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Any bank will loan me money with 20 percent down, 800 empirica and good debt/income ratios
Any underwriter worth his salt would red flag this. You have little to no equity in your two other properties and your entire situation depends on your job (in an industry that is lagging off like mad...I may add). This is a very risky loan, as its a very risky investment move. Being fully leveraged on multiple properties is a good way to go bankrupt. But you are reading from the "get rich quick" book of investing, so I'm sure silly things like risk don't play a part in your scheme. I mean you do acknowledge that the banks have been tightening their standards for the last 2 years right? Loans for investment properties are even tighter.
Anyhow, the only reason the banks gave out money like they did because there was a bag holder they could unload matters on (bond investors). Your loan will have to stay on the banks books as a result they are going to be pretty interested in your underwater properties and things of that nature. Your idea that "any bank" would give you a loan is laced with credit bubble thinking. The credit expansion is over, you should start to think about the ramifications.
According to the Case-Schiller Report, the Chicago area has been floating around 150 for the last 3-4 months.
By the way, the Case-Schiller is not adjusted for inflation so when the index is flat its in reality declining in real terms. But Chicago is not alone in flat lining over the the last few months, it seems like a common trend in many other cities. But in each case prices are still inflated, in Chicago's case by at least 15%.
Anyhow, I think the stability is due to the season. If you look at the decline in Los Angeles in the early 90's the same months were stable despite consistent declines in the other months.
People love to call a bottom during the selling season because the numbers improve during this season whether you are in a down market or not. The true picture is going to become much cleaner in the next few months. This is exactly what happen in Los Angeles last year there was a bit of a decline and then stability in the selling season. I remember telling family and friends that prices would crash soon after July and they just looked at me weird. Chicago also saw stability in last years selling season. So, stability in the selling season is actually common behavior in a down market. Its not in any sense an indicator that prices have bottomed.
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If there wasn't much sub-prime/option ARM financing in the areas your looking at, then I'd think the prices in the area will behave pretty normally.
Without all the foreclosures we'd still be seeing price declines. Despite all the news about foreclosures the real issue is the collapse of the credit markets and the tightening in the lending it has caused. The foreclosures are just forcing us to face reality much sooner than we would otherwise. I think most have actually be surprised by the pace of the declines. Most housing bears 1-2 years ago thought the decline would be slower and argued that prices would stabilize when raising wages/rents converged (in historic terms) with house prices. What many of these people didn't realize (myself included) is how badly declining house prices would effect the general economy. Anyhow, just because an area is relatively free from exotic loans doesn't mean its safe from following prices.
Any underwriter worth his salt would red flag this. You have little to no equity in your two other properties and your entire situation depends on your job (in an industry that is lagging off like mad...I may add). This is a very risky loan, as its a very risky investment move. Being fully leveraged on multiple properties is a good way to go bankrupt. But you are reading from the "get rich quick" book of investing, so I'm sure silly things like risk don't play a part in your scheme. I mean you do acknowledge that the banks have been tightening their standards for the last 2 years right? Loans for investment properties are even tighter.
Anyhow, the only reason the banks gave out money like they did because there was a bag holder they could unload matters on (bond investors). Your loan will have to stay on the banks books as a result they are going to be pretty interested in your underwater properties and things of that nature. Your idea that "any bank" would give you a loan is laced with credit bubble thinking. The credit expansion is over, you should start to think about the ramifications.
So now 20% down with a high credit score and good D/I ratio is a risky loan?
You make this statement without full knowledge of his entire financial situation.
Banks have tightened standards but buyers with high credit scores and good D/I ratios fly through with no problem.
I just took one from offer to close in 3 weeks.
You also assume he is underwater on all his properties when from what I read his last purchase isn't even underwater. Purchase price $360K would have a down payment in the area of $72K leaving the note at $288K. The appraisal of $382K in Feb 08, even with 10% sliced off for good measure still leaves him well above water.
Thank you Chuck, for doing my homework for me. Humboldt and KCfromNC, apply this to my last post on the "don't buy" thread.
If you find the Case-Shiller numbers convincing, you need to drop your claim that prices have dropped sliughtly and bounced back up. The Case Shiller index for Chicago is down 9.5% from a year ago, and down 11% from the peak. And a few days ago you called Case-Shiller a "joke", but now it's a convincing argument that things have bottomed?
The OFHEO trend should bother you as well. The year-over-year numbers have been lower and lower over the past 8 or more quarters, and now it's finally negative. How's that a sign of a stabilizing market?
The HOI numbers show that in normal times, the Chicago area has a price to income ratio of about 2.6. Now, it's at 3.6. So these numbers predict about a 30% drop in prices there to return to normal.
"While there are inklings of a recovery elsewhere in the country because prices have dropped dramatically, the local market so far appears to be missing out. Sales of existing homes continue to be down, Chicago-area home prices are flat, and real estate agents who want to close deals are pleading with players on both sides to be realistic."
"Within the past month, real estate agents say they've seen some sellers come to grips with the market's realities and start chipping away at inflated list prices. Unfortunately, this comes at a time when the ranks of buyers are thin, a result of economic and job worries, higher interest rates and ever-tightening credit standards that are causing some deals to fall apart late in the process, even at closing."
