Forum Replies Created
-
AuthorPosts
-
SDEngineer
Participant[quote=jpinpb][quote=AN]But SDE just explained to you why some of us still use 20% down to compare rent vs buy. If you don’t put down 20%, you’ll have additional cost such as higher rates and PMI that doesn’t NEED to be there for a fair comparison. That’s almost like taking rental rate of month-to-month rent vs 1 year lease rent rate. It’s unnecessary. When we use buy vs rent, we want to know the best number for both side. If you want worse case number, then you use worse case for both side.
BTW, I don’t think you can get a non-owner occupied loan with less than 20% down. You might be able to put down less than 20% down, but you’ll be paying for it in the rates department. Savvy investors (not flipper) will want to put down as much as they have to, to get the best rates and not have to pay PMI to yield the best ROI.[/quote]
That all may well be true. All I can go by is what I see and there are people owning multiple properties, clearly investments and not just small time investments, and they’re 100% financed getting NODs. I just posted on the Shadow inventory thread some guy in Tiburon bought 3 places in Carmel Valley that are all listed w/NODs. I’m sure he’s not the only one.
Liar loans were popular, banks weren’t checking and pretty darn easy for an investor to say he lives there and not put 20% down. Heck, Rich posted Kelly’s VOSD story on fraud. People are creative, that’s for sure. They will find a way and work the system.
[/quote]While this was true during the bubble run-up, it really wasn’t true before it (when banks were actually paying attention to loan qualifications), nor will it be true going into the future (now that banks have recovered some sense). Flippers, by the way, are not, and never were, RE investors – they were RE gamblers, even if they called themselves “investors”.
We’re not talking about the same mentality. A long term RE investor pays far less attention to appreciation, and much more attention to cash flow. An investment property should pay for itself (after the initial investment). During the bubble, the flipper mentality was to leverage oneself to the hilt with as many properties as you could rob Peter and pay Paul with the mortgages, and hope that you made yourself a multimillionaire with the appreciation before the music stopped and you were left holding more mortgages than you were worth. Cash flow didn’t factor into it.
When trying to determine rental parity today, you need to imagine how a long term RE investor would view the property. A long term RE investor will look at a property using the 20% down, since that is the minimum cash they need to put in to qualify for loans (without lying) and to eliminate unnecessary carrying costs (i.e. PMI). Once a property drops to a valuation where buying it as an investment makes sense, someone is likely to do just that.
Participant[quote=jpinpb][quote=AN]But SDE just explained to you why some of us still use 20% down to compare rent vs buy. If you don’t put down 20%, you’ll have additional cost such as higher rates and PMI that doesn’t NEED to be there for a fair comparison. That’s almost like taking rental rate of month-to-month rent vs 1 year lease rent rate. It’s unnecessary. When we use buy vs rent, we want to know the best number for both side. If you want worse case number, then you use worse case for both side.
BTW, I don’t think you can get a non-owner occupied loan with less than 20% down. You might be able to put down less than 20% down, but you’ll be paying for it in the rates department. Savvy investors (not flipper) will want to put down as much as they have to, to get the best rates and not have to pay PMI to yield the best ROI.[/quote]
That all may well be true. All I can go by is what I see and there are people owning multiple properties, clearly investments and not just small time investments, and they’re 100% financed getting NODs. I just posted on the Shadow inventory thread some guy in Tiburon bought 3 places in Carmel Valley that are all listed w/NODs. I’m sure he’s not the only one.
Liar loans were popular, banks weren’t checking and pretty darn easy for an investor to say he lives there and not put 20% down. Heck, Rich posted Kelly’s VOSD story on fraud. People are creative, that’s for sure. They will find a way and work the system.
[/quote]While this was true during the bubble run-up, it really wasn’t true before it (when banks were actually paying attention to loan qualifications), nor will it be true going into the future (now that banks have recovered some sense). Flippers, by the way, are not, and never were, RE investors – they were RE gamblers, even if they called themselves “investors”.
We’re not talking about the same mentality. A long term RE investor pays far less attention to appreciation, and much more attention to cash flow. An investment property should pay for itself (after the initial investment). During the bubble, the flipper mentality was to leverage oneself to the hilt with as many properties as you could rob Peter and pay Paul with the mortgages, and hope that you made yourself a multimillionaire with the appreciation before the music stopped and you were left holding more mortgages than you were worth. Cash flow didn’t factor into it.
When trying to determine rental parity today, you need to imagine how a long term RE investor would view the property. A long term RE investor will look at a property using the 20% down, since that is the minimum cash they need to put in to qualify for loans (without lying) and to eliminate unnecessary carrying costs (i.e. PMI). Once a property drops to a valuation where buying it as an investment makes sense, someone is likely to do just that.
