Housing Crisis Bad - people choose to sleep on lawns?

[calmloki]

US Housing Crisis Is Now Worse Than Great Depression - Yahoo! Finance

We actually have an income producing property on the market, but after seeing a few offers will probably pull it - the income beats the sale price return - and where would we put the money if we sold?

After buying a second home for our own use last year we may just have to do more buying yet. Anybody actually see anything (stocks, metals, ?) being offered at anything like the sale prices of real estate? To me this is a huge screaming bargain bin and crying opportunity for market timers.

 

[WB52]

I was thinking the same thing about bargain real estate prices in Florida. However, we have a few unrented family owned properties already. I am hesitant to swim even deeper into that particular pool.
Could thismbe the right time to invest in REITs?

 

[FIREd]

Real estate sucks big time here. In our area (~350,000 people), we currently have 2,450 houses for sale plus 284 more in foreclosure. In the past quarter, only... 31 houses sold. That's one heck of an inventory!

Sounds like bargains shouldn't be hard to come by, but I see few people willing to accept fat price reductions. I'll wait until they get really desperate.

Note: our real estate market started feeling the effect of the crisis much later than most. According to local realtors, home prices in our area are down only marginally from the top. I guess that's why we are not seeing bargain bin prices. People are still in the denial stage.

 

[Sarah in SC]

My DH went into a local Subway shop last week and the lady making his sandwich was the realtor who sold us our first house in 1994. I didn't really think we'd hit the bottom until he told me the sandwich artist story.

 

[W2R]

Real estate sucks big time here. In our area (~350,000 people), we currently have 2,450 houses for sale plus 284 more in foreclosure. In the past quarter, only... 31 houses sold. That's one heck of an inventory!

Things here aren't much better. I don't have the exact figures on my location like you do, but since last September none of the dozen and a half houses for sale in my 6x7 block (nice, desirable) neighborhood have sold. Even the foreclosures haven't sold.

In my opinion real estate is probably a great bargain right now, for those willing to tie up their money in an asset with little to no liquidity (and to be landlords) until the economy improves. That could be years or even decades, though, and I wouldn't touch it with a ten foot pole.

My DH went into a local Subway shop last week and the lady making his sandwich was the realtor who sold us our first house in 1994. I didn't really think we'd hit the bottom until he told me the sandwich artist story.

The saleslady at Home Depot who sold me my new carpet for my entire house last fall was a realtor. She had some pretty hair raising stories to tell about the market and the glut of foreclosures, with more on the way. But she had a lot of decorating skill too and I got a very nice neutral carpet from her.

 

[glippy]

I was planning on becoming a landlord anyway at this phase of my life (late 20's), so this crash was a great bonus.

It's like walking in the store to buy a specific tv, and you get there, and not only is it there, just what you wanted, but it's also 75% off. WOO HOO!

 

[FUEGO]

I saw an article in the local paper about the difficult local real estate market. All of the examples of local residents having a hard time selling sounded like the sellers refused to accept the fact that their properties in fact had gone down in value. All the sellers mentioned in the article had made price concessions, but they were not significant. Say a house offered on the market at $829,000 six months ago is still sitting on the market at $799,000 after 3 price reductions. And the seller said that 3 out of seven houses on their cul de sac are for sale or in foreclosure. Lots of supply and no demand (at those prices). 3x $10,000 price cuts won't do it at that price level. And these are houses selling for 3.5x the median sale price in our locality. Still plenty of deluded sellers here.

The article did not mention any problems selling houses at 2x the median sales price or less, all of the problem cases were expensive homes (for the area). In my neighborhood (which consists of houses around 60-65% of the median area sales price), there are hardly any homes on the market. Those that do go on the market and are priced reasonably seem to sell almost immediately. There is one house that was priced probably 15% above market and it sat for sale over 8 months, and 2 different listing agents. Not sure if it ever sold or they delisted it.

 

[Texas Proud]

Yea... they appear to be bargins right now.... but if there are so many houses with nobody living in them (well, from what we read this might not be the case).... then I would assume rent will start to go down also...

Even if there are not a lot of empty houses.... someone that buys a house cheaper than you can rent it cheaper than you and possibly steal your tenant... or force you to reduce your rent...


Plus, I do not want to be a landlord even if I could make decent money doing it... I just don't see the reward paying for the risks....

 

[Mulligan]

I am certainly glad I don't have to sell right now. Not looking to move for 7-10 years. What is really scary about the RE market is the interest rates. It seems like downturns in the past were somewhat related to interest rate spikes. I wonder how the market would be, it rates were near 9% when I got my first mortgage many years ago?

