The Stock Market thread: BUY! BUY! BUY! Sell, sell, sell...

[unh_hockey]

Re: The Stock Market thread: BUY! BUY! BUY! Sell, sell, sell...

Investor home purchases in Southern California constitute roughly 33% of all home buyers. The issue there coupled with low inventory is resulting in housing bubble esque price increases. Investors either want to buy and flip, or rent for yield. This buying is making it so first time homebuyers using FHA loans are unable to compete and often must bid HIGHER than the asking price. Obviously there is a preference for all cash buyers vs. the 3% down required for an FHA loan so its rough for first time buyers. It also doesn't help that wages are stagnant as well.

The upside is that the supply of rentals is going up which will actually drive rental prices down.

 

[dxmnkd316]

Re: The Stock Market thread: BUY! BUY! BUY! Sell, sell, sell...

That is indeed a major problem-and will only get worse as governments (local, state, etc) keep reaching for more money in new and inventive ways. Personally i would like to limit my exposure to taxes-which will only go higher. Anyone who believes otherwise is deluding themselves. I've owned various pieces of real estate for a long time and I just cannot recall too many times when taxes on any of these things have gone down. I can foresee a time when th epowers that be cannot reap enough money from real estate taxes and find ways to grab more from those who have assets.

My property taxes went down this year.

I'm also not sure what you guys are talking about when you saying young people aren't buying real estate. Plenty of kids my age are trying to buy houses. If you're talking about investment properties, I'm not sure real estate is an intelligent investment for young people or even an option since it requires a lot of upfront money.

Besides, people turning housing into a commodity is what helped cause the housing crash in the first place.

 

[dxmnkd316]

Re: The Stock Market thread: BUY! BUY! BUY! Sell, sell, sell...

This buying is making it so first time homebuyers using FHA loans are unable to compete and often must bid HIGHER than the asking price. Obviously there is a preference for all cash buyers vs. the 3% down required for an FHA loan so its rough for first time buyers. It also doesn't help that wages are stagnant as well.

See, this is the biggest problem with housing. I put down a full 20% on my house because I saved and I was responsible. It was my first house and I wasn't about to make a disastrous financial decision by buying a house I couldn't afford. If you can't afford to put down 20%, you can't afford the house.

Regarding another point in your post, I'm starting to wonder about my house's value. Since I bought it about two years ago, it's appreciated nearly $30,000. It's within $50,000 of it's all-time high. I'm ecstatic with the appreciation, but it almost seems too much, too quick.

 

[DrDemento]

Re: The Stock Market thread: BUY! BUY! BUY! Sell, sell, sell...

My property taxes went down this year.

I'm also not sure what you guys are talking about when you saying young people aren't buying real estate. Plenty of kids my age are trying to buy houses. If you're talking about investment properties, I'm not sure real estate is an intelligent investment for young people or even an option since it requires a lot of upfront money.

Besides, people turning housing into a commodity is what helped cause the housing crash in the first place.

I'm happy that your taxes went down-just don't count on that happening very often. I just cannot predict what the future will bring-how high will taxes rise on a house that I cannot sell without taking a big loss? What will be the effect of rising property/school taxes on the ability to sell that house? What happens if the powers that be decide to play with the mortgage deduction and put some limits on it-or remove it entirely? What will be the effect of mortgage interest rates rising? The rules of the game can be changed very easily. I am just much more wary now than I have been over the past 50+ years.

 

[DrDemento]

Re: The Stock Market thread: BUY! BUY! BUY! Sell, sell, sell...

See, this is the biggest problem with housing. I put down a full 20% on my house because I saved and I was responsible. It was my first house and I wasn't about to make a disastrous financial decision by buying a house I couldn't afford. If you can't afford to put down 20%, you can't afford the house.

Really wish more people felt as you do. I have always put down the most i could without depleting my emergency savings-taking the shortest mortgage i could afford(usually 15 year) and then double paying the principle each month effectively turning it into a 7 1/2 year mortgage.

 

[joecct]

Really wish more people felt as you do. I have always put down the most i could without depleting my emergency savings-taking the shortest mortgage i could afford(usually 15 year) and then double paying the principle each month effectively turning it into a 7 1/2 year mortgage.

My family lived in Bergen County, NJ for most of their lives. Real Estate taxes are very very high except where you have a large corporate presence in town that keep thevrates low. Mom's taxes never hit 5 figures yet in towns w/o industry, 5 figure taxes were common.