Participant[quote=jpinpb][quote=AN]But SDE just explained to you why some of us still use 20% down to compare rent vs buy. If you don’t put down 20%, you’ll have additional cost such as higher rates and PMI that doesn’t NEED to be there for a fair comparison. That’s almost like taking rental rate of month-to-month rent vs 1 year lease rent rate. It’s unnecessary. When we use buy vs rent, we want to know the best number for both side. If you want worse case number, then you use worse case for both side.
BTW, I don’t think you can get a non-owner occupied loan with less than 20% down. You might be able to put down less than 20% down, but you’ll be paying for it in the rates department. Savvy investors (not flipper) will want to put down as much as they have to, to get the best rates and not have to pay PMI to yield the best ROI.[/quote]
That all may well be true. All I can go by is what I see and there are people owning multiple properties, clearly investments and not just small time investments, and they’re 100% financed getting NODs. I just posted on the Shadow inventory thread some guy in Tiburon bought 3 places in Carmel Valley that are all listed w/NODs. I’m sure he’s not the only one.
Liar loans were popular, banks weren’t checking and pretty darn easy for an investor to say he lives there and not put 20% down. Heck, Rich posted Kelly’s VOSD story on fraud. People are creative, that’s for sure. They will find a way and work the system.
[/quote]While this was true during the bubble run-up, it really wasn’t true before it (when banks were actually paying attention to loan qualifications), nor will it be true going into the future (now that banks have recovered some sense). Flippers, by the way, are not, and never were, RE investors – they were RE gamblers, even if they called themselves “investors”.
We’re not talking about the same mentality. A long term RE investor pays far less attention to appreciation, and much more attention to cash flow. An investment property should pay for itself (after the initial investment). During the bubble, the flipper mentality was to leverage oneself to the hilt with as many properties as you could rob Peter and pay Paul with the mortgages, and hope that you made yourself a multimillionaire with the appreciation before the music stopped and you were left holding more mortgages than you were worth. Cash flow didn’t factor into it.
When trying to determine rental parity today, you need to imagine how a long term RE investor would view the property. A long term RE investor will look at a property using the 20% down, since that is the minimum cash they need to put in to qualify for loans (without lying) and to eliminate unnecessary carrying costs (i.e. PMI). Once a property drops to a valuation where buying it as an investment makes sense, someone is likely to do just that.
Participant[quote=jpinpb][quote=AN]But SDE just explained to you why some of us still use 20% down to compare rent vs buy. If you don’t put down 20%, you’ll have additional cost such as higher rates and PMI that doesn’t NEED to be there for a fair comparison. That’s almost like taking rental rate of month-to-month rent vs 1 year lease rent rate. It’s unnecessary. When we use buy vs rent, we want to know the best number for both side. If you want worse case number, then you use worse case for both side.
BTW, I don’t think you can get a non-owner occupied loan with less than 20% down. You might be able to put down less than 20% down, but you’ll be paying for it in the rates department. Savvy investors (not flipper) will want to put down as much as they have to, to get the best rates and not have to pay PMI to yield the best ROI.[/quote]
That all may well be true. All I can go by is what I see and there are people owning multiple properties, clearly investments and not just small time investments, and they’re 100% financed getting NODs. I just posted on the Shadow inventory thread some guy in Tiburon bought 3 places in Carmel Valley that are all listed w/NODs. I’m sure he’s not the only one.
Liar loans were popular, banks weren’t checking and pretty darn easy for an investor to say he lives there and not put 20% down. Heck, Rich posted Kelly’s VOSD story on fraud. People are creative, that’s for sure. They will find a way and work the system.
[/quote]While this was true during the bubble run-up, it really wasn’t true before it (when banks were actually paying attention to loan qualifications), nor will it be true going into the future (now that banks have recovered some sense). Flippers, by the way, are not, and never were, RE investors – they were RE gamblers, even if they called themselves “investors”.
We’re not talking about the same mentality. A long term RE investor pays far less attention to appreciation, and much more attention to cash flow. An investment property should pay for itself (after the initial investment). During the bubble, the flipper mentality was to leverage oneself to the hilt with as many properties as you could rob Peter and pay Paul with the mortgages, and hope that you made yourself a multimillionaire with the appreciation before the music stopped and you were left holding more mortgages than you were worth. Cash flow didn’t factor into it.
When trying to determine rental parity today, you need to imagine how a long term RE investor would view the property. A long term RE investor will look at a property using the 20% down, since that is the minimum cash they need to put in to qualify for loans (without lying) and to eliminate unnecessary carrying costs (i.e. PMI). Once a property drops to a valuation where buying it as an investment makes sense, someone is likely to do just that.
