[quote=jpinpb][quote=AN]But SDE just explained to you why some of us still use 20% down to compare rent vs buy. If you don’t put down 20%, you’ll have additional cost such as higher rates and PMI that doesn’t NEED to be there for a fair comparison. That’s almost like taking rental rate of month-to-month rent vs 1 year lease rent rate. It’s unnecessary. When we use buy vs rent, we want to know the best number for both side. If you want worse case number, then you use worse case for both side.
BTW, I don’t think you can get a non-owner occupied loan with less than 20% down. You might be able to put down less than 20% down, but you’ll be paying for it in the rates department. Savvy investors (not flipper) will want to put down as much as they have to, to get the best rates and not have to pay PMI to yield the best ROI.[/quote]
That all may well be true. All I can go by is what I see and there are people owning multiple properties, clearly investments and not just small time investments, and they’re 100% financed getting NODs. I just posted on the Shadow inventory thread some guy in Tiburon bought 3 places in Carmel Valley that are all listed w/NODs. I’m sure he’s not the only one.
Liar loans were popular, banks weren’t checking and pretty darn easy for an investor to say he lives there and not put 20% down. Heck, Rich posted Kelly’s VOSD story on fraud. People are creative, that’s for sure. They will find a way and work the system.
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While this was true during the bubble run-up, it really wasn’t true before it (when banks were actually paying attention to loan qualifications), nor will it be true going into the future (now that banks have recovered some sense). Flippers, by the way, are not, and never were, RE investors – they were RE gamblers, even if they called themselves “investors”.
We’re not talking about the same mentality. A long term RE investor pays far less attention to appreciation, and much more attention to cash flow. An investment property should pay for itself (after the initial investment). During the bubble, the flipper mentality was to leverage oneself to the hilt with as many properties as you could rob Peter and pay Paul with the mortgages, and hope that you made yourself a multimillionaire with the appreciation before the music stopped and you were left holding more mortgages than you were worth. Cash flow didn’t factor into it.
When trying to determine rental parity today, you need to imagine how a long term RE investor would view the property. A long term RE investor will look at a property using the 20% down, since that is the minimum cash they need to put in to qualify for loans (without lying) and to eliminate unnecessary carrying costs (i.e. PMI). Once a property drops to a valuation where buying it as an investment makes sense, someone is likely to do just that.