"You see far more price reductions than you ever saw before," said David Hanna, managing partner of Prudential SourceOne Realty. "Every individual seller has to make the decision: 'How long do I want to have my home on the market.' "
Seems to sum up the situation pretty well.
Interestingly, what the article FAILS to mention is exactly how much of a run-up there was in Chicago between 2000-2006. Seems like comparing that to the traditional rate of gain would give a better sense of how big the Chicago bubble is-- anyone out there have those numbers?
Last edited by cohdane; 08-27-2008 at 08:37 AM..
Reason: Quotation Marks
You are too negative and your last post borders on being a personal attack. You just don't say sh#t like that.
I have 20 percent down, 798 empirica, good debt to income ratios and you think this is a red flag for underwriters.
I do have equity in both properties but even if I did not it would not matter as I have several hundred thousand in securities. Half are not in retirement plans.
I work in banking and have talked to numerous residential underwriters. They would love to do my loan but I have not found a property I like.
I don't know what your problem is with me. Just because I don't think all debt is bad does not warrant your comments.
With regards to Chicago, I continue to see price declines and believe we are 12-18 months from bottom. It would not surprise me to see prices drop another 15 percent. I don't see it dropping another 30 percent. I think we will get back to 3.0, probably not 2.6 times.
By the way, the Case-Schiller is not adjusted for inflation so when the index is flat its in reality declining in real terms. But Chicago is not alone in flat lining over the the last few months, it seems like a common trend in many other cities. But in each case prices are still inflated, in Chicago's case by at least 15%.
Anyhow, I think the stability is due to the season. If you look at the decline in Los Angeles in the early 90's the same months were stable despite consistent declines in the other months.
People love to call a bottom during the selling season because the numbers improve during this season whether you are in a down market or not. The true picture is going to become much cleaner in the next few months. This is exactly what happen in Los Angeles last year there was a bit of a decline and then stability in the selling season. I remember telling family and friends that prices would crash soon after July and they just looked at me weird. Chicago also saw stability in last years selling season. So, stability in the selling season is actually common behavior in a down market. Its not in any sense an indicator that prices have bottomed.
You may be right Humanoid that the stability during the last 3-4 months may have been due to seasonality. I'm not sure since I'm not very familiar with how the market (job, economy, etc.) is like over there.
Looking at how inflated prices were at the peak compared to what it should be (affordability levels) would probably give you a better idea of what an eventual price point would fall to.
Chicago may be one of those areas that will have 1-3% yearly drops for a long time or negative real appreciation (appreciation lower than inflation for awhile) to balance back towards a normal market. If prices stay flat for awhile, and basically the market is going to slowly inflate its' way back to normal... would it be better or worse to buy a place if you are able to get a low interest rate versus waiting and having your savings erode? Especially if your going to make significantly more through the cash flows from renting out the units vs. the interest you would get from the bank?
Also, for apartments in the city center (which Humboltdt1 is looking at), I think prices would be more stable (older, and demographic trends - urbanization). The over-built newer sub-divisions in the outskirts will be the most hard hit.
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Without all the foreclosures we'd still be seeing price declines. Despite all the news about foreclosures the real issue is the collapse of the credit markets and the tightening in the lending it has caused. The foreclosures are just forcing us to face reality much sooner than we would otherwise. I think most have actually be surprised by the pace of the declines. Most housing bears 1-2 years ago thought the decline would be slower and argued that prices would stabilize when raising wages/rents converged (in historic terms) with house prices. What many of these people didn't realize (myself included) is how badly declining house prices would effect the general economy. Anyhow, just because an area is relatively free from exotic loans doesn't mean its safe from following prices.
True... depends on a lot of factors... mostly credit availability, jobs, and the general economy. Foreclosures just help get markets back to normality faster. If Chicago doesn't have a lot of foreclosures... it might have a longer, dragged out market correction. Likewise, Southern California's recovery might be faster, since we have so many foreclosures, and price drops have been more steep.
I agree with Humboldt1 and Mike though, that if he keeps up the good work with his credit/savings, he should be just fine getting a loan when he needs it.
So now 20% down with a high credit score and good D/I ratio is a risky loan?
We are talking about investment properties here and actually his D/I isn't particularly good. It depends on what degree the lender counts the rental income on his two properties. Many, banks would not lend just because of the high D/I under the way they calculate it. Furthermore, although he may not currently be underwater (its hard to say) he is very likely to be when he buys.
Banks would much prefer to loan out money for a personal residence as a result the standards for investment properties are getting even tighter.
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I did not it would not matter as I have several hundred thousand in securities. Half are not in retirement plans.
This is inconsistent with what you've said before, you stated you were "saving up" for your down payment on your next property. If this was true, you wouldn't need to save up before you purchased another property. Also, in what way does it make sense to pay threw the teeth in interest when you have cash? Pay down the loan and you guarantee yourself a risk free return.
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Just because I don't think all debt is bad does not warrant your comments.