Participant[quote=jpinpb][quote=AN]But SDE just explained to you why some of us still use 20% down to compare rent vs buy. If you don’t put down 20%, you’ll have additional cost such as higher rates and PMI that doesn’t NEED to be there for a fair comparison. That’s almost like taking rental rate of month-to-month rent vs 1 year lease rent rate. It’s unnecessary. When we use buy vs rent, we want to know the best number for both side. If you want worse case number, then you use worse case for both side.
BTW, I don’t think you can get a non-owner occupied loan with less than 20% down. You might be able to put down less than 20% down, but you’ll be paying for it in the rates department. Savvy investors (not flipper) will want to put down as much as they have to, to get the best rates and not have to pay PMI to yield the best ROI.[/quote]
That all may well be true. All I can go by is what I see and there are people owning multiple properties, clearly investments and not just small time investments, and they’re 100% financed getting NODs. I just posted on the Shadow inventory thread some guy in Tiburon bought 3 places in Carmel Valley that are all listed w/NODs. I’m sure he’s not the only one.
Liar loans were popular, banks weren’t checking and pretty darn easy for an investor to say he lives there and not put 20% down. Heck, Rich posted Kelly’s VOSD story on fraud. People are creative, that’s for sure. They will find a way and work the system.
[/quote]While this was true during the bubble run-up, it really wasn’t true before it (when banks were actually paying attention to loan qualifications), nor will it be true going into the future (now that banks have recovered some sense). Flippers, by the way, are not, and never were, RE investors – they were RE gamblers, even if they called themselves “investors”.
We’re not talking about the same mentality. A long term RE investor pays far less attention to appreciation, and much more attention to cash flow. An investment property should pay for itself (after the initial investment). During the bubble, the flipper mentality was to leverage oneself to the hilt with as many properties as you could rob Peter and pay Paul with the mortgages, and hope that you made yourself a multimillionaire with the appreciation before the music stopped and you were left holding more mortgages than you were worth. Cash flow didn’t factor into it.
When trying to determine rental parity today, you need to imagine how a long term RE investor would view the property. A long term RE investor will look at a property using the 20% down, since that is the minimum cash they need to put in to qualify for loans (without lying) and to eliminate unnecessary carrying costs (i.e. PMI). Once a property drops to a valuation where buying it as an investment makes sense, someone is likely to do just that.
Participant[quote=jpinpb]SDE – The 2000 price for this complex was about 200k. If it even came down to 280-300k, I’d probably do it and I think when the dust settles, it may go that low.
I know almost everyone still uses the 20% down when evaluating rents. But I’d speculate that over the past 9 years, very few purchases were made w/20% down. Yet we still use that value. I think that value was good to use b/c historically that’s what people did, was put 20% down. But I think nowadays that is archaic, IMO. But I understand that is the formula. I just think it should be updated to reality.[/quote]
The reason why 20% down is used is that, historically, long term RE investors use 20% down at a minimum (recent bubble spectators excepted) since that was pretty much the minimum for a non owner occupied investment unit. When rental rates drop significantly below that threshold carrying cost, it becomes cash flow positive for investors to step in, and so they usually generate a floor not too far below that level.
Participant[quote=jpinpb]SDE – The 2000 price for this complex was about 200k. If it even came down to 280-300k, I’d probably do it and I think when the dust settles, it may go that low.
I know almost everyone still uses the 20% down when evaluating rents. But I’d speculate that over the past 9 years, very few purchases were made w/20% down. Yet we still use that value. I think that value was good to use b/c historically that’s what people did, was put 20% down. But I think nowadays that is archaic, IMO. But I understand that is the formula. I just think it should be updated to reality.[/quote]
The reason why 20% down is used is that, historically, long term RE investors use 20% down at a minimum (recent bubble spectators excepted) since that was pretty much the minimum for a non owner occupied investment unit. When rental rates drop significantly below that threshold carrying cost, it becomes cash flow positive for investors to step in, and so they usually generate a floor not too far below that level.
Participant[quote=jpinpb]SDE – The 2000 price for this complex was about 200k. If it even came down to 280-300k, I’d probably do it and I think when the dust settles, it may go that low.
I know almost everyone still uses the 20% down when evaluating rents. But I’d speculate that over the past 9 years, very few purchases were made w/20% down. Yet we still use that value. I think that value was good to use b/c historically that’s what people did, was put 20% down. But I think nowadays that is archaic, IMO. But I understand that is the formula. I just think it should be updated to reality.[/quote]
The reason why 20% down is used is that, historically, long term RE investors use 20% down at a minimum (recent bubble spectators excepted) since that was pretty much the minimum for a non owner occupied investment unit. When rental rates drop significantly below that threshold carrying cost, it becomes cash flow positive for investors to step in, and so they usually generate a floor not too far below that level.
