who is buying now?

[bobby]

background – I graduated 12 years ago. Moved to San Francisco Bay Area. Wanted to buy a house like everyone here. Realized that the RE market is likely frothy in 2004 and decided to wait. Saved money.
Bought in 2012. Very happy with the purchase.
Now, one of my employees needs housing. I am thinking of becoming a landlord to her. Venturing into the market again.
The past 3 years have seen crazy price increase in the Bay Area. Not sure if this is housing bubble 2.0.
I think this is true for most areas.
back in the late 2000’s, the feeling was everyone was drinking coolaid and housing price was (correctly) predicted to come down.
So what’s the general consensus on Pigg? I don’t have to buy this time as this is only rental so I can wait many many years. I know there’s no crystal ball but want to get some votes.
Thanks in advance.

[The-Shoveler]

Just my Two cents.

To me it seems the higher end has topped out, but I don’t see a crash coming, just much slower appreciation.

The main reason I don’t see a crash coming is they have not been making crazy RE loans like they were in 2005-6.

On the lower end I do see some catch up occurring (most of the high end stuff is back at peak, I expect the lower end to catch up as well because TPTB seem to be pushing it from many sides in that direction).

Anyway IMO.

[spdrun]

Just because the liberal idiots in Washington are beating their chests about wanting higher real estate prices doesn’t mean that they’ll get them.

Especially with a GOP congress (yay, at least in this respect!) who’s just itching to rein in the GSEs and make lending “safe.”

[Coronita]

The only question you need to ask yourself is

do the numbers work out with a decent positive cash flow for any random tenant.

Also imho, if I were you, I’d do myself a favor and rent to a complete stranger, not someone I have any sort of relationship with (professional or otherwise).

Either you’re not going to be happy because you won’t be able to get the best price you can get, or the other person isn’t going to be happy, because they think you’re trying to take advantage of the relationship with you….or both…

[spdrun]

Unless you WANT to (say) use the rental to gain leverage over a professional relationship, of course.

[carlsbadworker]

I can tell you who is not buying:
1. Hedge funds, because the price is no longer attractive. Individual investors are splitting: most are waiting in the sideline and some are still buying
2. First-time buyers, because it is much harder to qualify now and the crazy loan hasn’t arrived here yet. They want to buy but they are still saving the down payments.
3. Deadbeats. The people who are foreclosed in the last RE bottom are surprisingly not buying this time, even though their credit scores are gradually repaired allowing them to buy. I don’t know why, maybe they are scared of REs for now. Normally, after the price surges in 2013, they will show up in the party expecting they can be rich again, but they didn’t in 2014.
4. Younger generations. The reason is job market related. While the job market has improved, they don’t feel that they get secure jobs (e.g. part-time) or the jobs that they like. Previously, people would still buy because they expect the RE to make them rich, now the expectation of that has been lowered, they are reluctant to buy until the optimal moment would come. But this is a timing bomb, who wants to live with their parents or even roommates forever?

[carlsbadworker]

I agree.

I don’t see crash coming mainly because there are too much money on the sideline.

But I don’t see a quick appreciation as well because the price is already too high and there are no significant pools of buyers in the short-run.

I am in the camp that if you see a good deal, it doesn’t hurt to buy right now, but it doesn’t hurt to wait either.

Stock markets are likely to crash earlier than the U.S. RE market.

[quote=The-Shoveler]Just my Two cents.

To me it seems the higher end has topped out, but I don’t see a crash coming, just much slower appreciation.

The main reason I don’t see a crash coming is they have not been making crazy RE loans like they were in 2005-6.

On the lower end I do see some catch up occurring (most of the high end stuff is back at peak, I expect the lower end to catch up as well because TPTB seem to be pushing it from many sides in that direction).

Anyway IMO.[/quote]

[spdrun]

And what do you think a stock crash will do to property?

[bobby]

[quote=flu]The only question you need to ask yourself is

do the numbers work out with a decent positive cash flow for any random tenant.

Also imho, if I were you, I’d do myself a favor and rent to a complete stranger, not someone I have any sort of relationship with (professional or otherwise).

Either you’re not going to be happy because you won’t be able to get the best price you can get, or the other person isn’t going to be happy, because they think you’re trying to take advantage of the relationship with you….or both…[/quote]

thanks for advice. will take into account and seek advice from friends also.
the numbers definitely don’t work out. ie the “mortgage”* will be higher than rent. Not to mention taxes and maintenance.

*I put “mortgage” b/c this will be all cash transaction.