 

[Nords]

We actually have an income producing property on the market, but after seeing a few offers will probably pull it - the income beats the sale price return - and where would we put the money if we sold?
After buying a second home for our own use last year we may just have to do more buying yet. Anybody actually see anything (stocks, metals, ?) being offered at anything like the sale prices of real estate? To me this is a huge screaming bargain bin and crying opportunity for market timers.

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

 

[calmloki]

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

Maybe it's the old firehorse syndrome - landlords just keep responding to the alarm bells. I've sure known my share of crusty old dudes doing their own work with differing levels of skill but a common cheap bastid approach. Now I am one. Was out yesterday buying a sump pump, digging a pit, rigging a fan , and making a crawl space something I can get a plumber to get his effete azz down into. Six months away and an unaddressed grey water leak do not make for a fun underfloor area. Somehow, had I been here, I think this would have been resolved some months ago.

Hard to beat the discount the IRS gives by allowing heirs to inherit at the stepped up basis. cf. "cheap bastid" above. Also, when you know your business and know what it makes it's awful hard to give it away to buyers looking for distressed sellers.

 

[Nords]

Maybe it's the old firehorse syndrome - landlords just keep responding to the alarm bells.
Also, when you know your business and know what it makes it's awful hard to give it away to buyers looking for distressed sellers.

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.

However this market is a nice opportunity to 1031 a cheaper place at a 20% discount and upgrade to a bigger place at a 20% discount.

Hard to beat the discount the IRS gives by allowing heirs to inherit at the stepped up basis. cf. "cheap bastid" above.

Yeah, well, that would be of interest only to the heir, not so much to the dearly departed...

 

[glippy]

I'm buying up distressed, bank-owned SFH's with cash for <$30k in New England that the previous owners paid $120k+ for. Takes me about 2-3 months of working by myself and $5k-$15k to get them rent-able in the range of $800-$1150/month.

I'm reinvesting the rents back into getting a few more places for the next year or so, then it's all going to go into stocks after that.

Since they're SFH's I'm hoping I'll be able to kick the final tenants out about 10 years from now as I get into my 40's, give them one last cosmetic fix up, and put them on the market for whatever I can get when the time comes and put the proceeds into my securities portfolio.

 

[Gatordoc50]

I was planning on becoming a landlord anyway at this phase of my life (late 20's), so this crash was a great bonus.

It's like walking in the store to buy a specific tv, and you get there, and not only is it there, just what you wanted, but it's also 75% off. WOO HOO!

Real estate is a great investment, at true wealth builder. In fact, real estate represents two thirds of our countries wealth. The tax benefits are unbeatable when living and it's a fantastic estate tool at death. It's refreshing to hear of a young person who knows these things and looks at real estate beyond the buy and flip model. Gotta love tax free cash flow.

 

[REWahoo]

Real estate is a great investment, at true wealth builder.

I wonder if the untold numbers of folks in the US who are upside down on their mortgages, undergoing foreclosure or seeing huge hits in their home equity would agree with your blanket statement?

 

[brucethebroker]

Buying cheap rentals

I have owned rentals since 1986. Here in Indiana, the rent return compared to the price paid is unbelievable in this economy. I wish I had 1 million $ to invest!

All real estate is local. Your area may not get the great returns we do here. But when you can buy a 5 year old home for $50k to $60k, and rent it out for $990 a month (plus tax benefits), with a 5% mortgage, it is really a no brainer.

Young people are beginning to second guess the "American Dream" due to the recent crash, and are committed to renting. Sooner or later, they will want to move from an apt. to a single fam. home. Some may never buy. I love that demographic!

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!

 

[calmloki]

Real estate is a great investment, at true wealth builder. In fact, real estate represents two thirds of our countries wealth. The tax benefits are unbeatable when living and it's a fantastic estate tool at death. It's refreshing to hear of a young person who knows these things and looks at real estate beyond the buy and flip model. Gotta love tax free cash flow.

Big believer in real estate here but I'm missing something: tax free cash flow? Granted, the IRS calls it unearned income and we don't pay SS tax, but then we don't earn any SS benefits either. Our quarterlies seem to indicate the cash flow isn't tax free.

 

[Gatordoc50]

I wonder if the untold numbers of folks in the US who are upside down on their mortgages, undergoing foreclosure or seeing huge hits in their home equity would agree with your blanket statement?

I said real estate investment. Wasn't referring to speculation or consumerism.