Doc - if you need to move look @ 07677.

 

[FadeToBlack&Gold]

Re: The Stock Market thread: BUY! BUY! BUY! Sell, sell, sell...

60 years is a long time!

The proof on real estate is in the pudding. In 1992 my parents, fiscally responsible with good credit, sold their house in an older neighborhood for about $110k, and bought the house where I spent years 5-18, in a nicer neighborhood, for about $130k. Over the years, they pumped money into carpets, paint, and a complete kitchen overhaul. In 2005, luckily just before things went to complete sh*t here in Michigan, they sold it for $250k. That's a valuation increase of 92.3% over 13 years, or a mean of 7.1% per year, not counting inflation. Factoring in inflation, and sweat equity/sunk costs from the renovations, they still made out with an ROI of 40-50% in that 13 year period.

They downsized to a condo that cost them about $170k. Today, after the crash, finishing the basement, and putting in granite counters, the condo is worth maybe $110k in this buyer's market (a rough guess based on what I know).

60 years is a long time, but I will eat a large dish of crow if I can ever earn 7.1% per year on an investment for a 13-year period. In fact, if anyone makes that guarantee, I will immediately suspect they are just another Bernie Madoff.

 

[5mn_Major]

Re: The Stock Market thread: BUY! BUY! BUY! Sell, sell, sell...

The proof on real estate is in the pudding. In 1992 my parents, fiscally responsible with good credit, sold their house in an older neighborhood for about $110k, and bought the house where I spent years 5-18, in a nicer neighborhood, for about $130k. Over the years, they pumped money into carpets, paint, and a complete kitchen overhaul. In 2005, luckily just before things went to complete sh*t here in Michigan, they sold it for $250k. That's a valuation increase of 92.3% over 13 years, or a mean of 7.1% per year, not counting inflation. Factoring in inflation, and sweat equity/sunk costs from the renovations, they still made out with an ROI of 40-50% in that 13 year period.

They downsized to a condo that cost them about $170k. Today, after the crash, finishing the basement, and putting in granite counters, the condo is worth maybe $110k in this buyer's market (a rough guess based on what I know).

60 years is a long time, but I will eat a large dish of crow if I can ever earn 7.1% per year on an investment for a 13-year period. In fact, if anyone makes that guarantee, I will immediately suspect they are just another Bernie Madoff.

And there's the added benefit that your family lived there.

To equate that to a normal investment situation...youre using cash and renting the house out as in individual investment. Say it rents for $1200 with a cost of $400 per month. That's $800 per month clear or about $10,000 per year. $10k per year is 7% gain from income and another 7% gain from your appreciation. To look at it another way, after 13 years your income alone has paid the entire $130k purchase price. So depending on your math...that's a sell price of $250k and the buy price was paid for by income. Madoff didn't make any promises that good.

 

[DrDemento]

Re: The Stock Market thread: BUY! BUY! BUY! Sell, sell, sell...

My family lived in Bergen County, NJ for most of their lives. Real Estate taxes are very very high except where you have a large corporate presence in town that keep thevrates low. Mom's taxes never hit 5 figures yet in towns w/o industry, 5 figure taxes were common.

Doc - if you need to move look @ 07677.

Joe: We pass by as we head up the GSP-lovely area. If we have to stay in NJ it is a consideration-and it is an hour closer to our Adirondack home. At this stage we really do not want to move just consolidate a little. If you want to think about an area code to live try 12812 We have a home near us going up for sale.

 

[DrDemento]

Re: The Stock Market thread: BUY! BUY! BUY! Sell, sell, sell...

The proof on real estate is in the pudding. In 1992 my parents, fiscally responsible with good credit, sold their house in an older neighborhood for about $110k, and bought the house where I spent years 5-18, in a nicer neighborhood, for about $130k. Over the years, they pumped money into carpets, paint, and a complete kitchen overhaul. In 2005, luckily just before things went to complete sh*t here in Michigan, they sold it for $250k. That's a valuation increase of 92.3% over 13 years, or a mean of 7.1% per year, not counting inflation. Factoring in inflation, and sweat equity/sunk costs from the renovations, they still made out with an ROI of 40-50% in that 13 year period.

They downsized to a condo that cost them about $170k. Today, after the crash, finishing the basement, and putting in granite counters, the condo is worth maybe $110k in this buyer's market (a rough guess based on what I know).

