PeakOil is You
THE US Housing Thread (merged)
by Leanan » Tue 03 May 2005, 13:12:08
It's the low interest rates that are making real estate so attractive now. A lot of people have adjustable rate mortgages, either because they don't qualify for fixed-rate, or because they think they can "flip" the property quickly, before the interest rates go up.
Once interest rates start rising, the real estate market will cool down quickly. People won't be able to afford their mortgage payments any more, and it will be a lot harder to flip investment properties.
When everyone is investing in it, when it seems like a can't-lose proposition, when people start thinking it can only go up, never down - that's when it's a bubble about to pop.
Once interest rates start rising, the real estate market will cool down quickly. People won't be able to afford their mortgage payments any more, and it will be a lot harder to flip investment properties.
When everyone is investing in it, when it seems like a can't-lose proposition, when people start thinking it can only go up, never down - that's when it's a bubble about to pop.
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by RiverRat » Tue 03 May 2005, 14:49:18
I’ve invested in real estate off and on over the years.
I knew it was time to get out when I recently had a conversation with a high school drop out that was hell bent on investing in real estate... 'like the guy on late night tv does’.
Even the local mail carrier put a ‘bug in my ear’ about how to invest in real estate. I replied to him in my fake naive voice… ‘wow… really … that sounds too good to be true’. He said to me … ‘yea … I’m gonna make a killin’.
I knew it was time to get out when I recently had a conversation with a high school drop out that was hell bent on investing in real estate... 'like the guy on late night tv does’.
Even the local mail carrier put a ‘bug in my ear’ about how to invest in real estate. I replied to him in my fake naive voice… ‘wow… really … that sounds too good to be true’. He said to me … ‘yea … I’m gonna make a killin’.
If ...'If's' and 'But's' ... were Candy and Nuts ... we would all be happy and fat !
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by dauterman » Tue 03 May 2005, 18:54:45
Hi,
I don't know about the rest of the country but I know about Norfolk, VA. I bought a triplex (3 unit apartment building) there in 1993 when I was in school. Paid $83,500 for it. The real estate market in Norfolk at the time was depressed - properties were staying on the market for over a year, sales prices were progressively declining, lots of foreclosed properties on the market, etc.
The Norfolk economy is entirely dependant on the Navy Base and in 1993 there was talk that the BRAC (Base Realignment and Closure Comission) was seriously considering closing the base and sending the ships to Jacksonville, FL. No one was buying property at all in Norfolk because of the risk the base could close.
I lived in one unit of the triplex, rented the other 2 units out. Had it appraised in 2000. The real estate agent said it should sell for $100,000.
Been out of the Norfolk area since that time (overseas). The property was under management by a real estate company in Norfolk and I had very little contact with them due to being overseas. They ran the place by themselves. The property made about $600 a month (rent minus expenses minus management fee) which they deposited into my checking account and sent me a statement monthly.
When I got back into contact with the real estate agent in Nov., 2004 he said that the real estate market in Norfolk had turned white hot - exponentially increasing prices, fast turnover of property on the market, etc. He said my property should sell in the $160,000 range but that I should list higher and be prepared to negociate down into that range. At this point, it looked like I would not be returning to the Norfolk area so I listed it for $199,000 which I thought was insanely high.
Two different parties submitted offers for the full asking price within two days of the listing at $199,000. I could not believe it. This to me is completely insane. I do not know what these people are thinking offering that much for a property that nets $600 per month. The party that purchased the property was planning to knock it down and build a shopping center.
Needless to say, I accepted the offer, the sale closed in Jan., 2005 and I am laughing all the way to the bank.
Maybe being overseas for so long gives me some insight into this that I would not have had if I'd been in the continental US. I think what is going on with the real estate in Norfolk, VA is insane and clearly a bubble. The sales prices are becoming progressively disconnected from the rental prices of the properties.
I am renting right now and figure that nowadays renting is a better deal than buying real estate while the prices remain so high.
I don't know about the rest of the country but I know about Norfolk, VA. I bought a triplex (3 unit apartment building) there in 1993 when I was in school. Paid $83,500 for it. The real estate market in Norfolk at the time was depressed - properties were staying on the market for over a year, sales prices were progressively declining, lots of foreclosed properties on the market, etc.
The Norfolk economy is entirely dependant on the Navy Base and in 1993 there was talk that the BRAC (Base Realignment and Closure Comission) was seriously considering closing the base and sending the ships to Jacksonville, FL. No one was buying property at all in Norfolk because of the risk the base could close.
I lived in one unit of the triplex, rented the other 2 units out. Had it appraised in 2000. The real estate agent said it should sell for $100,000.
