Why invest in real estate??

General Real Estate Investing
81

On #1, if they have a variable but the cap is 2% higher, still does not matter. The payment won’t go up enough to kill someone who was already able to afford the payment.

On #2, I would like to hear more on this. In many places, rent is low in relation to home value and based more on location than value. I believe homes in solid areas and locations won’t experience a loss that is comparable to the home value depreciation. If the home value loss is due to an area depreciation (IE decent area turning into a hood) that is one thing but a depreciation simply because you overpaid is unlikely. Rent might follow home value to a point, but then it stops and home value keeps going. For example a home in Houston that is 100k, would rent for $1,000 or 1%. However, if the home value rose to 300k, the home would not be rented for $3,000. Therefore, if the home fell from 300k to 240k, the rent loss would not be there if it was simply an overpayment. But would like to hear more info on this one.

82

“I want to know how to research things like the rental market, housing sales, appreciation, foreclosure rate, etc…if it’s possible.”

Got Excel?

Get your hands on as much of this information as you can & begin inputting the information into Excel (your own little data base). Look in the news paper for rent ads…call & ask questions…cross reference them with county records online. Housing Sales - call appraisers & ask how much they’d charge to send you sales within a specified time range matching criterion of the type of home you’re interested in purchasing. Develop price per SF, GRM’s (more on that later), bed/bath count, quality of construction & condition. After a period you’ll begin to draw your own conclusions based on your data base.

Try Foreclosure.com & google “Foreclosure information.” Start tracking those figures for your neighborhood (& watch how they coincide with job loss in your area & rising interest rates).

Detroit: Don’t know much about the area though I’ve heard it referred to as the “Rust Belt” due to all the job loss in manufacturing (which I doubt will be coming back anytime soon). The drop off in new home construction you’re seeing is probably a result of all the job loss. Look for demographic predictions online…find out who the areas demographer is.

Residential construction permits are dropping off in many areas that have experience brisk appreciation of late. That’s an affordability issue–your area appears to be job loss, however, I’d be very cautious in that case.

Look to areas that are experiencing the opposite affect…actually gaining population due to job growth…Seattle Region for instance.

Best of luck,

-Infowell

83

the annual cap on variable loans is usually 2%. the lifetime is more like 6-8% over your original rate. for a start rate of 4%, your payments could go up over 150%. plus the interest only part then starts to include principal payments.

its interesting you mention houston. houston is undervalued. i doubt it will drop below its current 150k price range. however CA is overvalued. once rates start going up, prices will drop. people will no longer pay 450k for a 2 bedroom condo thats rents for 1650/mo and costs 4.5k to keep.

84

Infowell, thanks for the excellent info.

regards, Tony

85

“CA is overvalued. once rates start going up, prices will drop. people will no longer pay 450k for a 2 bedroom condo thats rents for 1650/mo and costs 4.5k to keep.”

That’s opinion & conjecture.

I submit that California IS NOT “overvalued,” anymore than Houston is “undervalued.” Homes are selling for Fair Market Value. The reason they’re selling for so much in California is because of an imbalance in supply vs. demand (this is the case in many hot markets around the country).

Valuing properties by the Income Approach (how much you can get in rent in relation to Price) in some areas of the country is ill advised at this time. We are, and have been in a new paradigm, and the Sales Comparison Approach is (and always has been) the best indicator of value for Residential Property.

Definition Of Market Value: The most probable price which a property should bring in a competitive and open market under all condition requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: (1) buyer and seller are typically motivated, (2) both parties are well informed or well advised, and each acting in what they consider their own best interest, (3) a reasonable time is allowed for exposure in the open market, (4) payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto, and (5) the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions * granted by anyone associated with the sale.

That’s NOT TO SAY that any home which sells with “special or creative financing” is not an arms length transaction.

Moreover, I don’t believe prices will drop when rates start going up…not unless rates go up to prohibitive highs…which I don’t believe they will.

In ‘99’ rates were over 8% (near 8.5%) and I was as busy as could be…people were buying homes like crazy. That’s because they had more discretionary income as the economy heated up causing rates to rise.

