want to sell stocks, it's a click on the computer or a phone call away. Any business with decent assets and generating a profit should sell rather well. We've had my parents home on the market since 2006 (over 5 years).

That means it's priced too high for the market.

If I tried to sell gold right now for $5,000 per ounce, it'd sit there for years with no buyer. If I tried to sell a stock way above its ticker price, I'd have no buyers.

If you want to compare selling houses to those other things, you have to compare it at market prices. Drop your parents house by a tied (or more, depending on how much they've overpriced it) and it'll sell. Sure, it'll take a bit longer (30 days for escrow, maybe), but it'll sell at market price, not above, like any other asset.

 

[sheehs1]

That may be arbelspy...but there have been no offers at any price. There are few if any buyers in this area.

For the most part on this entire real estate topic...I'm playing devils advocate with myself. Am struggling with the decision. At the end of the day.we all have to do what we are comfortable with.

 

[Ed_The_Gypsy]

My only real estate investments are our house and Vanguard's REIT index fund.

RE is too much work for me. I am also away from home too much. And it is not liquid.

You guys go ahead--start without me.

 

[Gatordoc50]

That may be arbelspy...but there have been no offers at any price. There are few if any buyers in this area.

For the most part on this entire real estate topic...I'm playing devils advocate with myself. Am struggling with the decision. At the end of the day.we all have to do what we are comfortable with.

I have a few qualifiers for my real estate investments.
1. Close proximity to my home
2. Single family, 3 bd or more
3. House must sit on a unique irreplaceable lot
4. No HOA fees
5. Positive cash flow or extremely undervalued
6. A place I would live in myself
7. Appeals to high end renters
This still doesn't protect you from bubbles, unfortunately.

 

[eridanus]

There are many urban legends about the 3 AM toilet stoppage and having to get out of bed and clean the tenant's sewer lines.
1. I have never gotten THAT call.
2. I would call the plumber. At today's prices, I can afford it.
Those thoughts keep many, many people out of the rental game. More for the rest of us!

I've gotten that call. Having to choose between the plumber's price gouging and my sleep was a difficult decision (the plumber won).

RE was not for me. I sold when I owned up to the fact that I could make more money with less grief working overtime at my day job.

 

[sheehs1]

I have a few qualifiers for my real estate investments.
1. Close proximity to my home
2. Single family, 3 bd or more
3. House must sit on a unique irreplaceable lot
4. No HOA fees
5. Positive cash flow or extremely undervalued
6. A place I would live in myself
7. Appeals to high end renters
This still doesn't protect you from bubbles, unfortunately.

Thanks for sharing Gatordoc50. That's pretty much my list as well. Both of the two short sales we are looking at meet all the criteria....in my view one more so than the other in terms of lot location but even that is a matter of perspective. One is ocean front. The other is in an area with few lots with panoramic views of a bay and sound. By panoramic I mean more than 180 degrees...bordering on 360. Checking out the water levels in that area and past flooding if there was any. Proven rental history for both. Ocean front one has been stripped of furniture and appliances. Sound front only has appliances but no furniture. Realistically...we would have to carry the house for 9 plus months before it generated any income. Both off the renters market for this summer due to short sale process. Will factor that in with the offer if we make one.

 

[arebelspy]

Realistically...we would have to carry the house for 9 plus months before it generated any income.

Why is that?

 

[chinaco]

The part missing from this discussion is looking at the real books. Plus, it is a forward looking investment opportunity discussion (hopes and dreams) and not a backward look at what actually happened (i.e., the accounting books).

I am more of a hands-off passive investor (i.e., securities). That, of course, influences my opinion.

A common sense question is: Why that investment vs another? Will it yield a higher risk adjusted profit? On average... I doubt it.

For many (I suspect the reason is): they borrowed the money (leverage). It is a business venture and they hope the eventual ownership (and sale of the property) along with net income yields a profit in the end with + cashflow along the way.

But if they subtracted their sweat equity (i.e., paid themselves a fair salary for their work along the way) and subtracted that from the rental income... they would find out the actual return on investment is less than they think.

This is not a criticism of owning/managing/maintaining/renting... just an observation.

 

[Gatordoc50]

The part missing from this discussion is looking at the real books. Plus, it is a forward looking investment opportunity discussion (hopes and dreams) and not a backward look at what actually happened (i.e., the accounting books).

I am more of a hands-off passive investor (i.e., securities). That, of course, influences my opinion.

A common sense question is: Why that investment vs another? Will it yield a higher risk adjusted profit? On average... I doubt it.

For many (I suspect the reason is): they borrowed the money (leverage). It is a business venture and they hope the eventual ownership (and sale of the property) along with net income yields a profit in the end with + cashflow along the way.

But if they subtracted their sweat equity (i.e., paid themselves a fair salary for their work along the way) and subtracted that from the rental income... they would find out the actual return on investment is less than they think.

This is not a criticism of owning/managing/maintaining/renting... just an observation.

Good point. Our personal experiences and biases influence our opinions. When I was 35, I had about 400k in stocks. When it came to funding my retirement account that year I hesitated. If the market delivered it's 12% , I would have roughly 13 million dollars at age 65. If the market only delivered half that, I would have about 2.5 million. Either way, I would be in good shape and would have enough. If the market delivered squat, then it would be foolish to invest more in it. So I decided to invest in RE at that point instead of adding to securities. As it turned out, that was a really good decision. So, I'm biased.

 

[nun]

Has anyone on this board ever met a landlord with an actual exit strategy, other than "probate"?

I bought a nice two family in a college town in the late 1990s. Consequently it's easy to rent and is only 10% down from it's peak value according to zillow.com. The mortgage is almost paid off and I get $1400 a month from the one bedroom ground floor apartment....I just raised the rent for new tenants. A house down the street recently sold in about a month for just a little under asking price. So my exit strategy is to put my place on the market and wait for the offers.

I've been tempted by the real estate "bargains" today, but I would never buy a rental where i don't live on the premises as I don't want the hassle of managing remotely and I'd want a nice place so I'd still have to pay a lot of money and that would be too much tied up in real estate.

I put in minimal time to land lording, a few repairs and cash the checks.

 

[Texas Proud]

I think my sister and her DH are a bit different in renting... they only have one place, their first house they bought... they have kept it for 'insurance' in case they lost a job or had medical problems... they figured they could always afford that place...


They rent the house out at below market rate to a very high rated tenant... and make the tenant responsible for repairs... I think they have had 4 or 5 tenants in the last 25ish years... and all have treated the house as if it was 'theirs'... sis just cashed the checks...

 

[JDARNELL]

Yep. Or should I say "Whinny..."

I think most landords view "diversification" as "having more than one property". While there may be lots of bargains around, the problem is the temptation to take on too much work, let alone leverage the debt. I don't know about you guys, but most of my landlording routine seems to be months of silence punctuated by hours of slavery. My feelings depend on which part of the cycle I'm currently experiencing.

On target! This is how mine works also. Yesterday I got a call from a tenant that I have had for 8 yrs. The hot water hook up for the washer broke off and water was going everywhere. So today myself and my fix it guy spent 3 hrs cutting drywall, cutting pipes, reconnecting, re-drywalling, etc. This puts the reality check in when I think about scooping up another one. The only way I am going to add any more units is if I can get a certain ROI after I pay a mgt company to take care of everything!

Tomcat98