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Old 04-11-2015, 01:32 PM
 
Location: Chandler, AZ
453 posts, read 1,621,753 times
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I too am in the process of buying a home in Chandler, the problem is, the one's in the price range you listed are basically in bad areas, fixer uppers, etc. Also when you do find a home and put an offer in, someone comes in and one ups you. Appraisals, one home I looked at on the market for $315,000 down to $285,000 appraised at $260,000. Like what the heck? The prices of homes in Chandler are high and to have a low ball appraisal like that was horrible, not to mention I have to now look for another property. Good luck in your search.
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Old 04-12-2015, 01:34 PM
 
Location: Amongst the AZ Cactus
7,068 posts, read 6,416,881 times
Reputation: 7729
Quote:
Originally Posted by sandy6879 View Post
All realtors I have spoken with believe that the market will be increasing in price over the next few years as more buyers enter the market (those that foreclosed or short sold their homes are at the point now where they can now get approved to buy again). Rates are still quite low. Your challenges are ones you already pointed out. Finding a home in a non-HOA at that price point isn't easy. Can you go month to month with your landlord? Or can they offer you a 3 month lease rather than a year?
I don't think I've ever met a real estate agent without at least a somewhat rosy view of the real estate market. Is it time to buy? Sure they tell me!

But yes, I agree with the logic that those who Foreclosed/short sold homes will perhaps be coming back into the market but I think the economy/if people are comfortable that they'll have jobs will determine what happens in the end.
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Old 04-12-2015, 02:05 PM
 
4,619 posts, read 9,221,716 times
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Quote:
Originally Posted by WriterDude View Post
Everyone has a different threshold for debt. Clearly you've made a value judgment that debt equates to an undue amount of risk, and that's perfectly fine. However, it's critically important to break your thinking down and understand that you're using extremely static thinking.

Debt is "free" in at least two scenarios. If the debt costs less than inflation, for example. Or if the debt is subsidizing something that generates a higher rate of return.

This is why I used the examples I did. If I borrow money from my family at 0% interest, and invest it in the stock market with a 1% gain, I'm earning money from the debt. If I borrow money from the bank at 4% interest, and that money offsets my investments that are earning more than 4%, I'm earning money from the debt. The debt is "free."

Way beyond whether the debt is "free," the debt is actually enabling me to earn the extra returns, so the debt has a reduced, even negative cost. Static thinking costs you a lot of money, and you may want to do some math to figure the cost of your debt aversion.

In the same way, one rule of thumb with people like you is to never take out a car loan. Always pay cash. However, if they're offering 0% financing, you can take the car loan and keep your money in the bank where you can use it for anything. (Or keep it to pay off the loan in case you get laid off from work.) If you've locked that money into a depreciating asset like a car, the only way you can get the money out in an emergency is to what, take a title loan? Sell the car? Liquid and semi-liquid assets are a lot more responsive.

This is one of the traps that young investors get into. They don't want the short-term "risk" that goes along with equity investments, but equity investments generate the best long-term historical returns. Because they have a long investment horizon before retirement, they can handle more ups and downs. So for young investors, it's generally better to invest early in stocks for the high multiple, and change over time into safer investments like bonds to lock in gains.

A house, on the other hand, is no longer an asset (if it ever really was). You will pay property taxes. You will pay maintenance costs. Things will break. It's more rational to think of it as a transactional asset than a static asset.

Also note that I didn't say a word about the mortgage deduction, because nobody buys houses because of the mortgage deduction. It's a factor, not the calculus. Of course, it's a meaningful factor, but so is business use of home, or any other tax deduction.

No, I believe that people buy houses for qualitative factors:
  • They want to control their environment
  • They want to lock in their cost structure rather than being subject to the whims of landlords
  • They find significant value in the space and amenities they can build into an owned space that they couldn't build into a rented space
  • They perceive tangible and intangible advantages from living in a community of homeowners rather than renters (I frequently tell my wife that "you buy your neighbors")



It's not just a principle that invested money will return more than a house. That's fact, unless you're in certain areas of the country (the coasts, basically), municipal bonds will pay more, dividend-bearing corporate equities will pay more, and so on. Plus, investments compound freely, because they're fungible. Static assets like houses gain and lose value based on other factors, such as the age of the asset. If you buy a house and paint the interior black, you will find it hard to sell that house.