-Infowell

86

infowell, to draw a parallel with the stockmarket, your argument is exactly what the proponents of the efficient market theory claim.
however, as warren buffet mentioned, the market is usually efficient, but it isnt always efficient. and the difference between the 2 is night and day.

there is no shortage of housing in California. there is a shortage of affordable housing where poeple dont have to pay 80% of their income to afford a place to live. this is unsustanable and so i’m forced to disagree with you. its nice you can quote academic definitions, but academic people often research what is measurable instead of what is meaningful.

market value is meaningless in determining future values. affordability is more important.

87

infowell-- just curious and i’m not trying to be antagonistic or anything, but if you were an agent in southern calif. (particularly orange and san diego counties) and they asked you where you expect prices to be in 2, 3, 5 or 10 years, what would you tell them.

in 1999 when interest rates were 8% or more (still low on a historically basis), an entry level home in south orange county sold for about $200,000. at 8% with 10% down, PITI+Association would be about $1,550 per month. now in 2005, that same house is about $600,000(go figure) and jumbo rates are around 6%. Now PITI, with 10% down, is about $3,800.

current median household income in south orange county is about $85,000/year ($7,083 per month). 6 years ago, at 5% increase per year (which is way on the high side), average household income would have been $63,000. front end ratio now vs. 6 years ago is 53.6% vs. 29.5%. no lender in their right mind will qualify a buyer with a 53.6% front end ratio.

based on the above and taking into consideration that approx. 11% of orange county buyers can afford to buy their homes at current prices, how can prices increase significantly from current levels.

i think most buyers are paying current prices because they think prices will go up 10%, 15% or even 20% per year. and most buyers in this price range in orange county aren’t putting down 10%. they’re getting interest only loans, 100% loans, Option ARM loans, etc.

i’m really hoping for the best because this area has always been so dependent on real estate.

88

great analysis luaprenraw. unfortunately many people dont take the time to consider these numbers and just go off recommendations they hear from other people.

89

I would submit that over and under value has a lot to do with the area’s economic factor. For example, let’s take the OC. There are many people in that area that make a very solid income. There are many that are self-employed and make a high income. There are many opportunities, either in area or a small drive away.

So a $600,000 home in the area is highly doable. Take a city in Ohio, those home prices would be tougher to realize because the job market is not all that and the locale is much different.

A $4000 mortgage here on the west coast is something that is very possible. However in other places like Ohio, it would only appeal to an extremely small demographic.

The point was you can not dollar cost compare state to state and be accurate. A $600,000 home in the OC may, with adjusted factors, be the same as a $200,000 home in Houston, just as an example.

Houston is a deal because it has the second lowest cost of living among all major US cities. :smiley:

90

i disagree with this point too.

across the nation, the median household income is between 50k-70k. there are very little variations.
yes, in rancho santa fe, the per capita income is 124k[so each holdhold being 2.2 people the median household income is now 272k] but the median home price is also over a million dollars.

so why would a family in OC making 120k spend 1 million for a house that would cost say 250k in
austin ? [these are examples not hard figures] they might today but they may not in future. especially
if they’re self employed and can live anywhere. they’ll probably move to a cheaper place especially
if they can save 50k/yr on housing costs.

91

“Infowell, thanks for the excellent info.”

My pleasure Sir!

“infowell, to draw a parallel with the stockmarket, your argument is exactly what the proponents of the efficient market theory claim.”

Arrrrgh! One more person compares the housing market to the stock market, and I’m gonna go slam my head in a door! I mean it…one more time, and Infowell gets it! :banghead:

“…there is no shortage of housing in California.”

I think if you’ll check your figures you’ll find that listings are WAY off compartively speaking (check year to date figures going back two years). THAT’S why home prices took off in these regions.

“…there is a shortage of affordable housing where poeple dont have to pay 80% of their income to afford a place to live.”

There evidently is NO shortage of people with the financial wherewithall to buy these properties and create a situation in which home prices have continued to rise.

These areas are in HIGH DEMAND, and anyone wanting to live there will HAVE TO PAY what the market dictates. I think it should be evident by now that people either have more money than previously believed and/or they ARE willing to pay more for housing for the privilege of living in these regions (new paradigm).

“…its nice you can quote academic definitions, but academic people often research what is measurable instead of what is meaningful.”

You realize you’re debating someone with 15 years experience in this business? I talk to buyers & sellers & investors everyday. My accuracy IS measured by the market (literally). I’ve an estimated 4,500 valuations under my belt to date (everything from manufactured housing & Beaver Ponds to multi-million dollar waterfronts in the San Juan Islands). Go back & read the definition of market value…THAT IS what drives the markets…THAT IS what’s meaningful.

