Archive for the ‘Real Estate’ Category

Should I invest my down payment in the stock market?

Tuesday, August 18th, 2015

Question emailed to me: Let’s say my good friend has $100K. He has approximately one year to make this money grow until he has to buy a house. $20K of that is already in stocks, but doesn’t exactly know what he’s doing.

What would your advice be to make the most out of this one year given his current finances?

Answer: Does your friend want to put 20% down on a house? Does he/she have any other liquid assets? Lastly, do they know the price range of the house they want to buy?

With 100k and a decent-paying job they’d qualify for a 500k house, 100k (20%) for the down payment and a 400k mortgage.

If 500k is above or close to the range they’re looking for the house then no need to make a cent, protect the money and keep it in cash.

If they NEED more money for a down payment, then don’t invest to do it because mortgage lenders scrutinize
finances very thoroughly these days and need to be able to trace every cent you have to decide to give people a loan or not. They will not loan money to someone if they need to rely on unpredictable investment income to pay the mortgage (down payment might be less strict, but the source of the money needs to be trace-able – I just bought a house and or mortgage guy said “no mattress money” which is a problem if you are saving a lot of cash (literal
cash – not in a bank).

Now to answer the question as best I can without knowing all the details of your friend’s situation, for people with a chunk of cash that will be used in 12 months or fewer for a down payment on a home, put it in a high interest savings account. I pulled all my money out of stocks and investments 4 months before I bought my house. I missed out on 5-10% rate of return over those months, but you can’t predict the future, especially such a short window of time as 1 year in the stock market.

For all we know (and any “experts”) the stocks could crash 20% the day before he wants to take his money out. No one truly predicts the stock market with great accuracy, and if they did they would be ridiculously rich and not handing out advice here.

Also, if your friend invests now and sells within a year, they will be paying short term capital gains which is a much higher tax than holding for a 1+ years. So while you may make some extra cash, I can’t see it being enough to take that big of a risk.

Atlanta real estate market

Saturday, March 12th, 2011

Like the state of Georgia, Atlanta has an unemployment rate higher than the national average (about 10.4 percent compared to 9 percent). The real estate market, specifically the slow down of new construction is said to be the problem according to Mark Butler, the Labor Commissioner.

Butler says that the recession hit just as metro Atlanta and Georgia were in one of the state’s biggest growth cycles, led by flourishing residential, commercial and industrial real estate development. When the real estate market and the economy took a dive, the over-leveraged construction industry collapsed.

“Our recovery is going to lag behind the rest of the nation,” Butler said.

What does that mean for the Atlanta real estate market and for investors? Zillow CEO Spencer Rascoff says that, “Similarly, many would-be sellers in today’s housing market are considering whether to become landlords rather than sell at a loss.”

The question then becomes what about Apartments in Atlanta and the rental prices? Zillow, rates Atlanta’s rental market as “fair” which isn’t good but which is better than a lot of markets. Rental prices have been on the rise, along with occupancy.

Speaking about how things have changed in the past couple of years:

“There was so much out there, so much available to lease, that apartment complexes and homeowners, they were giving things away just to get people in there,” said leasing agent Krystal Wilbanks. “But now, there are so many people out there renting, that it’s easier just to get them into the property, cause if you don’t take the property, the next person that comes and looks at it, they will take the property.”

Part of that, of course, is that there aren’t that many new apartments being built. You have to wonder how far behind the nation Atlanta is expected to lag considering that higher rental prices could bring a recovery in the construction industry and that would help solve the unemployment problem. Of course, until things start selling the construction industry will be fairly stagnant but increasing rent might be a sign that apartments will start selling eventually.

Tips for buying a Short Sale home

Thursday, September 23rd, 2010

If a seller sells a house that they owe money on – more money than the house is worth – it is called a short sale. Since the bank is going to end up taking a loss, they need to approve the sale. Interestingly, often to buy a short sale home you have to be both patient and extremely fast. You might make an offer, wait for months, and then hear that you have 2 weeks to get all the paperwork done.

(1) Do your homework – check the land records in the town where the property is located. Is there a pending foreclosure? How many short payoffs will be required to obtain all necessary releases. If you are trying to do a short sale on a property that is already in foreclosure and you need to get a release of two mortgages and 7 judgments liens you may want to pass.

(2) Make sure the seller is completely on board. Have your agent consistently check up with them to see if they have an update. Frequently sellers become disinterested and ignore the bank’s request for updated financial information. The bank may be ready and you may be ready but you cant get far without the seller.

(3) Have all your ducks in a row regarding financing. If it is a property that needs work and you intend on getting an FHA insured loan you may lose your short sale approval during the time it takes to get your loan commitment. It is best to be preapproved and be ready immediately upon acceptance for appraisal, inspections, etc. A lender is loath to hold a short sale approval open for too long.