Again, you're using static thinking. However, this comment makes me believe that you don't understand the difference between debt and investments as instruments. Are you only thinking about the first year? The 4% is a cost for the money. It does not compound like an investment.

Here's an example. You borrow $100,000 for a house at 4%. I put $100,000 into an investment that returns 4%.

Year 1, you get 4% of 100,000 (which represents the interest you would have paid), or $4,000.
Year 1, I earn 4% of 100,000 for my investment, or $4,000.

Year 2, you get 4% of 98,388 which represents the interest, or $3,935.
Year 2, I earn 4% of 104,000 for your investment, or $4,160.

Year 3, you pay 4% of 94,660 which represents the interest, or $3,786.
Year 3, I earn 4% of 108,160 for your investment, or $4,326.

The earnings go up each year, because they compound each year. The interest goes down each year, but in any case never increases beyond the original amount. And if I want to pull my $100,000 out, I can do it with a transaction fee. You'd have to sell your house, pay realtors, deal with people walking through your living room, and find a new place to live.

I tend to agree - I'd rather be on my side of that equation. You can have your cash tied up in a house out of fear that you'll pay someone interest. I'll have my cash compounding for me, because compounding means it earns more than the cost of the money.



Yes, precisely. The only reason anyone would stick money into a tangible asset in that environment is if they were being controlled by an overwhelming aversion to debt. In that environment (if I felt my job was at risk, or if I was looking at the possibility of getting sick, or if I was elderly), I'd take the loan at a reasonable cost and keep the cash in a form that I can use freely.



Sure, but if you strip away your debt aversion, you could be preparing yourself for an entirely different scenario in retirement. Or hey, tie up your money, no sweat, everyone has their own preferences. Just don't try to make the case that your preference is based on economic factors.

That's why I'd give the general advice that mortgage debt is cheap at this rate.
Well said and I agree (although I didn't quite read the entire post ). I know some people are more risk averse and are OK with the huge price tag for their peace of mind of having things paid off. For me however, I've always had high risk tolerance, I started investing in the stock market at 19 and bought a condo while in college and had a friend move in to pay my mortgage. Then in my mid 20's left a decent job to start my own business, so I realize many don't share my tendancy to take risks. I know that I would not be anywhere near where I am today financially without taking out debt, and my return far exceeds 5%, but I invest in real estate as well, not just mutual funds and ETF's. I think Dave Ramsey is polluting a lot of minds with his "all debt is bad" nonsense, the truth is his advise is only good for those in financial trouble and those that are not financially savvy.

Last edited by asufan; 04-12-2015 at 02:16 PM..
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Old 04-12-2015, 03:24 PM
 
Location: Leaving, California
480 posts, read 840,246 times
Reputation: 738
Quote:
Originally Posted by asufan View Post
I think Dave Ramsey is polluting a lot of minds with his "all debt is bad" nonsense, the truth is his advise is only good for those in financial trouble and those that are not financially savvy.
Totally. For what it's worth, I'm in favor of setting strict rules for people who don't know how to manage their finances. If you have an 800 FICO and a six-figure household income, it's a whole different schnitzel.

I think Steve said it pretty well, too. Everything is situational, and the key is understanding where people are coming from when they're spreading wisdom. Sometimes the wisdom they spread covers a little thinly. :-)

For some people, Arizona is an absolute steal. (Take a look at condos in Orange County, for example - 2br/2ba and 1000 sq ft for $480,000.) Or $1,000/sqft condos in San Francisco. Others, wary of another correction resulting in underwater/toxic property values, see Arizona as nothing more than a bear trap.

We're all kinda right, and kinda wrong. So whoever wins the round buys the next one. :-)
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Old 04-13-2015, 12:04 AM
 
Location: Reseda (heart of the SFV)
273 posts, read 347,737 times
Reputation: 393
Quote:
Originally Posted by jimj View Post
First off, congrats on even having this dilemma, many people can't even think of it right now (yet) due to losing their former home.

