[SDEngineer]

[quote=EmilyHicks]I have around $45,000 in my 401K and my husband has around $30,000. Can I withdraw some of this money at no penalty? We have no money in IRA. I have looked at houses in the $350,000 range but most are too old or in bad neighborhoods.[/quote]

You can usually (depending on plan administrator) take a loan against some portion of your vested 401K account (most cases I believe it’s 50%). It must be repaid, with interest (but at least the interest is going to yourself, so that’s not a big deal) over the loan period (I think mine allows 15 years for a loan taken out for a primary residence purchase).

There’s a caveat to this – if your 401K is through work, and you lose your job, you may be required to payback that loan in an accelerated manner (60-90 days). If you do not, it is treated as a withdrawal and you will be subject to large tax penalties.

[SDEngineer]

[quote=davelj]I’m with Bob on this.

A $350K house is the MOST you should be buying based on the facts provided.

Just my opinion, of course.[/quote]

Why?

Based on their income, and assuming reasonable HOA’s and no Mello-Roos, even with a minimal down payment (3.5-5%) they’ll have a housing component DTI somewhere in the 23-28% range, which is very affordable, and with a minimal down payment, they’ll also have at least 6 months reserves in the bank, which as far as I can see is a bigger hedge against unemployment or other unexpected economic issues than a higher down payment.

[SDEngineer]

[quote=davelj]I’m with Bob on this.

A $350K house is the MOST you should be buying based on the facts provided.

Just my opinion, of course.[/quote]

Why?

Based on their income, and assuming reasonable HOA’s and no Mello-Roos, even with a minimal down payment (3.5-5%) they’ll have a housing component DTI somewhere in the 23-28% range, which is very affordable, and with a minimal down payment, they’ll also have at least 6 months reserves in the bank, which as far as I can see is a bigger hedge against unemployment or other unexpected economic issues than a higher down payment.

[SDEngineer]

[quote=davelj]I’m with Bob on this.

A $350K house is the MOST you should be buying based on the facts provided.

Just my opinion, of course.[/quote]

Why?

Based on their income, and assuming reasonable HOA’s and no Mello-Roos, even with a minimal down payment (3.5-5%) they’ll have a housing component DTI somewhere in the 23-28% range, which is very affordable, and with a minimal down payment, they’ll also have at least 6 months reserves in the bank, which as far as I can see is a bigger hedge against unemployment or other unexpected economic issues than a higher down payment.

[SDEngineer]

[quote=davelj]I’m with Bob on this.

A $350K house is the MOST you should be buying based on the facts provided.

Just my opinion, of course.[/quote]

Why?

Based on their income, and assuming reasonable HOA’s and no Mello-Roos, even with a minimal down payment (3.5-5%) they’ll have a housing component DTI somewhere in the 23-28% range, which is very affordable, and with a minimal down payment, they’ll also have at least 6 months reserves in the bank, which as far as I can see is a bigger hedge against unemployment or other unexpected economic issues than a higher down payment.

[SDEngineer]

[quote=davelj]I’m with Bob on this.

A $350K house is the MOST you should be buying based on the facts provided.

Just my opinion, of course.[/quote]

Why?

Based on their income, and assuming reasonable HOA’s and no Mello-Roos, even with a minimal down payment (3.5-5%) they’ll have a housing component DTI somewhere in the 23-28% range, which is very affordable, and with a minimal down payment, they’ll also have at least 6 months reserves in the bank, which as far as I can see is a bigger hedge against unemployment or other unexpected economic issues than a higher down payment.

[SDEngineer]

[quote=AN]
I would think that’s the exception rather than the rule. As a landlord, I would want to have minimum amount of people living at my rental. Subleasing means you’d have to do background check on those other people too. It’s not just about paying rent on time but also what type of people they are and whether they look like those who would destroy your place. Can you picture your landlord’s face if you tell them you want to convert their house into a mini-dorm?[/quote]

I’ve found that private investors generally are o.k. with it as long as the primary renter has had a good history with them. Complexes are another matter entirely (they’re pretty set against it).

So far I’ve only been in this position 3 times, but all three times (2 as the primary renter, 1 as the sublessee) the landlords didn’t have an issue with it. In all cases the primary tenant had been there at least a year.

I think by the time a renters been there awhile you have enough of a “feel” for them to know if the type of people they’d sublet to would be good or bad – and, frankly, if they’d sublet to bad eggs, they’re probably not even the kind of folks you’d want to rent as the primary lessee to anyway.

