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SK in CV
ParticipantBG, I just helped a friend get his retirement stuff in shape, which included refinancing his house. He’s retired, he was self-employed until December. (It would have been only mildly easier if he had done this before he retired.
His house in Mission Hills is worth around $1M.
He owes $300K on it, and just wants to refinance to a lower rate.
He has about $14K a year in SS benefits.
He has about $1M in cash/marketable securities.
He has an IRA with $450K in it that he doesn’t plan on touching until he has to.
We moved most of his cash/marketable securities into blue chip stocks yielding an average of 2.75%/yr, (which was NOT hard to do) so total income of $27,500. Just provided his monthly broker statement that showed the annual income, and they accepted it, irrespective of what his interest and dividends were in the prior year.
Total verifiable income of about $41K.
He got a 30 yr, fixed rate loan with payments of about $875 a month. Closed the loan in less than 30 days beginning to end with Quicken Loans.
Participant[quote=bearishgurl][quote=SK in CV]BG, what would be the circumstances where someone still employed could only use $4K to $7K or mortgage interest? Are you saying it’s in addition to their other home in their previous locale, and the total debt would otherwise exceed $1.1M?[/quote]
The homebuyer is leaving their job soon but hasn’t yet applied for “retirement” so his/her employer doesn’t know their plans. But they want to qualify for a mtg for their “retirement home” while still employed. In recent years, it has been too hard for a borrower to qualify for a prime mtg on excellent terms while “cash-rich” but not able to document enough income to qualify for even for a ~$200K mtg. Thus, it is better to attempt to qualify while *still employed* but just take out enough mortgage to generate a MID to shield taxable retirement income and investment income (usually lower than income while still working).
Native San Diegans residing in other counties/states who wanted to return to SD weren’t and aren’t stupid. When they saw and heard of properties in their “home turf” being listed at prices often at or below the land value, many jumped in with offers, all the while knowing they had to be “all cash” in order to “win” the bidding wars. They figured they could “refi” to a mtg they were comfortable with in “retirement” AFTER COE and successfully did so.[/quote]
So it actually has nothing at all to do with being able to use $4K to $7K in mortgage interest, only the amount of the mortgage they’re comfortable with?
If they’re seriously “cash rich” and collecting SS, then they would have no problem qualifying for a $200K mortgage. They’d need income of less than $35K a year.
ParticipantBG, what would be the circumstances where someone still employed could only use $4K to $7K or mortgage interest? Are you saying it’s in addition to their other home in their previous locale, and the total debt would otherwise exceed $1.1M?
ParticipantCAR…what I questioned was this:
As you probably already know, these “all cash” buyers are often leveraged. Just because they aren’t using purchase mortgages, don’t be fooled into thinking they are actually using 100% unleveraged funds.
With the exception of the previously addressed Blackstone debt, I see nothing in any of those articles that would support what you said. Some are using cash, (a much lower % btw, than has been thrown around by some on this board) and some are financing their transactions. But none are claiming (pretending?) to be all cash buyers, and subsequently financing the properties. At least if they are, it hasn’t been reported.
And I’ve seen nothing anywhere about redemption rights of investors.
ParticipantOther than a reference to the same $2 billion borrowed by Blackstone a couple times, I don’t see much in there about debt. And that’s not debt secured by the individual properties. Blackstone has the wherewithal to repay $2B, so I don’t really think that can be called traditional leverage, at least not in the sense that it can create a distressed market.
ParticipantNever heard of it, though it may exist. Unlikely it would be in the deed. But if it’s not in any of the documents you agree to, it won’t apply.
ParticipantWhat waiting period?
Participant[quote=no_such_reality]Adame, if you really don’t want to try the landlord thing I would probably sell, and sell now. The market for right priced houses is hot. It might still go higher but it could also cool quickly and already shows signs of doing so.
I wonder where the tipping point is myself, at what point do the prices go up high enough that the seller volume comes back? That’s a primary driver on the mania right now is insanely low level of inventory.
