buying and only staying 4 years? (Maricopa: short sale, apartment, house)

[cmist]

Originally Posted by adolpho

Of course you would have a free place to live........(except for taxes and maintenance). I just bought a TH Condo for 22,000. The neighbor paid 152,000. I'm paying cash and I need a place to live; been staying at my parents' nice house for 7 weeks. There is no way on Earth, this is a bad investment for me. I've been trading stocks for 16 years, it's a lot of fun but there are even more risks (and you can't sleep in your stocks). I try to do wha the sheep are not doing. The sheep came in late to the bubble and got slaughtered in 2006, 2007. Buy, Buy, Buy was all you heard; including the local governments, who were growing like a malignancy. So how the heck is it a better time to rent?

I think you make a good point. I had also said originally that if you got a real bargain, it could be good deal BUT there are probably more ways to get burned if you are not careful, especially if you are going to buy in on the hype that we are on the verge of a total recovery and buy something for more than $22,000

[adolpho]

It's never a good time to pay too much. If you think prices are still going down, extrapolate your price off of the downward curve.

[cmist]

Originally Posted by adolpho

It's never a good time to pay too much. If you think prices are still going down, extrapolate your price off of the downward curve.

Good advice, but many average home buyers get charmed and buy something just because its "cute" and they can afford it.

The advice I gave was to be vigilant in a market where the prices are still turning downward. Almost all realtors will sell a buyer whatever they want rather than caution against a purchase even if its a poor investment and something they would never consider for themselves. This leaves it up to the home buyer to do their own research based on limited access to the most current comparables.

I still believe there are far more ways to get burned than profit if you just fly in from out of town and do not have insider access about the reality of the market.

[Finger Laker]

you can't paint all buyers with the same brush

right now could be a fantastic time to buy for some, not so much for others

on a 4 year curve, in this market and having to finance the purchase I wouldn't do it for the reasons stated

there is little assurance of any real gains, the amortization schedule isn't favorable at that point and there are additional costs associated with home ownership versus renting

you could very well be better off renting and then just investing the difference if you have the money for it so that way in 4 years you will be in a strong position to buy wherever you settle on a more permanent basis

with that said, there could still be circumstances that could work out ... maybe a great find property and a 15 yr note, the willingess to rent the property after moving and holding it as a more long term investment, etc

also, if I were a cash buyer I would be fairly well inclined - just because some of the costs of ownership are diminished (no interest) and market returns right now are as risky as anything and at least this way you would have 4 years of free rent (at a minimum a $24,000 value) in your favor

[adolpho]

I will have a new light rail stop 400 yards from my door in four years.

[JimPritchard]

i wouldn't recommend buying it if you only intend to live for 4 years. you should consider renting but on the brighter side, you have an investment there. So better weigh things out.

[KatrynS]

Originally Posted by Finger Laker

also, if I were a cash buyer I would be fairly well inclined - just because some of the costs of ownership are diminished (no interest) and market returns right now are as risky as anything and at least this way you would have 4 years of free rent (at a minimum a $24,000 value) in your favor

I'd say there's even more downside for cash buyers! You don't pay interest, but you do lose the interest income you could have made (which offsets the cost of rent). Plus for cash buyers there's no SHORT SALE if prices drop -- it's REAL money you are losing, rather than asking the bank to eat it and walk away.

[Finger Laker]

for any return of any substance there is risk of loss

you can get some nice homes here for say $150,000 - cost to rent out such a home would be near $800 a month

You'd need to get a constant 5% annual yield for it to provide the level of interest income to offset rent expense, which is very tough to get in 4 years on any safe instrument

I honestly don't see homes in that range dropping any further in most parts of the metro and at worst being flat in 4 years from now .... in fact, I would probably say that would be my expectation, flat to 5% appreciation from todays prices in 4 years for homes that are already in the bargain bin

but as with anything in life, there is some gamble

you also can factor in that you could continue to gain a decent return after you move out by renting out the home

just make sure the rest of your portfolio and income is secure so you don't have your world fall apart

[KatrynS]

Originally Posted by Finger Laker

for any return of any substance there is risk of loss

you can get some nice homes here for say $150,000 - cost to rent out such a home would be near $800 a month

You'd need to get a constant 5% annual yield for it to provide the level of interest income to offset rent expense, which is very tough to get in 4 years on any safe instrument

I honestly don't see homes in that range dropping any further in most parts of the metro and at worst being flat in 4 years from now .... in fact, I would probably say that would be my expectation, flat to 5% appreciation from todays prices in 4 years for homes that are already in the bargain bin

but as with anything in life, there is some gamble

you also can factor in that you could continue to gain a decent return after you move out by renting out the home

just make sure the rest of your portfolio and income is secure so you don't have your world fall apart

Well, most people moving into $150K houses don't look at the $150K as just part of their portfolio, at least not one they can readily risk (even cash buyers). Unless you are an RE, you can expect to lose 4-6% in fees plus a few grand for transaction costs and for the state. And yes, a $150K house can lose value. Just from looking at a few listings on zillow, it seems houses are back to what they were ~2005. However, is the economy as good as 2005? Job prospects? Lots of areas were overbuilt and even when the economy recovers are you really going to see as many retirees moving to PHX? Tourists? I think it may be quite a few years before people feel psychologically secure enough to do as much traveling and snowbirding as during the boom. Of course, that is just my opinion!

