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Old 07-26-2010, 06:43 AM
 
3,861 posts, read 3,317,624 times
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Quote:
Originally Posted by track2514 View Post
..
Ok I think this is the last thing, are you really comparing the Twin Cities to Detroit and Cleveland? I hope this is not the case and if you are, please look at the diversity of employers in this area compared to the steel and car industries of the aforementioned cities. Growing up in Pittsburgh I know what it is like to live in a area dependent on one main industry and it is much different than here. Oh and I know it is not the best barometer of the economy, but it is one indicator, gas prices seem to be going down again, which is very rare in the summer and usually means the boys on Wall Street are a little nervous. Lets just hope this is temporary and things start getting better soon. I will continue to be the resident real estate and economy optimist for this forum.
If the best we got is "hoping" this is a temporary thing we are in trouble.

We are diversified in MN as compared to Detroit and Cleveland. But you still are not grasping my point. In 1990, a guy could have bought a home in Cleveland or Detroit and you would have told him that his purchase would be solid in the long run. You could not have been more wrong. They had no idea what was coming.

Who says that the home on Lake Minnetonka won’t go down because the hyper land appreciated since 1980 to 2001 (forget the bubble years)?? We are talking about $500K to $1M lake lots with 100 foot of frontage. I don’t care if you bought one tomorrow at pre-bubble prices, there are risks moving forward that the “long run” may not cure. In fact, if you got a lake Minnetonka home for 2001 pricing I’d say you are more likely to make money by fixing it and flipping it if we bounce back some before another potential fall. (It’s common for false starts to happen in any long term downturn.)

In order for appreciation to happen beyond inflation on the price of land we need population growth. What happens if we continue to burden businesses and the MN metro area stops growing at the same rate?? Worse yet, what happens to values when more people leave than enter an area?? Think Buffalo, New Orleans, Dayton Ohio, Waterloo IA, etc.

I’ve explained why the stick built portion of a home (not the land) was a net loss for my home in Andover once I figured in maintenance and this is over the best of times. I could layout thousands examples like mine. Common sense thinking would expect that to be the case other than what we have all been programmed to believe. And even if I bought in Plymouth which is rated one of the best cities to live in the entire country, I would have picked up another $100K for that $23K in extra lot price. When I work the numbers in Plymouth, I’m still not covering the cost of inflation once I figure in maintenance. In summary, in rare instances homes can be an investment long term like a home purchased on Lake Minnetonka in 1980. Lake MTKA could also could be a net loss in the long term if our economy has a paradigm shift as I have laid explained could happen.

Now let’s figure in the cost of borrowing in this whole formula. Nearly everyone who borrows performs WELL below inflation. Track. If you think it’s smart to borrow, use your home equity loan, study the history of the good times and apply it to what is coming, I say go right ahead. If it doesn’t work, just bail on the banks that were underwritten by the government. What’s a few hundred more Grand on $4Trillion.
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Old 07-26-2010, 07:33 AM
 
3,861 posts, read 3,317,624 times
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Quote:
Originally Posted by golfgal View Post
So you don't like home ownership, fine, don't buy a house but I still disagree with your premise that homeownership is a expense. Over time a home is going to appreciate, period. The first home we bought we paid $42,000 in 1990, it is currently on the market for $140,000 with no major improvements since we owned the home. We bought and sold this house pretty much at the height of the housing market in that town. It has had 3 other owners since we owned the house.

Please tell me how sinking money into rent with nothing to show for it in the end is a better deal then owning a home?? I look at the first apartment we rented, at the time we rented for $400/month, our house payment was $325/month. That same apartment is now renting for $700/month. Had we stayed in that first house we would have paid it off by now with NO monthly payments but even if it had not been paid off, we still would have had a house payment of $325/month.

Then next house we bought was a 1920's Craftsman that we paid $66,000 for. That house recently sold for $220,000 with NO improvements-heck, the outside needed to be painted when we sold and it STILL isn't done.

Both of these examples are current prices-the one is on the market now (has an accepted offer, just not done) and the other sold this spring. Tell me how this is a bad deal?

We bought this house in Feb of 2006, right before the market crashed, couldn't have timed it worse. It is still worth what we have into it. It appraised for higher than what we paid and we pretty much only lost that "value". We have no plans to move and fully expect housing prices to go up before we move-when we can no longer walk up and down stairs and we are old and our grandkids will be moving our junk out of here--or, if someone gives us an offer we can't refuse.
I own three homes Golfgal. I LOVE home ownership. Re-read my posts as I don't have anymore time to explain it all over again.