Been out of the Norfolk area since that time (overseas). The property was under management by a real estate company in Norfolk and I had very little contact with them due to being overseas. They ran the place by themselves. The property made about $600 a month (rent minus expenses minus management fee) which they deposited into my checking account and sent me a statement monthly.
When I got back into contact with the real estate agent in Nov., 2004 he said that the real estate market in Norfolk had turned white hot - exponentially increasing prices, fast turnover of property on the market, etc. He said my property should sell in the $160,000 range but that I should list higher and be prepared to negociate down into that range. At this point, it looked like I would not be returning to the Norfolk area so I listed it for $199,000 which I thought was insanely high.
Two different parties submitted offers for the full asking price within two days of the listing at $199,000. I could not believe it. This to me is completely insane. I do not know what these people are thinking offering that much for a property that nets $600 per month. The party that purchased the property was planning to knock it down and build a shopping center.
Needless to say, I accepted the offer, the sale closed in Jan., 2005 and I am laughing all the way to the bank.
Maybe being overseas for so long gives me some insight into this that I would not have had if I'd been in the continental US. I think what is going on with the real estate in Norfolk, VA is insane and clearly a bubble. The sales prices are becoming progressively disconnected from the rental prices of the properties.
I am renting right now and figure that nowadays renting is a better deal than buying real estate while the prices remain so high.
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by Roy » Wed 04 May 2005, 13:56:26
Me too. I just sold my house last week! Prices in my neighborhood were dropping fast due to "comps". Seems that there 8 foreclosures in my neighborhood (middle class subdivision) in the last 12 months and those all sold for less than $80000. Ouch. I got $129k for mine. We bought it for $98k in 1999, invested roughly $25k in repairs and rennovations.
We didn't make much on it. But I felt like prices would soon go back to the 100 range in the near future. I just don't see them continuing to increase indefinitly like so many people I talk to.
They question me selling. I sold because of fear of the bubble bursting, and to facilitate an easier move out of this area once we find the right place. I'm renting now only 1 mile from my job. Nicer neighborhood, slightly smaller house, with a big yard which, I'm happy to report has a thriving garden now installed by myself and my wife.
We are downsizing in many ways. That was one. No moe $90k of debt hanging over our heads from that. Now all that's left is my wife's school loans and one car. We are debt free in 13 months, provided both of us can keep our jobs for that time period. Turning a 25 year loan for law school into an 18 month loan, Of course we're biting the bullet now in terms of discretionary income. But it does feel good knowing that we're well on the way.
I'm not buying another house till the prices come down and I can pay mostly cash for it. that is again assuming that there isn't some sort of catastrophic event that crashes the economy in the near term. My gut feeling is that it won't really get bad here till about '07. I hope I'm right.
Roy
We didn't make much on it. But I felt like prices would soon go back to the 100 range in the near future. I just don't see them continuing to increase indefinitly like so many people I talk to.
They question me selling. I sold because of fear of the bubble bursting, and to facilitate an easier move out of this area once we find the right place. I'm renting now only 1 mile from my job. Nicer neighborhood, slightly smaller house, with a big yard which, I'm happy to report has a thriving garden now installed by myself and my wife.
We are downsizing in many ways. That was one. No moe $90k of debt hanging over our heads from that. Now all that's left is my wife's school loans and one car. We are debt free in 13 months, provided both of us can keep our jobs for that time period. Turning a 25 year loan for law school into an 18 month loan, Of course we're biting the bullet now in terms of discretionary income. But it does feel good knowing that we're well on the way.
I'm not buying another house till the prices come down and I can pay mostly cash for it. that is again assuming that there isn't some sort of catastrophic event that crashes the economy in the near term. My gut feeling is that it won't really get bad here till about '07. I hope I'm right.
Roy
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by Revi » Wed 04 May 2005, 14:18:31
Maybe the reason the housing market went up so much in the US is the fact that the dollar has lost 28% of it's value since around 2000. That pile of wood and land is worth more just because the dollar is worth less. Is that possible? Let me know what you think.
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by arretium » Wed 04 May 2005, 15:16:50
$this->bbcode_second_pass_quote('', 'B')een out of the Norfolk area since that time (overseas). The property was under management by a real estate company in Norfolk and I had very little contact with them due to being overseas. They ran the place by themselves. The property made about $600 a month (rent minus expenses minus management fee) which they deposited into my checking account and sent me a statement monthly.
You wrote that you sold the triplex for $200K. That was a killing given the price you paid for it. That's an enormous profit. If I were in your shoes, I probably would have done the same thing.
On the other hand, I still would have thought very carefully about it. Rent prices tend to increase over time and so does real estate values. You were clearing your mortgage payment, management fees, and still making a tiddy $600 profit. The $200K you made would earn you a bit more if you simply invested it. But you didn't have $200K, you probably had less than that because you still owed on your mortgage. It's hard for me to let free money go. That's a revenue stream that keeps coming in. Sure you probably factored in the tenant turnover rate, which I wouldn't know. But man $600 a month in free money that will keep going up over time? And the fact that your mortgage would eventually be paid off thus allowing you to clear even more cash when you sold it? That's a tough call.
