I am panicking

[charliebrown]

Re: I am panicking

what 650k for a house? i know you live in the bay area but this seems outlandish. how does that compare to your income? are you both making 100k? if your not this is too much house. Even if you are both making 100k what is your income visibility? I thought i read you are both in high tech. I am in IT and i know of no job that is safe. I work for a fortune 500 company and have seen junior and senior people both laid off. If you need both your incomes to buy the house than if even one of you gets laid off or sick, you will not be able to afford the house. I dont know if you have or want kids, but if they come, an expensive house will be an albatross around your neck. believe me that is where i am now. I over bought and now worry about my job. I wish i bought 25% less house. it still would be big enough for us and i would sleep a little better at night. if i had a little less house i could take a little nicer vacation, or have a few more nights out on the town. at my stage in life now, i would make this trade. Additionally houses are really expensive to hold. taxes, energy maintenance, insurance, transaction costs. If you dont know what is going to happen to the economy to the housing market why pour money into an expensive and illiquid asset?
If we have an inflation, interest rates will go up and you will limit the pool of buyers who qualify to buy your house. If wages dont go up to match inflation the pool of buyers go down too. It might be a good time to buy, but i would buy the cheapest house in the safest neighborhood, in the best location for you.

[ThePythonicCow]

Re: I am panicking

. Real estate provides housing services - a place to live. It is not an investment - it does not generate a cash flow, it generates a constant stream of expenses.

Some real estate is an investment. Like most goods, including food, water, gold, guns and whiskey, its price can have both a "fair use" element (in which a balance of supply and demand determines a reasonable price based on the cost to make the good, versus its practical value) and a "speculative" element (in which the price is driven above, or below, that "fair use" price by investors (the winners ) or speculators (the losers ) anticipating future changes in the market price.

You might not like that investment aka speculation, and you might well choose not to participate. But simply denying the existence of it, with phrases such as "it is not an investment" does not seem accurate in my view.

And some real estate does "generate a cash flow." Likely the owner of your apartment building is counting on your monthly rent payments as cash flow into his accounts.

[Mn_Mark]

Re: I am panicking

Some real estate is an investment. Like most goods, including food, water, gold, guns and whiskey, its price can have both a "fair use" element (in which a balance of supply and demand determines a reasonable price based on the cost to make the good, versus its practical value) and a "speculative" element (in which the price is driven above, or below, that "fair use" price by investors (the winners ) or speculators (the losers ) anticipating future changes in the market price.

You might not like that investment aka speculation, and you might well choose not to participate. But simply denying the existence of it, with phrases such as "it is not an investment" does not seem accurate in my view.

And some real estate does "generate a cash flow." Likely the owner of your apartment building is counting on your monthly rent payments as cash flow into his accounts.

First, I was talking about a home, not an apartment building, which is certainly an investment that generates an income stream. When you buy an apartment building it is an income-producing asset. A home is not.

Second, yes, a home can be a speculative asset like guns or gold. If you think homes are underpriced you could speculate and make money by buying one and selling it later.

What I was taking issue with is the idea that the average person buying a home is an "investment" in the sense that stocks, bonds, rental or commercial real estate, businesses, or intellectual property are investments. To become financially independent I need to invest my savings in assets that will generate a stream of income I can use to buy more income-producing assets. Buying a home doesn't do that. A home, a car, clothing - all these things we use to live on - they are not income-generating assets and thus I don't think it is useful to think of them as "investments" in the way that some people mean think of them.

I think that the average guy likes to think of a house as an investment in that sense because it's something he can understand. It's simple...buy this thing, live in it, hopefully the price goes up. But historically the price of a house stays the same in real terms. You can't become financially independent that way. Buying a great big house that you can barely afford, that sucks up all your excess savings in property taxes, insurance, and maintainance, is not savvy investment. Better to keep your living expenses - clothing, car, AND housing - low, and invest your savings in income-generating assets. Then later on you can buy the nice house, knowing that it's not an "investment", but an expenditure on something you enjoy. Those are two different things.

My point was just that people who think buying a house is a laudable investment decision are focusing their attention in the wrong direction. Focus instead on saving money and buying income-producing assets with it. Yes, we all need a place to live, and yes, sometimes it makes more sense to buy than to rent. But that's like finding a better bargain in clothing or food. It's just saving money on housing expenses, it's not "investing" in a meaningful sense.

[Glenn Black]

Re: I am panicking

With all due repect, renting with an option to buy, is a terrible idea for the buyer.

Please explain your position.:confused:

If it turns out to be a bad option to buy, don't exercise the option; you lose nothing. If it turns out to be good, then choose your moment and exercise the option to buy.

What is missing from this plan?