“market value is meaningless in determining future values. affordability is more important.”

I think that’s about the sillyest comment in that post. Market Value IS the determining factor in past, present & future markets. Always has been…always will be. Here’s an example:

Two people walking through the desert dying of thirst come across an ice cold water stand. The vendor has only one glass of water left, and it’s only enough for one person. Whoever is willing to pay the most lives…the others a goner.

The ONLY way for these prices to come down from their current levels is; for something to happen to change the current supply vs. demand ratio. Interest rates have to go to unforseeable highs, and/or more product has got to come to market.

Here’s somemore bad news for “The Housing Bubble”…I’m beginning to notice Residential Building Permits in some of these areas falling off significantly. Builders are tired (presumably) of listening to the news media predict a bubble in these areas year, after year, after year. Looks like they’re (Builders) moving on to other areas of the country to ply their trade (probably worried the herd’s gonna pick up the chant…Bu-u-u-ble, Bu-u-u-ble, Bu-u-u-u-ble). That means even fewer residential units coming to those markets which should prevent a Bubble in itself.

I wouldn’t argue stagflation couldn’t pop up in some of these markets for a period, but significant depreciation?..I ain’t seeing it.

“…across the nation, the median household income is between 50k-70k. there are very little variations.”

Ohhhh Horsefeathers. I’ve got Demographic information for 29 states (nearly every county) and you couldn’t be more wrong!

infowell-- just curious and i’m not trying to be antagonistic or anything,

Not at all…the way you’ve posed the question is reasonable & you’re inviting debate (that’s healthy…maybe we can all learn).

“…but if you were an agent in southern calif. (particularly orange and san diego counties) and they asked you where you expect prices to be in 2, 3, 5 or 10 years, what would you tell them.”

I soon will be an Agent in So.Cal (I’ve interest in that area & get there often). I don’t predict where prices will be (especially past 2 years…too many variables). The shorter the term of the prediction…typically the more accurate.

I’d say, let’s keep an eye on the data. Track new listings coming to market, keep an eye on expireds & cancels (indicates upper end @ any given point in time), sales are the best indicator of value now (though it’s a bit like driving down the freeway looking in the rearview mirror if we neglect the other indicators), and keep an eye on marketing times.

My BIGGEST concern is jobs. I cringe everytime I hear one of the Presidents Men say, “outsourcing is good for America.” Our politicians continue giving away American jobs to profit, and all bets are off. Fair trade cannot be fair if our workforce is competing with 9 million slave laborers in China! >:(

“Now PITI, with 10% down, is about $3,800.”

PITI is largely a thing of the past in the new paradigm.

-Infowell

92

i wasn’t comparing housing to stocks. i was comparing your baseless arguments.

[i][b]"...there is no shortage of housing in California."[/b][/i]

I think if you’ll check your figures you’ll find that listings are WAY off compartively speaking (check year to date figures going back two years). THAT’S why home prices took off in these regions.


what does that mean? give me numbers. if you mean the DOM and inventory has doubled in past 2 years then you’re correct. if not then i dont know you mean.

[i][b]"...there is a shortage of affordable housing where poeple dont have to pay 80% of their income to afford a place to live."[/b][/i]

There evidently is NO shortage of people with the financial wherewithall to buy these properties and create a situation in which home prices have continued to rise.

These areas are in HIGH DEMAND, and anyone wanting to live there will HAVE TO PAY what the market dictates. I think it should be evident by now that people either have more money than previously believed and/or they ARE willing to pay more for housing for the privilege of living in these regions (new paradigm).


thats just your opinion. please state numbers to back your point.

You realize you're debating someone with 15 years experience in this business? I talk to buyers & sellers & investors everyday. My accuracy IS measured by the market (literally). I've an estimated 4,500 valuations under my belt to date (everything from manufactured housing & Beaver Ponds to multi-million dollar waterfronts in the San Juan Islands). Go back & read the definition of market value...THAT IS what drives the markets...THAT IS what's meaningful.
you're experience is irrelevant to the argument. what if i said i had 25 years experience investing in the SoCal market. would that alone make me correct??? you're just an agent. you're opinion is therefore biased. again, please state numbers backing your statements.
[i][b]"market value is meaningless in determining future values. affordability is more important."[/b][/i]

I think that’s about the sillyest comment in that post. Market Value IS the determining factor in past, present & future markets. Always has been…always will be. Here’s an example:

Two people walking through the desert dying of thirst come across an ice cold water stand. The vendor has only one glass of water left, and it’s only enough for one person. Whoever is willing to pay the most lives…the others a goner.


what a stupid argument. i’m not even going to answer that coz its meaningless.

do you know what intrinsic value is??? its when you buy a house with payments of 1k and you
rent it out for 1k. thats what a fair investment is. everything else is meaningless. but since you peddle
homes for a living you’re not going to tell investors that are you.