Which comments are you talking about? The ones about lending? Under most situations debt is bad. Of course if you can get someone to loan you money at 0% then perhaps its good, but that is never the case. But debt per se isn't what I'm talking about, rather the fact that you are highly leveraged in two properties. Taking on as much debt as you are talking about is extremely risky. Many things can happen that can land you in a bankruptcy court...or at the very least wipe you out.
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I work in banking and have talked to numerous residential underwriters.
Like I said, let me know the bank so I can short the stock.
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I'm not sure since I'm not very familiar with how the market (job, economy, etc.) is like over there.
Dude, what you pointed out is actually typical behavior of a market in decline yet you implied that it was perhaps a signal for a bottom. You don't need to be familiar market here as all we are talking about are trends in the Case-Schiller.
My debt/income ratio is just fine. I make $180K per year (last 2 years) working for the bank and basically break even on paper with the real estate. $115K is base and $65K is bonus if you really care. I have no credit card debt, no school debt, no car debt, no living expenses (I live in one unit and the other 3 pay my mortgage, taxes, utilities, etc.). I bank $4-5K per month and deposit this straight into brokerage accounts I have set up.
I am saving for a down payment as I like to leave reserves for just in case. I am looking to have down payment of $120K, which will not tap into my reserves. I have $120K in stock and $150K in retirement plans if you really care. I am also now investing in muni bond funds, from which I will most likely draw my down payment and thus far this year put in $60K. Within the next 6-12 months I should have this up to the full $120K.
I owe $283K on 4-unit building, purchased for $360K in July 06. It appraised for $382K in Feb 08, but maybe would sell for $325K if I absolutely had to sell today, leaving me with minimum of $42K in equity minus selling costs, so I am not underwater.
I owe $160K on townhouse, purchased for $215K in Dec 03. Comparable units with fewer finishes have sold for $250K this month. So, if I had to absolutely had to sell today, I would have $90K in equity. Even taking out closing costs, I am hardly underwater.
So, now that you basically can calculate my entire net worth within a few thousand dollars I hope you are satisfied with my rationale behind why I would qualify to buy investment property, which would most likely be owner-occupied. I may be 2-3 years away from purchasing 6-unit as I would like to max out my debt/income ratio before getting into commercial property unless I find the right one.
Now, of course if I were to get married and have kids this would all change, but I am not there yet.
I don't consider paying 6.125 percent (my latest quote last Thursday) paying thru the nose in interest.
You are too risk adverse my friend.
The banks you should be shorting if you think a loan to me is a bad investment are Citibank, Wells Fargo, Chase and Bank of America. All of these banks have approved me over the past year to buy a 2-4 flat in the city of Chicago.
My debt/income ratio is just fine. I make $180K per year (last 2 years) working for the bank and basically break even on paper with the real estate. $115K is base and $65K is bonus if you really care. I have no credit card debt, no school debt, no car debt, no living expenses (I live in one unit and the other 3 pay my mortgage, taxes, utilities, etc.). I bank $4-5K per month and deposit this straight into brokerage accounts I have set up.
I am saving for a down payment as I like to leave reserves for just in case. I am looking to have down payment of $120K, which will not tap into my reserves. I have $120K in stock and $150K in retirement plans if you really care. I am also now investing in muni bond funds, from which I will most likely draw my down payment and thus far this year put in $60K. Within the next 6-12 months I should have this up to the full $120K.
I owe $283K on 4-unit building, purchased for $360K in July 06. It appraised for $382K in Feb 08, but maybe would sell for $325K if I absolutely had to sell today, leaving me with minimum of $42K in equity minus selling costs, so I am not underwater.
I owe $160K on townhouse, purchased for $215K in Dec 03. Comparable units with fewer finishes have sold for $250K this month. So, if I had to absolutely had to sell today, I would have $90K in equity. Even taking out closing costs, I am hardly underwater.
So, now that you basically can calculate my entire net worth within a few thousand dollars I hope you are satisfied with my rationale behind why I would qualify to buy investment property, which would most likely be owner-occupied. I may be 2-3 years away from purchasing 6-unit as I would like to max out my debt/income ratio before getting into commercial property unless I find the right one.
Now, of course if I were to get married and have kids this would all change, but I am not there yet.
I don't consider paying 6.125 percent (my latest quote last Thursday) paying thru the nose in interest.
You are too risk adverse my friend.
The banks you should be shorting if you think a loan to me is a bad investment are Citibank, Wells Fargo, Chase and Bank of America. All of these banks have approved me over the past year to buy a 2-4 flat in the city of Chicago.
Hi Humboldt1,
Just curious, would investing in a REIT, or other RE related fund be more cost effective/flexible than actually owning a building? Or are the overall earnings potential of owning a lot better?
I think if we were to invest into RE in the near future, the safer/flexible move would be through funds. What are your opinions on the pros/cons of actual ownership vs. RE through REITs or investment funds. Or have you considered them?
Yes, Humanoid is very risk adverse... but it also insures that he doesn't loose the shirt off his back. A lot of people are more risk adverse these days because of the economic back drop. To some though, this environment also presents more opportunities in the future.... especially if you have cash on hand.
Thanks,
chuck22b
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humanoid and chicago
