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March 8, 2006 at 8:34 PM in reply to: Advice needed on mobile home purchase – right choice for first time buyer? #23612sdduuuudeParticipant
I think the question that hasn’t yet been asked by your friend or any other respondent is – how much would it cost to rent a comparable trailer vs. buy this one AND rent the pad? Comparing the purchase / rent cost of a trailer to a property that rents for $1650 per month is just wrong.
I mean, if the guy is willing to live in a trailer to save money, seems like renting a trailer is the way to go. The cost difference will be pure after-tax savings and he has no depreciation concerns.
What he really needs to do to lower his taxes is incorporate and become a contract employee and write off stuff that he can’t write-off now.
March 8, 2006 at 8:25 PM in reply to: Advice needed on mobile home purchase – right choice for first time buyer? #23611sdduuuudeParticipantYOU SAID:
“As a single person I get a $5000 standard deduction on form 1040. If I choose to itemize my expenses in order to claim mortgage interest, I GIVE UP THE $5000 DEDUCTION. And therein lies the myth. ”You only give it up if you don’t already have other itemized deductions that total $5,000.
sdduuuudeParticipantIsn’t this, like, the third time you’ve said this was your last post?
sdduuuudeParticipantThis whole post is not investment advice.
STEP 1) Look at the monthly cost of renting a place near those you would like to buy, but can’t afford.
STEP 2) Subtract that rent cost from the maximum house payment you think you can afford (include principal, interest, insurance, PMI and property tax).
STEP 3) Rent in a good place closer to work, and put the difference between your rent and your max payment in the bank. Build up a down payment and wait for the market to drop for 3 years, or 5 years. Buy a subscription to this site and when Prof. Piggington decides to buy, the market is probably pretty low.
STEP 4) Don’t panic buy when rates increase. As you get older, you will find you can afford more and more each month. It is OK to buy when rates are high if you can afford the payment because you can always refi later when rates drop.
So, lets say you can rent a place for $1,500 per month, and you can afford a $2,000 payment right now. Go rent a place for $1,500 and put $500 in the bank EVERY MONTH.
Look to rent a place from a landlord who has owned the place for a long time and doesn’t have more than a couple rental properties. If you rent from someone who bought recently, they will be need a very high rent to keep themselves afloat and you might find the place sold out from underneath you in a panic sale.
LLs who have owned for a long time are going to look for a good renter, rather than lots of cash. Wear business casual clothes when you view the property, look clean, etc.
D
February 22, 2006 at 11:21 PM in reply to: Home Owners: Too Big To Fail (What are your thoughts?) #23467sdduuuudeParticipantDid you see this one:
No Skin in The GameTo avoid foreclosure, the homeowner has to WANT to avoid foreclose. If a buyer has put no money down on a $400,000 condo and it depreciates 5%, the owner is out $20,000! No matter what the mortgage company does, short of sending cash, why would the homeowner do anything but walk away?
sdduuuudeParticipantP.S. I don’t think prices will drop 50%. Just used that in my example. I guessed down 30% in 4 years.
sdduuuudeParticipantWell, “credit markets tighter” can mean many things. If you simply mean “low prime rate,” then yes, I could be wrong about that, but I said “you won’t be able to borrow enough to buy,” which encompasses many issues.
Just because prime rates are low doesn’t mean you can borrow enough to buy. Remember, this would be near the bottom of the market and it could very well be that a tight mortgage market has been driving the market down all along. Also, the fed could be lowering rates to try to loosen up the market, which refuses to loosen.
There may not be capital available due to issues with Asian investment patterns. Lenders may be squeezed due to foreclosures. They may be under new regulations that won’t allow them to pursue “alternative loans” as they have recently. Current homeowners will be stuck under high loan-to-value ratios. Lenders and real-estate investors will be scared of high loan-to-value loans, and more cautious about loaning into a dropping market.
On the upside, after the bottom, yes, lending will have to loosen up, but at the bottom and just before, cash will be king.
Also, keep in mind, the cycle I am talking about will last 10 years. I see things happening much slower than the rest of the crowd here. 20% down in the first year after the peak is absurd. I just don’t think the market moves that fast, especially down. We aren’t talking about soybeans here. A housing crash is a slow-moving thing.
Look at Rich’s charts. Look how long it really takes for the bubble to “burst”. In housing, the bubble seems to leak badly for a long time, which is quite excrutiating.
The initial poster said “I have no intention of selling in the near term so I am not concerned about the short term.” I wouldn’t be concerned about the short term either. Still time to get out. The long term is what worries me. Look at how many years it would take for incomes to catch up to house prices if they stayed flat! 15 years! Wow. That is a long term problem.
sdduuuudeParticipantP.S. Two factoids to keep in mind:
1) If you consider inflation, a “flat” market is really losing money at 3-5% per year.
2) When a market goes down 50%, then up 50%, it is still down 25%, not even.
sdduuuudeParticipantPrior to becoming a regular reader in April of 2005, I owned my 3BR Clairemont home (for 7 years), owned a Penasquitos condo rental (my wife has owned for 14 years), and owned a Clairemont rental (1.5 years.)
Rich’s analysis proved to me that hanging on to the most recently purchased rental was not the right thing to do so I sold it in Aug. of 2005. I am quite confident that I sold at the absolute top of the market. Even if I didn’t I’m pretty happy being out of the property. I was $300/month short (rent less outgoing cash flow – mort/tax/insur) and didn’t see any appreciation on the horizon, with market conditions ripe for a major fall. Plus, I had already seen it appreciate from $400K to $575K in 2 years.
I follow the site and the market closely still, though I have no intention of buying a new property, and no intention of selling either one I own. The economics of the properties I own are too attractive to sell, and the economics of buying another are impossible.
I believe that the market will linger flat for another year or more, with “bubblers” and “permabulls” arguing their faces off about month-over-month data that doesn’t tell a clear picture. But so many conditions are right for a crash, it will surely happen, and I think it will be worse that the early 90’s crash.
Just look at the charts in the bubble primer.
Just look at the cost of owning vs. renting.
Just look at the affordability index.
Just look at the number of ARM loans that will eventually force a sale.
Trust the numbers.
They tell a story and Rich is a master of spelling that story out.In 2009 and 2010, you will regularly hear the words “Cash is King” (which means prices will be low, but you won’t be able to borrow enough to buy) so start saving it now. Rent, don’t buy. Put the $1,000 you will save each month into the bank and sit on it. Pull it out when you can walk into a foreclosure auction as the only buyer.
I can’t predict how low but I think it will be pretty bad, maybe down 30% to the bottom in 2010. It won’t be the height of the fall that hurts, but the length of time the fall lasts. We may not see last years’ prices for another 8 or 10 years.
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