[SDEngineer]

[quote=AN]
I would think that’s the exception rather than the rule. As a landlord, I would want to have minimum amount of people living at my rental. Subleasing means you’d have to do background check on those other people too. It’s not just about paying rent on time but also what type of people they are and whether they look like those who would destroy your place. Can you picture your landlord’s face if you tell them you want to convert their house into a mini-dorm?[/quote]

I’ve found that private investors generally are o.k. with it as long as the primary renter has had a good history with them. Complexes are another matter entirely (they’re pretty set against it).

So far I’ve only been in this position 3 times, but all three times (2 as the primary renter, 1 as the sublessee) the landlords didn’t have an issue with it. In all cases the primary tenant had been there at least a year.

I think by the time a renters been there awhile you have enough of a “feel” for them to know if the type of people they’d sublet to would be good or bad – and, frankly, if they’d sublet to bad eggs, they’re probably not even the kind of folks you’d want to rent as the primary lessee to anyway.

[SDEngineer]

[quote=AN]
I would think that’s the exception rather than the rule. As a landlord, I would want to have minimum amount of people living at my rental. Subleasing means you’d have to do background check on those other people too. It’s not just about paying rent on time but also what type of people they are and whether they look like those who would destroy your place. Can you picture your landlord’s face if you tell them you want to convert their house into a mini-dorm?[/quote]

I’ve found that private investors generally are o.k. with it as long as the primary renter has had a good history with them. Complexes are another matter entirely (they’re pretty set against it).

So far I’ve only been in this position 3 times, but all three times (2 as the primary renter, 1 as the sublessee) the landlords didn’t have an issue with it. In all cases the primary tenant had been there at least a year.

I think by the time a renters been there awhile you have enough of a “feel” for them to know if the type of people they’d sublet to would be good or bad – and, frankly, if they’d sublet to bad eggs, they’re probably not even the kind of folks you’d want to rent as the primary lessee to anyway.

[SDEngineer]

[quote=AN]
I would think that’s the exception rather than the rule. As a landlord, I would want to have minimum amount of people living at my rental. Subleasing means you’d have to do background check on those other people too. It’s not just about paying rent on time but also what type of people they are and whether they look like those who would destroy your place. Can you picture your landlord’s face if you tell them you want to convert their house into a mini-dorm?[/quote]

I’ve found that private investors generally are o.k. with it as long as the primary renter has had a good history with them. Complexes are another matter entirely (they’re pretty set against it).

So far I’ve only been in this position 3 times, but all three times (2 as the primary renter, 1 as the sublessee) the landlords didn’t have an issue with it. In all cases the primary tenant had been there at least a year.

I think by the time a renters been there awhile you have enough of a “feel” for them to know if the type of people they’d sublet to would be good or bad – and, frankly, if they’d sublet to bad eggs, they’re probably not even the kind of folks you’d want to rent as the primary lessee to anyway.

[SDEngineer]

[quote=AN]
I would think that’s the exception rather than the rule. As a landlord, I would want to have minimum amount of people living at my rental. Subleasing means you’d have to do background check on those other people too. It’s not just about paying rent on time but also what type of people they are and whether they look like those who would destroy your place. Can you picture your landlord’s face if you tell them you want to convert their house into a mini-dorm?[/quote]

I’ve found that private investors generally are o.k. with it as long as the primary renter has had a good history with them. Complexes are another matter entirely (they’re pretty set against it).

So far I’ve only been in this position 3 times, but all three times (2 as the primary renter, 1 as the sublessee) the landlords didn’t have an issue with it. In all cases the primary tenant had been there at least a year.

I think by the time a renters been there awhile you have enough of a “feel” for them to know if the type of people they’d sublet to would be good or bad – and, frankly, if they’d sublet to bad eggs, they’re probably not even the kind of folks you’d want to rent as the primary lessee to anyway.

[SDEngineer]

[quote=patientrenter]

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.[/quote]

What does this have to do with a property grading out as a cash flow investment however? My entire point was that both historically and currently, you can’t get a 0 down (or even low down) loan for an investment property, therefore the floor for investors is set at 20% or somewhere nearby down where all the expected expenses are lower than the rent it can bring in.

The fact that 5 years of catastrophic homeownership decisions by the fed, the banks, the realtors, the mortgage brokers, and the buyers is currently being unwound will eventually wind up hitting a wall set by investors based on what they can buy the place and rent it out for. That is simple market economics.

As a side note, once prices do fall to that level (and, as has been pointed out by Rich in some of his recent charts, in San Diego as an aggregate, we may be either near there or already there – though higher priced submarkets like the coast and the high end areas are pretty clearly not there yet), the risk to a bank then becomes fairly minimal in a default scenario, no matter who pays – since only in a deflating market do banks take large losses from a defaulted mortgage loan. After prices become normalized relative to rent and income levels, the value of the foreclosed property is high enough that in general it covers the value of the foreclosed loan.

