[gn]

arraya,

Thanks for the story. It shows lenders/sellers desperation.

In the future, if you look at rental properties, I would recommend the following formula:

real rent – (0.1 * real rent) – PITI = cashflow.

The 10% is for maintenance/vacancy. The property may look new/good, but, if you’re going to be a landlord in the long run, you will surely have maintenance costs & vacancies.

And, BTW, the PITI above would have to be on a 30-yr fixed mortgage, not an ARM 🙂

[gn]

stop_the_bubble_hype,

Am I missing something here ?

You said that you’ll be taking over a property with a $450k debt & it’s worth approximately $900k.

Even if the approximate value is overly optimistic, there is still a lot of equity in that property. You’ll be making a lot of money even if you sell it at $700k.

The current owner is not stupid (she maybe naive about the market), but stupidity is a different matter. Why would she allow you to do that ?

[gn]

stop_the_bubble_hype,

Am I missing something here ?

You said that you’ll be taking over a property with a $450k debt & it’s worth approximately $900k.

Even if the approximate value is overly optimistic, there is still a lot of equity in that property. You’ll be making a lot of money even if you sell it at $700k.

The current owner is not stupid (she maybe naive about the market), but stupidity is a different matter. Why would she allow you to do that ?

[gn]

The following is likely to be true:

1. The current owner is “upside down”. That is, the loan amount is more than the market value of the house.
2. The current owner just wants to “walk away” without having his credit record being damaged by a foreclosure.
3. He needs someone to bail him out by taking over the loan.

The thing is: you can easily go out & buy similar house for less than the loan amount of the above house.

[gn]

The following is likely to be true:

1. The current owner is “upside down”. That is, the loan amount is more than the market value of the house.
2. The current owner just wants to “walk away” without having his credit record being damaged by a foreclosure.
3. He needs someone to bail him out by taking over the loan.

The thing is: you can easily go out & buy similar house for less than the loan amount of the above house.

[gn]

“I don’t get it. If the person is not upside-down (still has equity) and plan to sell below market anyway. Why does she need to borrow money?”

She’s probably thinking: I’m already behind on my mortgage payment. So, I need some cash to stave off the lender & buy myself some time to put the property on the market & sell it quickly.

The problem is: most people over-estimate the values of their properties by a large margin. So, even when they list their properties at “under-market prices”, it’s still overpriced. And they will keep chasing the market down without ever catching up to the market price.

[gn]

“I don’t get it. If the person is not upside-down (still has equity) and plan to sell below market anyway. Why does she need to borrow money?”

She’s probably thinking: I’m already behind on my mortgage payment. So, I need some cash to stave off the lender & buy myself some time to put the property on the market & sell it quickly.

The problem is: most people over-estimate the values of their properties by a large margin. So, even when they list their properties at “under-market prices”, it’s still overpriced. And they will keep chasing the market down without ever catching up to the market price.

[gn]

Alex,

Thanks for sharing the story. Just out of curiosity, is this condo in one of the high-rise in downtown ?

[gn]

Alex,

Thanks for sharing the story. Just out of curiosity, is this condo in one of the high-rise in downtown ?

[gn]

Stu949 is absolutely right. The builders know that there is a fair number of “fence sitters” out there (this is not surprising b/c even in a downturn, there are still buyers).

Many of these fence sitters are not entirely convinced that the market will crash b/c home prices have been going up for so long that it’s hard to imagine that they will come down significantly (most people operate based on recent memories).

The builders know that these fence sitters just need a “little push”. And increasing the price a little bit just might do the trick.

The real problem: for every new home being sold, there is a re-sale home NOT being sold. Builders are simply stealing sales from resellers who bought investment homes in 4S & need to sell b/c prices have gone down & the ARMs are resetting.

At some point (2008), a good percentage of the houses bought as investments in 4S will end up as REOs. That’s when the lenders who own the REOs will compete with the builders to sell. That’s when it will get interesting.

[gn]

Stu949 is absolutely right. The builders know that there is a fair number of “fence sitters” out there (this is not surprising b/c even in a downturn, there are still buyers).

Many of these fence sitters are not entirely convinced that the market will crash b/c home prices have been going up for so long that it’s hard to imagine that they will come down significantly (most people operate based on recent memories).

The builders know that these fence sitters just need a “little push”. And increasing the price a little bit just might do the trick.

The real problem: for every new home being sold, there is a re-sale home NOT being sold. Builders are simply stealing sales from resellers who bought investment homes in 4S & need to sell b/c prices have gone down & the ARMs are resetting.

At some point (2008), a good percentage of the houses bought as investments in 4S will end up as REOs. That’s when the lenders who own the REOs will compete with the builders to sell. That’s when it will get interesting.

[gn]

Duck,

Thanks for the info. Is it me or does it seems like Santa Luz has a lot of short sales ? On top of that, the melo-roos is very high there. I think Santa Luz has the potential to become a “Foreclosure-ville”.

[gn]

Duck,

Thanks for the info. Is it me or does it seems like Santa Luz has a lot of short sales ? On top of that, the melo-roos is very high there. I think Santa Luz has the potential to become a “Foreclosure-ville”.

[gn]

cyphire,

Just out of curiosity. Is the area that you mentioned Rancho Santa Fe ? If so, where in RSF (i.e. Cielo, the Groves …) ?

Thanks.

[gn]

cyphire,

Just out of curiosity. Is the area that you mentioned Rancho Santa Fe ? If so, where in RSF (i.e. Cielo, the Groves …) ?

Thanks.

[Author]

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