[bobby]

[quote=spdrun]Unless you WANT to (say) use the rental to gain leverage over a professional relationship, of course.[/quote]
No… Just b/c she’s a loyal employee.

[bobby]

[quote=carlsbadworker]I can tell you who is not buying:
1. Hedge funds, because the price is no longer attractive. Individual investors are splitting: most are waiting in the sideline and some are still buying
2. First-time buyers, because it is much harder to qualify now and the crazy loan hasn’t arrived here yet. They want to buy but they are still saving the down payments.
3. Deadbeats. The people who are foreclosed in the last RE bottom are surprisingly not buying this time, even though their credit scores are gradually repaired allowing them to buy. I don’t know why, maybe they are scared of REs for now. Normally, after the price surges in 2013, they will show up in the party expecting they can be rich again, but they didn’t in 2014.
4. Younger generations. The reason is job market related. While the job market has improved, they don’t feel that they get secure jobs (e.g. part-time) or the jobs that they like. Previously, people would still buy because they expect the RE to make them rich, now the expectation of that has been lowered, they are reluctant to buy until the optimal moment would come. But this is a timing bomb, who wants to live with their parents or even roommates forever?[/quote]

and yet the RE price had been on a 20-30 percent annual increase. This is what confuses me. are there that many foreign buyers? google? facebook? no idea who’s buying.

[bobby]

[quote=The-Shoveler]Just my Two cents.

To me it seems the higher end has topped out, but I don’t see a crash coming, just much slower appreciation.

The main reason I don’t see a crash coming is they have not been making crazy RE loans like they were in 2005-6.

On the lower end I do see some catch up occurring (most of the high end stuff is back at peak, I expect the lower end to catch up as well because TPTB seem to be pushing it from many sides in that direction).

Anyway IMO.[/quote]

just hoping for a 20% “correction”. I don’t see it happening either.

looks like I’m gonna offer her a “housing” allowance.

[spdrun]

Nationally, prices didn’t increase by 20-30% p/a.

San Diego: foreign investors, out-of-state investors, landlords, locals. It’s a desirable city.
SF: Googlers, general tech bubble folk.

A 20% correction could easily happen. Remember that property prices have been all over the map since 2008. 50% is much less likely.

Can’t you just buy a 1/1 condo in the $150k range — they do exist — and have her pay you rent for it?

$150 tax, $250 HOA = $400, 80% mortgage =~ $700/mo. $1100/mo is reasonable if it also gleans tax credits for depreciation, etc.

[Coronita]

[quote=bobby][quote=flu]The only question you need to ask yourself is

do the numbers work out with a decent positive cash flow for any random tenant.

Also imho, if I were you, I’d do myself a favor and rent to a complete stranger, not someone I have any sort of relationship with (professional or otherwise).

Either you’re not going to be happy because you won’t be able to get the best price you can get, or the other person isn’t going to be happy, because they think you’re trying to take advantage of the relationship with you….or both…[/quote]

thanks for advice. will take into account and seek advice from friends also.
the numbers definitely don’t work out. ie the “mortgage”* will be higher than rent. Not to mention taxes and maintenance.

*I put “mortgage” b/c this will be all cash transaction.[/quote]

Well, if it’s an all cash transaction. You can look at it the other way…

Figure out how much your cash on cash return will be (factoring a reasonable estimate of your rental income with not 100% occupancy). If you’re around 3-4% in the bay area, that’s not bad. I’d probably do it in a decent part of the bay area. Still beats that 1% CD, and I don’t think you can really go wrong with bay area housing in the long run 🙂

[bobby]

[quote=spdrun]Nationally, prices didn’t increase by 20-30% p/a.

San Diego: foreign investors, out-of-state investors, landlords, locals. It’s a desirable city.
SF: Googlers, general tech bubble folk.

A 20% correction could easily happen. Remember that property prices have been all over the map since 2008. 50% is much less likely.

Can’t you just buy a 1/1 condo in the $150k range — they do exist — and have her pay you rent for it?

$150 tax, $250 HOA = $400, 80% mortgage =~ $700/mo. $1100/mo is reasonable if it also gleans tax credits for depreciation, etc.[/quote]

nationally, no but San Francisco Bay Area, yes.

condo are 1/1 condo are around $450-500K here. Add $300/mo HOA and various expenses/tax.
that’s gonna be at least $1500-2000/mo. Not doable for someone make $20/hour.

the only $150 condo is about 90-minute drive away.

never thought about tax credit / depreciation. Thanks for letting me know. Owe you one. Will talk with tax acct.

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