Still, the experience may not be smooth. One guy made an offer on a short sale property which the seller accepted. He had to put $3k down as earnest money. The seller’s real estate company said his was the only offer but what they didn’t tell me is that even though the house is pending approval the seller and/or the bank can accept other offers: “We never got more than a “keep waiting, it should be only a couple of more weeks.”

After about 3 months he wanted to pull the offer and start looking at other places, but they said he would have to eat the $3k if he did that. After 4 months they tell him the bank accepted another offer – he waited all that time for nothing.

You might be thinking that the bank treated this guy unfairly but keep this in mind. They are losing money on the sale – would you rush into a deal that was losing you money? So it’s not uncommon for short sale buyers to feel powerless or abused as they wait. Go into any short sale transaction with patience.

Commercial real estate losing value

Monday, September 14th, 2009

This article talks about how commercial real estate is falling in value. The article gives a few reasons to be pessimistic about the economy. One of them:

“We expect construction activity to continue to pull back over the next 18 months,” as “property values still face significant further declines.”

Detroit, NYC, Phoenix, Portland, Minneapolis

Sunday, July 5th, 2009

According to this article, Detroit, NYC, Phoenix, Portland, Minneapolis are expected to see continuing housing declines for a while. Detroit is no surprise except maybe some people though things could not possibly get much cheaper. I guess I’ve always thought of New York as crazy expensive so I’m not sure I expected it to decline much. But I suppose things had to come down a little.

Vacation home sales are off but for how long?

Thursday, April 16th, 2009

This article talks about how vacation home sales are on the decline and how prices are coming down. But the conclusion is that retiring baby boomers will start buying vacation homes and retiring in them.

I know a few retiring baby boomers, and some bought a place near Disney that could be considered a vacation home by some but most of the ones I know prefer to stay near their friends / kids. So I’m not convinced that baby boomers will be driving the market in places like Costa Rica.

There’s also a personal finaince lesson here. One that I’ve mentioned about saving for unforseen medical expenses (because you can’t trust the insurance companies) and one that I shouldn’t have to mention about interest only mortgages:

But so far, no buyers. While she has dropped her price on the property, with its rambling five bedrooms and nearby rain forest, from $2.35 million to $1.5 million, she is experiencing firsthand just how dismal the market has become for vacation homes. She has enough money to pay her interest-only mortgage of $3,800 through July, but after that, there are no funds left.

She decided to sell the property because of unforeseen financial problems, such as medical expenses. “We’re about to lose it to the bank.”

NYC real estate might begin to see more pressure

Wednesday, October 1st, 2008

Here’s a good article on NYC real estate.

The Stuy Town project certainly has potential, but given the market and the need for their fellow investors to receive immediate gains, they are really hurting right now.

Compared to the rest of the economy however, real estate prices in nyc have only gone down 3% since the last quarter. However, the two main things that pose risk now are:

1) Lack of wall street bonuses and new jobs, creating vacancies in luxury apartments
2) Lack of lending for developers

Advice on investing in Malaysia

Friday, September 26th, 2008

Interesting article here on investing in Malysian real estate. I like the idea that about 50 grand can buy a nice proprty 15 minutes from KL.

Be careful when you buy a home because people are trying to screw you

Friday, August 8th, 2008

This article talks about some of the issues you face finding a home inspector in Pennsylvania, but everyone needs to be careful finding a home inspector. More generally, before you buy a house you really have to make sure you’re not getting screwed.

I know of one case in New Jersey where the sellers cheated on a radon test. The buyers moved in thinking everything was fine but when they went to sell they realized two things:

1. They and their children had been living in a very high radon environment.
2. They would now either have to cheat the new buyers like they had been cheated or they would have to spend thousands of dollars trying to reduce radon levels in the home.

Radon tests are extremely easy to cheat on (too bad they didn’t know that before buying the house) but they chose option #2 and lost a lot of money.

The same people then bought a house on the Jersey shore. Home inspection was no problem when they bought the house but when they went to sell…

Their dock violated some laws and had to be ripped up and rebuilt. $50,000. The electric had to be redone, etc. The previous owner and the inspector had screwed them. It took them about 12 months longer to sell the house than it should have so in addition to that $50,000 they had 12 months worth of taxes and lawyers and stuff.

Plus the stress was unbelievable. These poor people could hardly talk about anything else during that time. It screwed up their retirement plans pretty good.

So anyway, when you’re buying a home you need to be extremely careful. You can get majorly screwed.

When do you expect the housing market to hit bottom?

Sunday, August 3rd, 2008

Bank of America Chief Economist Mickey Levy told Bloomberg Television that he expects housing prices to continue to decline. “The decline in home prices, while necessary to clear the inventories, is building in expectations of more house-price declines, which is keeping potential buyers on the sidelines.”

I don’t think anyone is arguing with levy but everyone questions when the declines will reach bottom. Most estimates I’ve heard range from 12-18 months. What do you think? When do you expect the housing market to hit bottom? Is real estate better than stocks right now?