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DaCounselor
Participant“There are plenty of zero down buyers in the 1M+ crowd as well. Do not worry stupidity runs across all price ranges.”
__________________________Going zero down may very well be an extremely astute decision, depending on the circumstances. I have two acquaintences (one is my mortgage broker) who have gone zero down on expensive properties as part of a bigger financial strategy. Zero down does not automatically equate to stupidity – in fact, it may equate to just the opposite.
Participant“I just had a look at this thread, and am surprised by the level of misunderstanding.”
___________________I understand this thread completely. There are three main statements made in the original post:
1) “This chart predicts the S&P500 will keep falling and hit 600 by summer 07” Terribly wrong so far (but it ain’t summer yet). Still, terribly wrong to date.
2) “One more reason to stay out of the stock market for another year at least” A costly blunder – calling the temporary top far too soon.
3) “Sorry, no fall rally for the mid-election year cycle folks” Again, terribly wrong – a costly blunder.
That is all there is to know about this thread.
ParticipantWhat I think renters should be doing now, PC, is sitting back and watching what happens in the SD market. I don’t think they will get burned by soaring interest rates or prices this year. Nor will tightening credit standards affect those who are truly qualified to buy. In short, there doesn’t seem to be any measureable downside to sitting tight, and there is probably going to be an upside.
I never have supported the concept of long-term renting. I don’t think there is a massive rental discount now and I think the spread is going to shrink as this market evolves. My advice to renters would be to start plotting your purchase now by getting your finances together. Don’t rent the house in Bird Rock and lease the Benz because you can – instead, rent the house in Clairemont and drive your older car and bank as much dough as you can for a downpayment. Sounds awfully dreary and old-school for our instant gratification generation, but it’s a tried and true strategy. Little something called sacrifice.
I could barely afford both my first and second purchases – even took in room-mates at the outset to make things easier – and now I own both properties outright. Sacrifice. It’s more than a word and it’s something that seems lost on our younger generation.
Now, enough preaching – I’m off for a beer. Cheers.
ParticipantGood talking points NSR.
We’re saying the same thing regarding financing – that the no-skin 100% financing carries an interest rate premium that will obviously result in a larger rent vs. own spread than conventional financing. A much larger spread.
As for what to do with the downpayment $$, that is of course not a novel debate. It’s possible to put it in the market and make a killing, and it’s also possible to get creamed. You can go ultra conservative and put it in a mattress. The options are many. I think the general philosophy of pouring alot of dough into real estate up front is to reap the benefits of excellent interest rates, reduced monthly overhead and – gasp – the antiquated idea of getting a huge running start to complete ownership.
It makes perfect sense that the rent vs. own spread increases when you get into the higher end properties that you cite in your neighborhood. The higher the rent, the less demand. The obtainable rent is not likely to rise lock-step with the value of the property up through this range.
Anyway, from my experience, based on my properties, there is nowhere near a 50% discount for renting, apples to apples.
ParticipantYou don’t need to go into more details on the #’s for me. I own 3 properties in SD and with just a quick look at my properties I can tell you that the rental discount is nowhere near 50%. It’s looking like 10-15%. I’m spitballing here but it’s close. And again, I’m looking at apples to apples, using conventional financing. Once you start running numbers using the 100% financing option, of course that is going to jack up the rent vs. own spread. You are financing way more $$ at a higher interest rate. You’re paying a steep premium for the luxury of not putting any skin in the game – as you should.
In NSR’s scenario, it looks like about a $1300/mo. rental discount, but note that the calculation is based on 100% financing. If you run the #’s using conventional financing, the spread probably gets knocked in half.
If you run the #’s based upon financing options that have not been historically available, you cannot determine whether the spread is historically high, low, or average. My guess is that it’s probably a bit higher than average, but not massively outrageous (ie 50%).
ParticipantI haven’t run the numbers but I would expect to have seen a pretty similar spread between renting and owning when I first bought in ’91 if all this crazy creative financing was available back then. The reason the spread was much smaller back then was due to the downpayment requirement. If the numbers were run today based on convential 20% down loans and convential debt-to-income ratios, I would expect that the spread would be substantially lower than the 50% claimed and probably fairly close to what it was back in the early 90’s. So apples to apples, I think the numbers would show a present-day higher % discount for renting than in the past, but not by a whole lot.
Participant“Yes, the discount from owning is about 50% before tax. And yes it is out of whack with recent history.”
_______________________Well, the key figure is the % spread post-tax benefits, not pre-tax.
The reason I ask about others’ experiences on historical spreads is that I am not seeing a massive rent discount – certainly nowhere near 50% – on the properties I own. I haven’t run hard numbers for the past 16 years, but my spitballing figures indicate to me that the rent discount – while most definitely up – is not as massive as some are portraying. At least not where I own.
Participant“There is absolutely no rationale at all since as JohnAlt91941 said you can rent for 50% of the cost without any exposure to the risks associated with owning in an uncertain market.”
_________________________Is the SD rental discount from owning really 50%? Is that pre-tax or post-tax deduction? Is a 50% rental discount from owning way out of whack with historical figures?
Participant“Again, I think we really need to have some better statistics regarding how buyers are financing home purchases currently to have a better idea what can happen in the future.”
____________________________There was a thread on this site many weeks ago that contained recent sales stats for Carlsbad (I think??) that showed some financing info. I think it was posted by one of the RE agents that surf this site. Maybe if whoever posted that info happens upon this thread they will re-post for you. I recall the stats showed minimal deals that were 100% financed (but don’t hold me to that).
Participant“Of course I would expect them to proclaim a minimal increase and ignore a whopping 16.6% decrease.”
_________________I will not defend the NAR on any level, but I will say that I think that new homes are a relatively small portion of the market, so it is not surprising that they would focus on the dominant existing home market numbers.
I wouldn’t make too much of the numbers at this time, in any event. I think we have to wait until spring/summer and see what’s going on then.
Participant“The median as we know is not a great measure.”
_____________________________Heartily agreed. That applies to median income stats as well. When I learned that part of the basis in determining median income includes anyone 15 yrs old and up, it sure explained to me why SD’s median income numbers have always seemed so low.
I steer clear of median analysis. I just like to see the actual sales history of homes in a particular neighborhood. It’s not hard to follow, especially in planned communities. That’s where the real story is, not in the median.
Participant“If sales in a project include short sales or forclosures they would not normally be considered comparables because the terms of those sales do not fit the definition of Market Value upon which those appraisals are based.”
__________________________Bugs, this is a particularly interesting point in light of what is sure to be a large wave of refi attempts to avoid ARM resets. What I am hearing, in general, is that if short sale/foreclosure sales in comparables do not rise to a level so as to be considered typical, they need not be considered by an appraiser. If this is correct, “typical” comps may keep the market propped up enough to allow for refi’s before resets.
Participant“In current market conditions…really?”
_____________________For the life of me I can’t see why you cannot grasp the basics of my situation. I really don’t know how to further simplify the equation for you. Sorry if I’m being rude, but your incessant “are you sure?” and “uh, really?” comments are beyond tiresome. Perhaps one of the kind regulars here can explain to you how I, owning 2 rental properties free and clear, and in addition having about 15% equity in my primary residence based on a comp sale last month, am well established in the black. I just don’t have the energy for you anymore.
Participant“So if you sold your primary residence right now, you could pay off the outstanding loans and have money left over correct?”
_______________________As I stated, I have about 15% equity in my primary and the 2 rentals are clear. So if I sold the primary I would walk with the equity plus still have the rentals clear.
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