[i][b]"...across the nation, the median household income is between 50k-70k. there are very little variations."[/b][/i]

Ohhhh Horsefeathers. I’ve got Demographic information for 29 states (nearly every county) and you couldn’t be more wrong!


well when u get the remaining 21, please do share.

I soon will be an Agent in So.Cal (I've interest in that area & get there often). I don't predict where prices will be (especially past 2 years...too many variables). The shorter the term of the prediction...typically the more accurate.
half of all realtors in the US are in california. so you'll be another one. good luck to you.
PITI is largely a thing of the past in the new paradigm.
thats a pretty prophetic statement. are you willing to bet on that???

kinda reminds me of the stock market in 2000 when people said stock with 1200 PE would still go up.

have you read the book “popular delusions and madness of crowds”. it was written over a hundred years ago and has documents 400 yrs of human psychology regarding hysteria related to investments. investing is 90% psychology regardless of the market you invest in. but i doubt you’ll understand that until the home values actually drop in Socal over the next 4 years.

but why dont you put your money where your mouth is. make a bet with me that prices in Socal won’t go down over the next 4 years.

if not, then i guess i’m done arguing with you

93

infowell is delusional and I would not waste another breath arguing with him. He is standing on his soapbox yelling “BUY BUY BUY!! WHO CARES HOW MUCH IT COSTS, IT WILL TRIPLE IN VALUE NEXT YEAR!”

There is a difference between “investors” and “speculators”. I would not take advice from some sales agent on a message board. You must do your own research.

94

“i wasn’t comparing housing to stocks. i was comparing your baseless arguments.”

I cannot debate you…you do not debate.

You continuously make caustic & antagonistic remarks. You evidently have problems with Real Estate Agents…not my problem.

No one can learn anything constructive this way, but I will address one comment…if for no other reason to show others you’ve little idea what you’re writing about:

“…do you know what intrinsic value is???”

Yes, but you don’t. Intrinsic value is–personal value. It means what’s valuable to one person–may not necessarily be valuable to another. Such as a home where your children were born & raised, or perhaps a home your parents lived in & willed to you. You may not want to sell at any price because, you have an intrinsic (personal) attachment.

[i][b]“…you’re just an agent”

“…but since you peddle homes for a living you’re not going to tell investors that are you.”

“…if not, then i guess i’m done arguing with you”[/b][/i]

I don’t “peddle homes”…I’m an Agent for my valued clients & they value my experience & knowledge.

Please try to control yourself in the future. Debating is not an argument, and if you’d like me to address your queries & comments…then you’ve got to act like an adult.

-Infowell

95

[i][b]"infowell is delusional and I would not waste another breath arguing with him. He is standing on his soapbox yelling “BUY BUY BUY!! WHO CARES HOW MUCH IT COSTS, IT WILL TRIPLE IN VALUE NEXT YEAR!”

“There is a difference between “investors” and “speculators”. I would not take advice from some sales agent on a message board. You must do your own research.”[/b][/i]

Again…these kinds of comments don’t allow anyone to learn anything.

“some sales agent”

Therein lies the true problem. Some hate Agents (for whatever reason).

And I find it ironic that I’M “DELUSIONAL” when we’re talking about something (Housing Bubble) which has not materialized.

I think that blows me away more than the hatred for a profession or person one doesn’t even know. The fact that people believing in something that hasn’t appeared (Housing Bubble) can be so damned antagonistic toward others who don’t believe as they do.

-Infowell

96

How about because they don’t want to live in Austin LOL

I am self employed, have been for over a decade, and I can live anywhere in the world. The reason I don’t move to Ohio and live in a mansion for 200k (or whatever) is because I don’t like the place. I like Vegas, thus I live here. I like SoCal, thus I have been there. Home costs are not the end all to everyone.

