…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….
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.[/quote]
SDEngineer, in the old days, lenders kept loans on their own books, and took 100% of the loss from a failure to repay, or a failure to pay the full agreed original monthly payment. Today, nonrepayment of most mortgages is covered by guarantees from a govt agency, e.g. the FHA (directly) or the FDIC (indirectly). So the mortgage and housing markets will look nothing like they used to.