60 years is a long time, but I will eat a large dish of crow if I can ever earn 7.1% per year on an investment for a 13-year period. In fact, if anyone makes that guarantee, I will immediately suspect they are just another Bernie Madoff.

Good example but did you include in those 13 years the real estate taxes paid and the home owner's insurance paid? 7.1% is a lovely return but I am not sure it was truly that high. And in today's world one might actually lose that amount instead of having any gain. You and i are in complete agreement though-what was once the great American way to accumulate some wealth and equity has turned into the white elephant (with a rather large appetite).

 

[FlagDUDE08]

Re: The Stock Market thread: BUY! BUY! BUY! Sell, sell, sell...

Joe: We pass by as we head up the GSP-lovely area. If we have to stay in NJ it is a consideration-and it is an hour closer to our Adirondack home. At this stage we really do not want to move just consolidate a little. If you want to think about an area code to live try 12812 We have a home near us going up for sale.

I thought area codes were 3 digits?

The Adirondacks area can go for $2000-$3000 per acre, so depending on how much acreage that is, it'd be a bit expensive. Not to mention, if you have a house on or a near a lake, the property taxes go even higher for what is already the highest taxed state in the country.

 

[5mn_Major]

Re: The Stock Market thread: BUY! BUY! BUY! Sell, sell, sell...

Good example but did you include in those 13 years the real estate taxes paid and the home owner's insurance paid? 7.1% is a lovely return but I am not sure it was truly that high. And in today's world one might actually lose that amount instead of having any gain. You and i are in complete agreement though-what was once the great American way to accumulate some wealth and equity has turned into the white elephant (with a rather large appetite).

To answer for DrD, yes. If you're living there...tax, interest, principle, insurance all replace rent. Paid for. If you're renting it out...its a small part of the cost (in my example included in the $400 that leaves you with a clear $800 income).

Again the big difference is that real estate is an asset with huge additional value that folks can live there...which a stock piece of paper does not have.

 

[FlagDUDE08]

Re: The Stock Market thread: BUY! BUY! BUY! Sell, sell, sell...

To answer for DrD, yes. If you're living there...tax, interest, principle, insurance all replace rent. Paid for. If you're renting it out...its a small part of the cost (in my example included in the $400 that leaves you with a clear $800 income).

Again the big difference is that real estate is an asset with huge additional value that folks can live there...which a stock piece of paper does not have.

One reason that I don't put much stock in specific tangible assets is because selling something is only going to be of any value if you can find a buyer. Sure, you might find appreciable value in real estate, but unless someone wants to buy it, it doesn't really have much value. This is one lesson that so many people don't understand when it comes to the investor's fallacy of "losing money" just because the company's market value went down. That's only true if you were to sell it at that time.

 

[5mn_Major]

Re: The Stock Market thread: BUY! BUY! BUY! Sell, sell, sell...

When I was young, I had the idea that real estate tax made it so that real estate was really owned by the govt and that with the tax, we were kind of leasing it from the govt.

I no longer hold that viewpoint. Imgaine a plot of land in the middle of nowhere in northern Maine that has no power, no plumbing, no roads and where no other stores for food/basics or businesses for employment because they require basic infrastructure. I'd rather just pay about $150/month to get those services and not worry about it (avg US property tax).

 

[FlagDUDE08]

Re: The Stock Market thread: BUY! BUY! BUY! Sell, sell, sell...

When I was young, I had the idea that real estate tax made it so that real estate was really owned by the govt and that with the tax, we were kind of leasing it from the govt.

I no longer hold that viewpoint. Imgaine a plot of land in the middle of nowhere in northern Maine that has no power, no plumbing, no roads and where no other stores for food/basics or businesses for employment because they require basic infrastructure. I'd rather just pay about $150/month to get those services and not worry about it (avg US property tax).

Forgive the conspiracy theory rant, but sometimes I wonder if the government is going after property taxes so that eventually they will steal all the property by means of foreclosure, and then only be leasing out to the peons. He who has the gold makes the rules.

 

[Almington]

Re: The Stock Market thread: BUY! BUY! BUY! Sell, sell, sell...

Good example but did you include in those 13 years the real estate taxes paid and the home owner's insurance paid? 7.1% is a lovely return but I am not sure it was truly that high. And in today's world one might actually lose that amount instead of having any gain. You and i are in complete agreement though-what was once the great American way to accumulate some wealth and equity has turned into the white elephant (with a rather large appetite).

According to the Federal government $130k in 1992 was worth $180k in 2005. Don't forget that about $20 to $25k of the selling price went to various fees associated with selling also.