One avenue you might want to take is looking at spec homes. Builders around us are adjusting prices frequently, lately it's been downward due to lackluster buying. Are you going to find pricing as great as it was a few years ago (2009/2010)? Nope, but I believe you can find some good homes for decent prices if you look.
Actually prices in 2009, especially in the beginning of that year were still on the high side, though in freefall. The best time to buy a house in Phoenix would've been back in 2011; homes hit rock bottom in September of 2011 to be exact and were selling at year 2000 price levels.
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Old 04-13-2015, 08:19 AM
 
296 posts, read 361,772 times
Reputation: 494
My husband and I have decided to at least start the process and see what exactly we would get preapproved for and if there are houses in that price range that we would be happy with. If not this year than next and going through this process now will help us get better prepared even if we don't buy.

We spent the day yesterday gathering books on the mortgage, home buying, and inspection process and driving around looking at the outside of homes with no HOA in our price range and the neighborhoods they are in.

I'm not one to stop a lively discussion, but this discussion on the economy, debt, and interest rates is better suited to its very own thread. Please do not get me wrong, I really do appreciate the help I've received in this thread. It is just more helpful to me and others with the same question to have the other discussion elsewhere.
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Old 04-13-2015, 08:59 AM
 
4,619 posts, read 9,221,716 times
Reputation: 4972
Quote:
Originally Posted by RenW View Post
I'm not one to stop a lively discussion, but this discussion on the economy, debt, and interest rates is better suited to its very own thread. Please do not get me wrong, I really do appreciate the help I've received in this thread. It is just more helpful to me and others with the same question to have the other discussion elsewhere.
You asked about whether now is the right time to buy or not, and people are answering. Are you not aware that interest rates and the economy are big factors in the timing of buying real estate?

Other important factors are your own financial situation and the anticipated future of the real estate market, which none of us can accurately predict.

Good luck
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Old 04-13-2015, 09:17 AM
 
Location: LEAVING CD
22,974 posts, read 26,866,205 times
Reputation: 15643
Quote:
Originally Posted by Rico Valencia View Post
Actually prices in 2009, especially in the beginning of that year were still on the high side, though in freefall. The best time to buy a house in Phoenix would've been back in 2011; homes hit rock bottom in September of 2011 to be exact and were selling at year 2000 price levels.
Well I beg to differ. Paid $50 sqft in the fall of 2009 for a 2 year old home that originally sold for $125+ sqft, had several to choose from and (here in the west valley) for the most part they've not been any cheaper since.

OP, I agree with your idea to start the process and see what you have available to you. You never know, you may just run across that house deal that's too good to pass up or exactly what you've been wanting and then some.
You'll never know if you don't at least look into it.
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Old 04-13-2015, 11:19 AM
 
9,673 posts, read 11,028,153 times
Reputation: 8386
Quote:
Originally Posted by asufan View Post
Paying with cash is foolish these days when debt is so attractive. People would have to be crazy or bad at math to plunk down $300K on a house when they can borrow it for under 3.75% and put that money to work.
Put me in your category of bad at math and foolish. I don't borrow money unless it is for business (because it makes me money).


Being debt free is a wonder feeling AND IMHO, it's incredibly smart to pay cash for a home.
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Old 04-13-2015, 12:28 PM
 
Location: Amongst the AZ Cactus
7,068 posts, read 6,416,881 times
Reputation: 7729
Quote:
Originally Posted by RenW View Post
* With a 5k reserve we would have about a 18k down payment. (Certainly not 20%)
Quote:
Originally Posted by RenW View Post
I'm not one to stop a lively discussion, but this discussion on the economy, debt, and interest rates is better suited to its very own thread. Please do not get me wrong, I really do appreciate the help I've received in this thread. It is just more helpful to me and others with the same question to have the other discussion elsewhere.
If I was in your spot with the data you have presented, the < 10% down payment you have(assuming you buy a 200k house) might be an issue. I don't follow mortgage standards but the little reading I've done on them in passing is that the mortgage standards have tightened so you might have an issue with such a small down payment if you bought today. The 1st thing I'd do in your spot is start visiting mortgage/bank/credit union sites, start calling around, to see what you need for a down payment. You won't get accurate/complete information on that on this forum.....that's some digging you have to do. Also with < 20% on a down payment, I'm sure you know you might have to pay PMI.

So in short, before you start looking at any houses, I'd want to learn where I stand on my down payment situation and see if you can get a loan for that amount if you're going for a mortgage which sounds like that's the direction you're going. If it were me personally, and I was going to get nicked with PMI and such, I'd get aggressive and start socking away money to get my down payment amount up.
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