Why would you leave say Aliso Viejo (OC SoCal) for Austin, Texas? Unless you were forced to, simply a change in home prices is not enough. If you live in Austin don’t get mad at me. I think Texas is nice, but if I had to choose between the two, I take AV every day of the week and twice on Sunday. Unless of course I would be pushing it financially to live there then going elsewhere like Austin might make sense.

You also need to watch those financial numbers ESPECIALLY in areas where there are a lot of self-employed people. Real income from SE people is rarely reported.

Also we need to talk opportunity. Depends what you do for a living but in the OC, there is much more high level opportunity than in Austin.

I could go to Houston and buy a nice 2000+ sq ft home for probably $130,000. I could pay cash for it and live free and clear the rest of my life. Why don’t I? Because I would have to uproot my family, break all my local connections, be further away from friends and family that live here and SoCal, endure a climate change, and basically know no one. If I am not forced to make that move, why would I? To save some money?

I do believe that there are a lot of people in places like California, New York, and other high priced markets that will be forced to move because the dream of home ownership has all but disappeared for them. These people are also having trouble getting by in their high CoL area and a place like Texas is mighty appealing. If they can get a job in a low CoL area and own a home, they are off.

Location Location Location

Anyway, I just wanted to explain why someone, like a self-employed person, does not just up and move to the place with the cheapest home cost.

97

Infowell can you please let me know where you get your demographic info I’ve had a hell of of time locating some good info.

98

Mr. Dizzo-

The system I use is available to Real Estate Professionals (loan and escrow officers or licensed agents of the Board of Realtors).

If you’re not one of the above…try Googling your states Chief Demographer.

Here’s what the Data Bank I use offers:
Reports
Property Details
Quick Comps
Comparable Sales
School Report
Street Maps
Plat Maps
Community Profile
Nearby Homeowners
Demographics
Neighborhood Profile
Historical Sales Data

You can get this information yourself by letting your fingers do the walking across your keyboard (Googling).

Here’s some links you might find useful
www.fanniemae.com
Explore this nationwide lender’s mortgage services in single and multifamily housing, as well as community-development markets.

www.hud.gov
In addition to a description of this federal agency and it’s housing programs, the hud site offers tips on buying a home, shopping for a mortgage, and finding affordable rental housing.

www.titleweb.com
This web site is an online source for information on title industry technologies and trends, with a special focus toward Internet commerce.

www.freddiemac.com
This site offers a great deal of information about Freddie Mac and its efforts to provide homeowners and renters with lower housing costs and better access to home financing.

99
"...do you know what intrinsic value is???"

Yes, but you don’t. Intrinsic value is–personal value. It means what’s valuable to one person–may not necessarily be valuable to another. Such as a home where your children were born & raised, or perhaps a home your parents lived in & willed to you. You may not want to sell at any price because, you have an intrinsic (personal) attachment.

infowell, you are a sales agent, not an investor. from your point of view
you are correct. from an investors point of view, you are wrong.
as an investor, any investment that makes me money is a good investment. any investment that doesn’t is a bad one. emotion plays
no role in successful investing.
intrinsic value is the economic value of an investment. it does not factor in how pretty it looks, whether it shines or whether my grandma gave it to me. please do not mislead new investors with your sales pitches.
since you’re getting you’re CA license i can see why you don’t want people to be scared out of the CA market,but please learn what
INVESTORS want. investors do not want to subsidize their tenants for 5 years. they want to make money. why is this concept so difficult for you to grasp???

100

“…infowell, you are a sales agent, not an investor.”

:zzz:

Like the guy who said, I invested using nothing but interest only loans…you know nothing about me.

The only reason I choose to engage you is because you give such obviously incorrect information on such a regular basis. It has me wondering whether you really invest at all.

The example I gave was only one of hudreds…perhaps thousands of possiblities. Intrinsic value is “personal value.”

It’s an appraisal term. I’m State Certified Residential Appraiser w/15 years experience…and you are?

From “The Language of Real Estate” Fifth Edition, by John W Reilly.

Intrinsic Value: An appraisal term meaning the result of a person’s individual choices, and preferences.

I wish you’d quit humiliating yourself & highjacking threads. Wouldn’t your time be better served abusing Agents in Utah?..one of the few states where homes in most areas are actually depreciating.

-Infowell