I "made" money on my home in Andover too. But it wasn't an "investment".

Two of the three homes are located on water and I rent them out by the week and they both cash flow. I also own a business. So every single item I buy painfully gets plugged into Quickbooks. I can pull up reports to see what a house really costs in maintenance. You would be shocked how quickly things add up. I’m talking about my home in Andover not the vacation rentals. So I propose that you have no idea on what you really are putting into your home.

Rent is an expense and owning a home is an expense. We are also talking about averages. Not because Golfgal made money on things she bought or Track knows of a person who painted their home and sold it for $90K more. The guy who bought on Lake MTKA in 1980 really has something to brag about. People in several other communities were not so lucky. Like I said before, nothing says things will go up in the future and that was the point of all of the posts. But I realize that is too foreign of a concept for most people to grasp. Give it 5 years and see what happens.

Let’s see on how this investment stuff works for the typical person… A family buys a home for $300K and borrows $280K. They pay $261,000 in interest on that $280K assuming 5% interest. They also pay $7K in closing costs. Of course when they are paying it off, they no longer can use that money for an investment including the down payment. That’s why people who pay cash and remember what they were taught them in finance calculate opportunity cost. But they get a 30% discount on that interest. It costs $3K a year for taxes on this “investment” or $90,000. Everything will need to be replaced a time or two in this “long term investment”. In 2010, a new furnace and air is over $10K. A new roof is $10K. New Windows $15K. So what will in cost 30 years from now?



If you bought in 2006, and you didn't lose you beat the odds. But in this economy you don't know what your home is really worth until you sell it. On average, people lost 25% of their value in the Twin Cities. You bought in peak times and broke even. Go figure..
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Old 07-26-2010, 07:35 AM
 
9,807 posts, read 6,456,758 times
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Quote:
Originally Posted by designer/builder View Post
Keep in mind that interest rates can only go up from where they're at, and they'll go up fairly rapidly once the Feds determine that the economy is headed in a positive direction. That 10% you think that you might save by waiting a year will be erased pretty quickly by a 1-2% rise in interest rates...which may occur over the next 6-9 months. My opinion, for what it's worth, is that now is the time to buy given the current status of price and interst rates...you have to factor all of the pieces into your equation.
-------once the Feds determine that the economy is headed in the right direction--

---which may occur over the next 6-9 months -
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Old 07-26-2010, 07:39 AM
 
9,807 posts, read 6,456,758 times
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Quote:
Originally Posted by designer/builder View Post
I didn't say that the housing market would take off anytime soon. Interest rate charged to banks right now is at zero. That can't last forever no matter what is happening in the housing market. If the job market stabilizes and begins to rise, consumer prices will rise and, therefore, interest rates will also rise. Therefore the money you might save on a lower priced home will be wiped out by the higher interest rate you'll pay. You're right that no one can predict what will happen. However I would be prepared to buy...if you want to buy...a house at the first sign of an interest rate hike because the predictions from the Feds is that when they do start to raise rates again it will be in one point increments.
---If the job market stabilizes and begins to rise--

You are much more optomistic than the vast majority of economists and citizens.

Perhaps it has more to do with your posting name-----designer/builder.
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Old 07-26-2010, 07:41 AM
 
9,807 posts, read 6,456,758 times
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One would expect a car salesman to say now is the best time to buy a car.
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Old 07-26-2010, 08:07 AM
 
20,797 posts, read 32,833,203 times
Reputation: 9904
Quote:
Originally Posted by MN-Born-n-Raised View Post
I own three homes Golfgal. I LOVE home ownership. Re-read my posts as I don't have anymore time to explain it all over again.

I "made" money on my home in Andover too. But it wasn't an "investment".

Two of the three homes are located on water and I rent them out by the week and they both cash flow. I also own a business. So every single item I buy painfully gets plugged into Quickbooks. I can pull up reports to see what a house really costs in maintenance. You would be shocked how quickly things add up. I’m talking about my home in Andover not the vacation rentals. So I propose that you have no idea on what you really are putting into your home.

Rent is an expense and owning a home is an expense. We are also talking about averages. Not because Golfgal made money on things she bought or Track knows of a person who painted their home and sold it for $90K more. The guy who bought on Lake MTKA in 1980 really has something to brag about. People in several other communities were not so lucky. Like I said before, nothing says things will go up in the future and that was the point of all of the posts. But I realize that is too foreign of a concept for most people to grasp. Give it 5 years and see what happens.