By the time you account for all of the taxes, insurance, routine maintenance, and emergency repairs. Real estate does not become a particularly good investment until the mortgage gets paid off (or the overall inflation rate is significantly higher than the mortgage interest rate - relatively low fixed rate mortgage from the late 60s/early 70's during the late 70's and early 80's).

Honestly, if you never pay the mortgage off, it isn't really any different than renting except you get to deal with all the maintenance headaches. Particularly if you move more frequently than once every ~10 years.

I believe that most estimates are that the insurance, taxes, and maintenance average out to about 5% to 7.5% of the homes value per year in out of pocket expenses (some years it will be lower, and some years it will be much higher) and that doesn't even account for the home owners time and effort (sweat-equity).

 

[5mn_Major]

Re: The Stock Market thread: BUY! BUY! BUY! Sell, sell, sell...

One reason that I don't put much stock in specific tangible assets is because selling something is only going to be of any value if you can find a buyer. Sure, you might find appreciable value in real estate, but unless someone wants to buy it, it doesn't really have much value. This is one lesson that so many people don't understand when it comes to the investor's fallacy of "losing money" just because the company's market value went down. That's only true if you were to sell it at that time.

It depends on your priority...liquidity vs. return. With income from real estate paying its own purchase price in 10-15 yrs...you have your long term liquidity in income.

I'd love to get several cheap houses to have a virtual guarenteed income stream to pay for my life. Why would I ever sell?

 

[5mn_Major]

Re: The Stock Market thread: BUY! BUY! BUY! Sell, sell, sell...

According to the Federal government $130k in 1992 was worth $180k in 2005. Don't forget that about $20 to $25k of the selling price went to various fees associated with selling also.

By the time you account for all of the taxes, insurance, routine maintenance, and emergency repairs. Real estate does not become a particularly good investment until the mortgage gets paid off (or the overall inflation rate is significantly higher than the mortgage interest rate - relatively low fixed rate mortgage from the late 60s/early 70's during the late 70's and early 80's).

Honestly, if you never pay the mortgage off, it isn't really any different than renting except you get to deal with all the maintenance headaches. Particularly if you move more frequently than once every ~10 years.

I believe that most estimates are that the insurance, taxes, and maintenance average out to about 5% to 7.5% of the homes value per year in out of pocket expenses (some years it will be lower, and some years it will be much higher) and that doesn't even account for the home owners time and effort (sweat-equity).

Careful. You need to compare like for like. If looking at mortgaged property to live in...then you need to compare to someone paying rent. Is rent a better deal than buying a similar prices house? In mortgages, you write off interest and pay principle. Even if repairs means youre throwing away money...its still no worse than throwing 100% of your money away on rent.

If you're looking at it as in independent investment, then you need to compare it to other independent investments such as stocks or bonds. Then you buy cheap with high return...and the income story seals the real estate deal. Appreciation, if for some reason you ever decide to sell, is icing on the cake.

 

[FlagDUDE08]

Re: The Stock Market thread: BUY! BUY! BUY! Sell, sell, sell...

It depends on your priority...liquidity vs. return. With income from real estate paying its own purchase price in 10-15 yrs...you have your long term liquidity in income.

I'd love to get several cheap houses to have a virtual guarenteed income stream to pay for my life. Why would I ever sell?

If you're willing to put the work into property rentals, then by all means, go for it. I suppose you could also hire a property manager that would be able tot ake care of that, too.

 

[FlagDUDE08]

Re: The Stock Market thread: BUY! BUY! BUY! Sell, sell, sell...

Careful. You need to compare like for like. If looking at mortgaged property to live in...then you need to compare to someone paying rent. Is rent a better deal than buying a similar prices house? In mortgages, you write off interest and pay principle. Even if repairs means youre throwing away money...its still no worse than throwing 100% of your money away on rent.

If you're looking at it as in independent investment, then you need to compare it to other independent investments such as stocks or bonds. Then you buy cheap with high return...and the income story seals the real estate deal. Appreciation, if for some reason you ever decide to sell, is icing on the cake.

Mortgage is still an itemized deduction and not a tax credit, though. You're only going to see about 25-39.6% of that money returned to you through taxes. Obviously this is going more into the argument of when to pay off the principle amount, and I've always been a firm believer that if you can't make more with a certain amount of money than the interest being charged to you, you're better off using that money to pay extra principle.

I do like your idea of rental property, though.