Participant[quote=jpinpb]SDE – The 2000 price for this complex was about 200k. If it even came down to 280-300k, I’d probably do it and I think when the dust settles, it may go that low.
I know almost everyone still uses the 20% down when evaluating rents. But I’d speculate that over the past 9 years, very few purchases were made w/20% down. Yet we still use that value. I think that value was good to use b/c historically that’s what people did, was put 20% down. But I think nowadays that is archaic, IMO. But I understand that is the formula. I just think it should be updated to reality.[/quote]
The reason why 20% down is used is that, historically, long term RE investors use 20% down at a minimum (recent bubble spectators excepted) since that was pretty much the minimum for a non owner occupied investment unit. When rental rates drop significantly below that threshold carrying cost, it becomes cash flow positive for investors to step in, and so they usually generate a floor not too far below that level.
Participant[quote=jpinpb]SDE – The 2000 price for this complex was about 200k. If it even came down to 280-300k, I’d probably do it and I think when the dust settles, it may go that low.
I know almost everyone still uses the 20% down when evaluating rents. But I’d speculate that over the past 9 years, very few purchases were made w/20% down. Yet we still use that value. I think that value was good to use b/c historically that’s what people did, was put 20% down. But I think nowadays that is archaic, IMO. But I understand that is the formula. I just think it should be updated to reality.[/quote]
The reason why 20% down is used is that, historically, long term RE investors use 20% down at a minimum (recent bubble spectators excepted) since that was pretty much the minimum for a non owner occupied investment unit. When rental rates drop significantly below that threshold carrying cost, it becomes cash flow positive for investors to step in, and so they usually generate a floor not too far below that level.
Participant[quote=FormerOwner]
One thing I’ve been noticing though is that the new home builders (the few that are still building) are charging approximately $100,000 more than the banks for the same types of houses. I don’t think the builder’s warranty and the $10,000 tax incentive is worth $100,000! What a rip. Plus, when you buy new, you’ve got to put in the yard, the pool (if you want one), the window treatments, etc. Buying a foreclosure or short sale is definitely the way I’m going to go. You just have to get a good inspector and check the place out during the inspection period.
[/quote]Based on the prices I’ve seen in Temecula, I think the REO’s are selling well below what construction costs on them would run (even in a depressed construction market with labor and materials at relatively low cost). It’s basically impossible for the builders to compete there right now (probably why a lot of builders have simply mothballed their projects there).
Participant[quote=FormerOwner]
One thing I’ve been noticing though is that the new home builders (the few that are still building) are charging approximately $100,000 more than the banks for the same types of houses. I don’t think the builder’s warranty and the $10,000 tax incentive is worth $100,000! What a rip. Plus, when you buy new, you’ve got to put in the yard, the pool (if you want one), the window treatments, etc. Buying a foreclosure or short sale is definitely the way I’m going to go. You just have to get a good inspector and check the place out during the inspection period.
[/quote]Based on the prices I’ve seen in Temecula, I think the REO’s are selling well below what construction costs on them would run (even in a depressed construction market with labor and materials at relatively low cost). It’s basically impossible for the builders to compete there right now (probably why a lot of builders have simply mothballed their projects there).
Participant[quote=FormerOwner]
One thing I’ve been noticing though is that the new home builders (the few that are still building) are charging approximately $100,000 more than the banks for the same types of houses. I don’t think the builder’s warranty and the $10,000 tax incentive is worth $100,000! What a rip. Plus, when you buy new, you’ve got to put in the yard, the pool (if you want one), the window treatments, etc. Buying a foreclosure or short sale is definitely the way I’m going to go. You just have to get a good inspector and check the place out during the inspection period.
[/quote]Based on the prices I’ve seen in Temecula, I think the REO’s are selling well below what construction costs on them would run (even in a depressed construction market with labor and materials at relatively low cost). It’s basically impossible for the builders to compete there right now (probably why a lot of builders have simply mothballed their projects there).
Participant[quote=FormerOwner]
One thing I’ve been noticing though is that the new home builders (the few that are still building) are charging approximately $100,000 more than the banks for the same types of houses. I don’t think the builder’s warranty and the $10,000 tax incentive is worth $100,000! What a rip. Plus, when you buy new, you’ve got to put in the yard, the pool (if you want one), the window treatments, etc. Buying a foreclosure or short sale is definitely the way I’m going to go. You just have to get a good inspector and check the place out during the inspection period.
[/quote]Based on the prices I’ve seen in Temecula, I think the REO’s are selling well below what construction costs on them would run (even in a depressed construction market with labor and materials at relatively low cost). It’s basically impossible for the builders to compete there right now (probably why a lot of builders have simply mothballed their projects there).
-
AuthorPosts