[cjppjc]

Re: I am panicking

Please explain your position.:confused:

If it turns out to be a bad option to buy, don't exercise the option; you lose nothing. If it turns out to be good, then choose your moment and exercise the option to buy.

What is missing from this plan?

A option to purchase comes with a price for that option. Example:

You are looking to rent now and want to purchase in the next 12 - 18 months. You can afford to pay between $1,200 - $1,500 a month. You and the landlord agree to $1,400 of which $200 is the option. At the end of the lease, if you deceide to purchase. The landlord gives you $2,400 back at the closing, or reduces the price by $2,400. If you don't exercise your option, you are out $2,400.

Renting with an option, has to have a price on that option. Or else it's renting and then making an offer. Which is fine.

Btw: This is only one reason for not doing it, if you are the renter/buyer. There are a few other as well.
If you have rental property, this is a great way to get it rented at a higher price. Place your add and get ready, the phone will ring. Trust me.

[ThePythonicCow]

Re: I am panicking

My point was just that people who think buying a house is a laudable investment decision are focusing their attention in the wrong direction.

While I'd certainly have to agree with you that owning homes for their "investment" value has been a losing proposition these last couple of years, still it can work. I bought a California home, lived in it for 20 years, sold it for a half million more than I paid for it, and was able to quit work, living off the proceeds. I am living pretty cheaply, mind you, but that home was a good "investment" so far as I was concerned.

So while I am in agreement with your recommendations on how to spend, save and invest money now, I was still suggesting that the underlying principles you put forth to explain your recommendations don't always fit reality.

[Glenn Black]

Re: I am panicking

Right of first refusal usually costs nothing. You rent. If owner decides to sell, they get bonafide offer from someone. You get notified that offer is on table, and you have 48 hrs to match offer, in which case you close deal, or you pass.

I have also seen it where you agree on purchase price now, source of escalation clause (eg. local real estate board median price increase for your class of building & area for interim years), and pay owner ~$500 now for right to purchase later, then continue to rent. Owner gets extra $500, and "reasonable" future option. You get goodwill of landlord & future option.

While owner is thinking price will go up, it could also go down, and your price follows along with market. When it hits bottom, you give notice & exercise option.

[vanvaley1]

Re: I am panicking

Is this how the most desirable parts of the real estate market work? Last to fall? Do they finally end up falling similar percentages to the more mediocre stuff?

If so, this would mean that timing is even more important for the really good areas?

I can't speak for other communities and there are those who would disagree with me about my analysis of ours. When I was involved in the 1989 to 1995 recession in Ca. the 'desirable' neighborhoods were the last to feel the downturn. The newer tract homes fell in price before they did. Older tract homes were the first to feel the pinch and the first to lose value. The upper income homes also took a beating. The worse case was a foreclosure that appraised for just under $900,000 and sold in an all cash deal for $500,000.

That was then and it is a different ballgame today. Don't see an end to the decline in value of housing yet in our community. Foreclosures are pretty much doing what they did in the last housing downturn. They are leading the way in forcing prices down and there's not much PR expended about holding the line on pricing in competing with other sellers. Some just wanta move inventory as quickly as possible.

Sorry, didn't tract the degree of loss of value compared to other neighborhoods to the more 'desirable' ones. Can't answer that question. The Realtor in your area can give you up to date data about the areas you are interested in. The software programs of today are so much more advanced than the ones back then.

[wkwillis]

Re: I am panicking

The US money supply is not under the control of the Fed. The US money supply is under the control of the overseas investors. Not even the overseas central bankers, but the individual investors like manufacturing companies and trading companies who could come in Monday morning and decide it's cash in advance for manufactured goods to ship to Los Angeles.
Buy a house upwind or crosswind of a city with an export or import substitution local economy. Automobiles, tourism, universities (private colleges, not state colleges with government financial cutbacks coming), agriculture, forestry and ranching, electronics, steel, chemicals, coal mining, oil and gas, etc. Close enough for an easy commute.
Don't worry about the house price at all except as long as you can make the payments if you lose your job because it's still going to be a year till the balance of payments crisis hyperinflation hits.
I'm not sure we still have a year. I am sure I don't want to buy a house downwind of a target. Some of those third world people with about to be worthless American money are going to be seriously cranky about it.

[Glenn Black]

Re: I am panicking

Buy a house upwind or crosswind of a city with an export or import substitution local economy. Automobiles, tourism, universities (private colleges, not state colleges with government financial cutbacks coming), agriculture, forestry and ranching, electronics, steel, chemicals, coal mining, oil and gas, etc. Close enough for an easy commute.

Up wind or cross wind due to nuclear fallout after nuclear incident???:eek::confused:

[flintlock]

Re: I am panicking

Just a little update on the San Francisco housing market. Catch a falling knife?http://www.sfgate.com/cgi-bin/articl...BUU716QBOE.DTL