 

[Gatordoc50]

Big believer in real estate here but I'm missing something: tax free cash flow? Granted, the IRS calls it unearned income and we don't pay SS tax, but then we don't earn any SS benefits either. Our quarterlies seem to indicate the cash flow isn't tax free.

Just referring to that income that is offset by depreciation. Sure you need to recapture depreciation on the sale or you can pass it along to your heirs who receive a stepped up basis and can depreciate it all over again.

 

[clifp]

I said real estate investment. Wasn't referring to speculation or consumerism.

The line between investment and speculation is always a grey one and in real estate even grayer. The folks who flamed out spectacularly were the people who had multiple rental units in hot markets like Florida, Vegas, Phoenix, and California. (Actually come to think of it these places are all hot.) They had several properties with negative cash flow, when the market dropped out they had no way to carry the properties.


My first rental property in Vegas closes Friday. I am not trying to get rich with it just make a very respectable return on my investment.


BTW, I should caution people. Just like a W2R has an uncanny ability to say wee right before the market tanks. I am real estate dummy so all you need to be very worried that I am buying real estate.

 

[REWahoo]

The line between investment and speculation is always a grey one and in real estate even grayer. The folks who flamed out spectacularly were the people who had multiple rental units in hot markets like Florida, Vegas, Phoenix, and California.

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

 

[Walt34]

Values are down here too. Last winter one up the street sold at foreclosure, now the one across the street from that is a short sale. So if we had to sell, even though we bought in 2001 before the big runup in prices, we'd almost certainly take some loss but we're in no hurry.

I take the view that there's only two times when the price really matters - when I buy and when I sell. And prices will be somewhat relative anyway in that the same type house here will sell for about the same as a similar house in a similar area somewhere else.

And if it doesn't, well, that's just another of life's lessons.

 

[arebelspy]

After buying a second home for our own use last year we may just have to do more buying yet. Anybody actually see anything (stocks, metals, ?) being offered at anything like the sale prices of real estate? To me this is a huge screaming bargain bin and crying opportunity for market timers.

It's the old real estate saw: be cash flow positive. Otherwise you're just speculating. Being a bargain or not will depend on your local area and if the returns based on rents are there. Otherwise, you can hope for appreciation, and look at the last few years to see how that could work out.

IMO, this is probably the best comment on this thread:

In my opinion real estate is probably a great bargain right now, for those willing to tie up their money in an asset with little to no liquidity (and to be landlords) until the economy improves. That could be years or even decades, though, and I wouldn't touch it with a ten foot pole.

I'm bullish on real estate right now, but Want2 nailed two of the biggest downsides: illiquidity (which today is even worse than real estate historically is, and that's saying something) and being a landlord.

If you can't stomach the latter, stay away. If you can, you can find some amazing deals (cap rates of 15% plus, huge cash on cash returns plus tax benefits, etc)

Better be prepared to hold for 10-20 years though.

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

Hmm. Interesting. Can't say that I have off the top of my head. Even thinking through the real estate investing books I've read (including some recommended by you several time on this forum), I can't think of legitimate exit strategies... Just 1031 into the next one. And most the landlords I've talked to mention benefits for heirs after death. Now I'm curious, I may research into that more.

 

[calmloki]

Ahh - depreciation - a sore point of mine. F'rinstance: Buy a place for $100k, the land is worth $40K, you get to write off - er - defer tax - on $60k/27.5 years, or $2181.81/year against your rental earnings. After 27.5 years lets say that the place has neatly kept up with inflation and appreciated at 3%/year and is now worth $225,364. The IRS will say that they expect depreciation recapture of the $60k and your $125,364 profit after the $100k purchase price. So you pay taxes on $185,364 of say 25% and walk away with $139,023.

My gripe is that if the property appreciated at the rate of inflation you need to walk away with $225,364 to have your $100k have the same purchasing power it had 27.5 years ago. Now I know my labor is inconsequential and all that rental income was "unearned income", but just what did the gubermint do that made me want to pay them $46,341, leaving me with less purchasing power than I had 27.5 years ago? Leaving out costs of sale, rental income, improvements and all that jazz because they don't have anything to do with the philosophical issue the IRS and I have.

Rentals better make money, 'cause you gotta die to win on the sale or transfer of them it seems like.

 

[Sue J]

There are so many houses for sale in our neighborhood. Many of them have been for sale for 9-12 months or even longer.

Then there is the house 3 doors (2 BR ranch) down that sold in about 3 weeks. I was waiting for an Open House to go take a peek and they never had one.