Where I live the economy is pretty robust and we never got much of a "boom" or bubble. Last year values were down 10-20% and all we heard was it couldn't fall more, and yet here we are down another 10%. We're down around 2000 values, at most!

As to renting (something we are considering, btw) you paint a fairly rosy picture IMO. If you are local and have the time and talent to manage the rental, you may make 5%, but if you need to hire a management company? What if it sits empty for a few months? Plus you get to pay tax on any earnings (true of most investments, but if you rent one house and use the $ to rent/buy another you still don't get to write off the rent for your new place, which you wouldn't be paying if you didn't own the rental).

So let's say you rent it out and then want to sell. Selling a rental for a good price is harder. After all, renters are often hard on a house (after all, it isn't theirs) and have zero interest in helping you sell it -- not going to stage the home or clean up or make it easy to show. So your other option is to evict the renters, fix it up, and then put it on the market...foregoing any income on the property while it is for sale.

I'm not saying you can't make money in holding a house 4 years or renting it, but it is nowhere close to a sure 5% ROI. I think if you are lucky you *might* break even and the downside risk is substantial.

Of course, I say all this knowing that (1) I have no experience renting out a house, just been looking at that option, and (2) I am very risk adverse. People will need to consider their own risk tolerance and run the numbers, both the "if everything goes as planned" version as well as the "if I can't sell or get a renter for 6mo" scenario!

[cmist]

Originally Posted by KatrynS

Well, most people moving into $150K houses don't look at the $150K as just part of their portfolio, at least not one they can readily risk (even cash buyers). Unless you are an RE, you can expect to lose 4-6% in fees plus a few grand for transaction costs and for the state. And yes, a $150K house can lose value. Just from looking at a few listings on zillow, it seems houses are back to what they were ~2005. However, is the economy as good as 2005? Job prospects? Lots of areas were overbuilt and even when the economy recovers are you really going to see as many retirees moving to PHX? Tourists? I think it may be quite a few years before people feel psychologically secure enough to do as much traveling and snowbirding as during the boom. Of course, that is just my opinion!

Where I live the economy is pretty robust and we never got much of a "boom" or bubble. Last year values were down 10-20% and all we heard was it couldn't fall more, and yet here we are down another 10%. We're down around 2000 values, at most!

As to renting (something we are considering, btw) you paint a fairly rosy picture IMO. If you are local and have the time and talent to manage the rental, you may make 5%, but if you need to hire a management company? What if it sits empty for a few months? Plus you get to pay tax on any earnings (true of most investments, but if you rent one house and use the $ to rent/buy another you still don't get to write off the rent for your new place, which you wouldn't be paying if you didn't own the rental).

So let's say you rent it out and then want to sell. Selling a rental for a good price is harder. After all, renters are often hard on a house (after all, it isn't theirs) and have zero interest in helping you sell it -- not going to stage the home or clean up or make it easy to show. So your other option is to evict the renters, fix it up, and then put it on the market...foregoing any income on the property while it is for sale.

I'm not saying you can't make money in holding a house 4 years or renting it, but it is nowhere close to a sure 5% ROI. I think if you are lucky you *might* break even and the downside risk is substantial.

Of course, I say all this knowing that (1) I have no experience renting out a house, just been looking at that option, and (2) I am very risk adverse. People will need to consider their own risk tolerance and run the numbers, both the "if everything goes as planned" version as well as the "if I can't sell or get a renter for 6mo" scenario!

I agree with this. I dont see how houses will have room to appreciate much given the fact that the economy is clearly not supporting a local population that can afford the housing prices, even at 150k.

Once some of the supply tends to decrease a bit and market conditions become somewhat favorable for selling.... for all the people that have wanted to sell but didn't due to being underwater, or whatever other economic reasons, there will be a second wave of oversupply. Of course its only speculation but seems most logical.

I think its overly optimistic to assume that you can recoop your sales price in 4 years, much less turn a profit, unless you buy something that is currently way below market, (and even that is a gamble, it still hasnt hit an obvious bottom). To make money in this type of market, you have to operate on immediate information and move fast. Quick flips are more certain to turn a profit since you can react to the current market conditions, rather than owning a property with an uncertain future 4 years or later down the road.

Given that the OP had said they WILL move in 4 years, there is little benefit to homeownership since it will more likely serve as a road block to the future move rather than make his pockets fat with newfound equity.