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by FoxV » Wed 04 May 2005, 15:43:23
I don't know. Guessing that dueterman made $130K after everything, that's 18 years before his rent earns him the same amount of money (not accounting for repairs that will have to be made in that time).
Considering how uncertain the future is, and how important it is to be properly setup now before PO hits; I would say the decision to sell is a no brainer.
Considering how uncertain the future is, and how important it is to be properly setup now before PO hits; I would say the decision to sell is a no brainer.
Angry yet?
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by Vexed » Wed 04 May 2005, 18:09:27
Leanne wrote:
$this->bbcode_second_pass_quote('', 'A')ll the dot-com money has flowed into real estate. The exuberance is just as irrational. We've basically traded one bubble for another.
$this->bbcode_second_pass_quote('', 'A')ll the dot-com money has flowed into real estate. The exuberance is just as irrational. We've basically traded one bubble for another.
Just one bubble?
From the Los Angeles Times, April 26th, Tom Petruno writes:
"Five years from now, what will the reasonable people of 2010 recall as the great bubble of 2005?
Or will they have trouble picking just one?
The housing market has become the most discussed candidate for bubblehood this year. But unlike in 2000, when the dot-com mania had no peers, housing has some stiff competition on the financial gasp-o-meter.
The commodities market, led by oil, has had many bubble earmarks — not least a near-vertical ascent in prices until recently.
The booming Chinese economy has been slapped with the bubble label. The record U.S. trade deficit, partly an effect of China's boom, also looks bubbly in that economists say it can't keep growing, yet it does.
Some Wall Street veterans say the global bond and mortgage markets may constitute the scariest bubble of all, as investors and lenders have fallen over themselves to extend credit to companies and individuals at generously low interest rates. The creditors may come to regret it if the economy slows and many borrowers can't pay their bills.
Recently, fear of an economic slowdown left some investors wondering whether the stock market also deserved to be lumped back in the bubble camp after two years of hefty gains. Despite gaining 206 points last Thursday, the Dow Jones industrial average has seen six losing days, including four 100-point losses, in the last nine sessions.
Given that each of the bubble candidates can be linked to one another with less effort than a game of Six Degrees of Kevin Bacon, it might be reasonable to suppose they represent one mega-bubble — the totality of our economic and financial world."
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by dauterman » Wed 04 May 2005, 20:41:00
$this->bbcode_second_pass_quote('arretium', '')$this->bbcode_second_pass_quote('', 'B')een out of the Norfolk area since that time (overseas). The property was under management by a real estate company in Norfolk and I had very little contact with them due to being overseas. They ran the place by themselves. The property made about $600 a month (rent minus expenses minus management fee) which they deposited into my checking account and sent me a statement monthly.
You wrote that you sold the triplex for $200K. That was a killing given the price you paid for it. That's an enormous profit. If I were in your shoes, I probably would have done the same thing.
On the other hand, I still would have thought very carefully about it. Rent prices tend to increase over time and so does real estate values. You were clearing your mortgage payment, management fees, and still making a tiddy $600 profit. The $200K you made would earn you a bit more if you simply invested it. But you didn't have $200K, you probably had less than that because you still owed on your mortgage. It's hard for me to let free money go. That's a revenue stream that keeps coming in. Sure you probably factored in the tenant turnover rate, which I wouldn't know. But man $600 a month in free money that will keep going up over time? And the fact that your mortgage would eventually be paid off thus allowing you to clear even more cash when you sold it? That's a tough call.
Hi,
I had paid off the mortgage years ago. The monthly cash flow was $1000 rent minus $300 expenses (an average - this varied widely from month to month) minus $100 managmenet fee.
The building was built in 1954 and was showing its age. It required alot of repairs. It had a flat roof with roof leaks galore. I figured that sooner or later the repairs would end up more than the rent. Also, it would become harder and harder to attract tenants as the building became older and older.
It flooded when Hurricane Isabel hit Norfolk. Dealing with the insurance people was a nightmare - they made me fill out reams of forms and send in all receipts. They took 5 months to look the paperwork over before sending the check for reimbursement of the Hurricane damage. The Hurricane and the insurance people were the "straw that broke the camel's back" for me and I decided to sell.
In the end the return I was making on the property was 600 x 12 / 200,000 which comes out to 3.6% per year. Just not worth it. I can make that much return elsewhere with less risk and less work.
The new owner will knock down the old building and a strip mall will be build on the land. I'm kind of curious to see what it will look like when it is done.
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