Only in the case where the asset is extremely overvalued relative to the mortgage (i.e. a bubble priced house) do banks take a really big bath in a foreclosure scenario. Similarly, a buyer who winds up in danger of default can generally sell that house, avoid the ding on his/her credit, and pay off the mortgage if need be.

[SDEngineer]

[quote=patientrenter]

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.[/quote]

What does this have to do with a property grading out as a cash flow investment however? My entire point was that both historically and currently, you can’t get a 0 down (or even low down) loan for an investment property, therefore the floor for investors is set at 20% or somewhere nearby down where all the expected expenses are lower than the rent it can bring in.

The fact that 5 years of catastrophic homeownership decisions by the fed, the banks, the realtors, the mortgage brokers, and the buyers is currently being unwound will eventually wind up hitting a wall set by investors based on what they can buy the place and rent it out for. That is simple market economics.

As a side note, once prices do fall to that level (and, as has been pointed out by Rich in some of his recent charts, in San Diego as an aggregate, we may be either near there or already there – though higher priced submarkets like the coast and the high end areas are pretty clearly not there yet), the risk to a bank then becomes fairly minimal in a default scenario, no matter who pays – since only in a deflating market do banks take large losses from a defaulted mortgage loan. After prices become normalized relative to rent and income levels, the value of the foreclosed property is high enough that in general it covers the value of the foreclosed loan.

Only in the case where the asset is extremely overvalued relative to the mortgage (i.e. a bubble priced house) do banks take a really big bath in a foreclosure scenario. Similarly, a buyer who winds up in danger of default can generally sell that house, avoid the ding on his/her credit, and pay off the mortgage if need be.

[SDEngineer]

[quote=patientrenter]

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.[/quote]

What does this have to do with a property grading out as a cash flow investment however? My entire point was that both historically and currently, you can’t get a 0 down (or even low down) loan for an investment property, therefore the floor for investors is set at 20% or somewhere nearby down where all the expected expenses are lower than the rent it can bring in.

The fact that 5 years of catastrophic homeownership decisions by the fed, the banks, the realtors, the mortgage brokers, and the buyers is currently being unwound will eventually wind up hitting a wall set by investors based on what they can buy the place and rent it out for. That is simple market economics.

As a side note, once prices do fall to that level (and, as has been pointed out by Rich in some of his recent charts, in San Diego as an aggregate, we may be either near there or already there – though higher priced submarkets like the coast and the high end areas are pretty clearly not there yet), the risk to a bank then becomes fairly minimal in a default scenario, no matter who pays – since only in a deflating market do banks take large losses from a defaulted mortgage loan. After prices become normalized relative to rent and income levels, the value of the foreclosed property is high enough that in general it covers the value of the foreclosed loan.

Only in the case where the asset is extremely overvalued relative to the mortgage (i.e. a bubble priced house) do banks take a really big bath in a foreclosure scenario. Similarly, a buyer who winds up in danger of default can generally sell that house, avoid the ding on his/her credit, and pay off the mortgage if need be.

[SDEngineer]

[quote=patientrenter]

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.[/quote]

What does this have to do with a property grading out as a cash flow investment however? My entire point was that both historically and currently, you can’t get a 0 down (or even low down) loan for an investment property, therefore the floor for investors is set at 20% or somewhere nearby down where all the expected expenses are lower than the rent it can bring in.

The fact that 5 years of catastrophic homeownership decisions by the fed, the banks, the realtors, the mortgage brokers, and the buyers is currently being unwound will eventually wind up hitting a wall set by investors based on what they can buy the place and rent it out for. That is simple market economics.

As a side note, once prices do fall to that level (and, as has been pointed out by Rich in some of his recent charts, in San Diego as an aggregate, we may be either near there or already there – though higher priced submarkets like the coast and the high end areas are pretty clearly not there yet), the risk to a bank then becomes fairly minimal in a default scenario, no matter who pays – since only in a deflating market do banks take large losses from a defaulted mortgage loan. After prices become normalized relative to rent and income levels, the value of the foreclosed property is high enough that in general it covers the value of the foreclosed loan.

Only in the case where the asset is extremely overvalued relative to the mortgage (i.e. a bubble priced house) do banks take a really big bath in a foreclosure scenario. Similarly, a buyer who winds up in danger of default can generally sell that house, avoid the ding on his/her credit, and pay off the mortgage if need be.

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