That said, in interest of keeping the property, what about a property management firm? Could it cash flow with a PM in place? If not, then sell, IMHO.[/quote]
I don’t disagree with the conclusion here, but seller volume IS back. Houses are going onto the market close to as fast, maybe faster, than they have for any time in the last 3 years. They’re just selling faster. Conventional sales volume is up quite a bit.
Participant[quote=CA renter]
Stay strong, Kev. As you probably already know, these “all cash” buyers are often leveraged. Just because they aren’t using purchase mortgages, don’t be fooled into thinking they are actually using 100% unleveraged funds. Not only that, but they will have redemption requests at some point. If they are leveraged on top of that, look out.[/quote]
Any evidence of this? I’ve only seen a few private equity prospectuses, and those that I’ve seen do have provisions allowing leverage, but there’s no indication it’s in their plans, and their structure makes borrowing highly problematic. And they have no redemption provisions. Sales of the properties lay entirely at the discretion of management. I don’t doubt it’s possible, I’m just curious why you think they’re leveraged and what the structure of that leverage is.
ParticipantYou can quit picking on him. You’ve made your point.
Participant[quote=kev374]You should realize that there have been interesting articles in the press lately about investor enthusiasm dying down slowly. Do you know that rents are actually deflating now because there are simply too many rentals and it’s expected to get worse. Think about it logically, when rental supply increases rents WILL go down, this in turn causes investments to generate lower returns.
When investments generate lower returns the urge to cash out accumulated equity increases and people start dumping their properties. This dumping starts a deflationary cycle leading to even more dumping and even lower prices.
http://finance.fortune.cnn.com/2013/04/05/housing-rentals-investors/
http://www.cbsnews.com/8301-505145_162-57577568/investors-cooling-on-housing-market/
A mania cannot be sustained forever, this is common sense…eventually things cool off, some investors will get out in time and make a killing at the expense other POOR SOULS who thought paying half a million dollars for a dump in a blue collar neighborhood was a good idea!!!
The only shame is that these POOR SOULS will go crying to the government about how they are suffering because they are now losing their homes. They did not bother to use a thing called “Reason” that would’ve told them that an entry level house in a middle class neighborhood with teachers and accountants living in it should not cost half a million dollars![/quote]
You have to be really careful when looking at national real estate trends and trying to squeeze the numbers in ANY locality.
San Diego, in particular, is NOT the rest of the country. Both the timing, velocity and degree of volatility is likely to be different. Others here are in a much better position than I to predict how different and which direction, but I guarantee you that SD will not match national trends in any of those variables.
My guess is that investors, particularly the large PE investors, never did much buying in SD with an eye on cash flow, particularly in the above median price ranges. (Recent data reflecting the cash-only buyer median prices paid in So Cal bear this out.) So I think it’s unlikely that SD area rents for above median SFR will suffer sharply, and even less likely to have any adverse affect on prices by liquidating their assets.
Participant[quote=bearishgurl] At those prices, USD students aren’t usually heavy party animals.[/quote]
Times have changed. When I was in college they were way crazier than us Aztecs. Confession, if they went, took hours and hours. And that was the guys. Women, even longer.
Participant[quote=no_such_reality]Really? He’s talking about trading when it’s 20% over-valued. You really think he’s talking about doing it on an upside down asset?[/quote]
I’m not sure what this means really. I don’t think a property is ever over-valued, if it will sell at that price. I know he’s not upside down, but that has nothing to with whether he’s sitting on a gain or loss or even a break even. Regardless, the question has been answered (I think).
Participant[quote=FormerSanDiegan]
This wasn’t directed at me, but there is a big difference.
In 2005/2006 the Price to income ratio in San Diego was at an all-time high of about 14. ( C-S price divided by per capita income).
As of 2011 (Last time Rich updated the chart) that ratio was at an all-time low. Today it is maybe 10-15 % above those all time lows, but below historical norms.
The primary lesson that made Piggington was looking at those fundamental indicators :
– House price to rent ratio
– Monthly mortgage payment to rent ratio
– Mortgage payment as percentage of income
– Price to IncomeThese are what really matter. It is dangerous to assume that recent price appreciation is either indicative of future increases or indicative of a speculative bubble without looking at the underlying fundamentals, such as the ratios listed above.[/quote]
Very nice job. That’s all.
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