Let’s see on how this investment stuff works for the typical person… A family buys a home for $300K and borrows $280K. They pay $261,000 in interest on that $280K assuming 5% interest. They also pay $7K in closing costs. Of course when they are paying it off, they no longer can use that money for an investment including the down payment. That’s why people who pay cash and remember what they were taught them in finance calculate opportunity cost. But they get a 30% discount on that interest. It costs $3K a year for taxes on this “investment” or $90,000. Everything will need to be replaced a time or two in this “long term investment”. In 2010, a new furnace and air is over $10K. A new roof is $10K. New Windows $15K. So what will in cost 30 years from now?



If you bought in 2006, and you didn't lose you beat the odds. But in this economy you don't know what your home is really worth until you sell it. On average, people lost 25% of their value in the Twin Cities. You bought in peak times and broke even. Go figure..
If you made money, how is in not an investment??? Even over time with improvements and general upkeep you will still come out ahead in the long run.
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Old 07-26-2010, 08:23 AM
 
Location: Cleveland bound with MPLS in the rear-view
5,531 posts, read 6,068,631 times
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Either way, with rent you are still paying for 99% of those costs (interest, fees, points, taxes, reburbishments, etc.). The difference being you pay a little more than just that or else the Landlord would be out of business (or a really good friend!). You shouldn't be paying for land or title with rent, as you never end up with those assets at any point like you would with a mortgage. So to me it's relatively even, except you pay a premium to the Landlord for giving you the "service" of not being in a long-term lease and not needing any capital up-front. It's worth it to those who can't afford a home or choose not to be tied down (like me).
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Old 07-26-2010, 10:08 AM
 
3,861 posts, read 3,317,624 times
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Quote:
Originally Posted by golfgal View Post
If you made money, how is in not an investment??? Even over time with improvements and general upkeep you will still come out ahead in the long run.

I own a home because I want to not because it was a wise financial decision. From a purist standpoint, it's cheaper to rent but you give up too many things that are obvious. I’ll take on the additional expense. If you live life studying ROI, you better not ever take a vacation because that is the worst "investment" yet I take 5-8 a year.

When people are writing out hundreds of thousands of dollars in interest and forget to mention those expenses when they describe their profit, I see why they call a home an investment. When people sell their home and forget to mention their selling costs of $20K and their $7K cost to borrow I see why they assume they made a lot of money. For me I had my home paid off in 9 years. If I worked the numbers with interest and maintenance using 30 years projections I would have lost money. Even if I bought in another area where the land appreciated much better (Plymouth) I would not have covered the cost of borrowing money. Good investments cover inflation.

There are definitely exceptions to the rules. But I find the best gains are in fast turn properties and I do consider those “investments”. I use to do a good deal of fast turns even in pre-bubble years. It’s a lot more risky to do that in times when things are falling in price. Therefore I won’t "invest" until the market at least stabilizes.
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Old 07-26-2010, 10:21 AM
 
3,861 posts, read 3,317,624 times
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Quote:
Originally Posted by west336 View Post
Either way, with rent you are still paying for 99% of those costs (interest, fees, points, taxes, reburbishments, etc.). The difference being you pay a little more than just that or else the Landlord would be out of business (or a really good friend!). You shouldn't be paying for land or title with rent, as you never end up with those assets at any point like you would with a mortgage. So to me it's relatively even, except you pay a premium to the Landlord for giving you the "service" of not being in a long-term lease and not needing any capital up-front. It's worth it to those who can't afford a home or choose not to be tied down (like me).

You need to talk with people who are currently renting out property to long term tenants. Renting by the month is very competitive. The margin has been reduced to figuring out a way to break even. The profit model is to break even on every expense. Then the gain is to pick-up the land/home appreciation that tracks with the cost of living. Currently rental homes like everything else are going down in value and rent also has downward pressure in specific areas of MN.

Nearly all rentals are losing money because their properties are deprecating. The market will dictate what a property will rent for not what it costs to make money or break even.
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Old 07-26-2010, 10:37 AM
 
Location: Cleveland bound with MPLS in the rear-view
5,531 posts, read 6,068,631 times
Reputation: 2226
You are 100% correct, except any business owner WILL find a way to do more than break even or else they will quickly be out of business. So either: rents will increase, demand for rent will increase because it's relatively cheaper, or rent will be in short supply due to lack of a profitable enterprise. Either way prices will adjust. Gotta love the free market!
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