RE Question - Buy Now or Wait?

asphaltgambler · 10-18-2006, 06:22 AM

The scenario: We are in a postion to buy in the next 1-2 months - if the right deal comes along. We currently rent, month-to-month, no obligation or contract only 30 days notice needed. Incomes above the median with very low debt-to-income ratio.

Where: A small but upcoming town in "horse country" where property values are still high about an hour south-west of DC. In northen Va. RE Demand in this area especially close to this town has historically remained aboove the national average even with economic downturns.

The House: 20 year old colonial (most sought after style in this area) with garage on 1.1 acre just outside of "Old Town" limits. Has a inground pool (not crazy about that) very nice yard, mature tress, etc, etc. It is located in a subdivision where it is the cheapest property and the most expensive home is $900+
Also rare is that there is no HOA and has it's own well and septic (no water/sewer bills which are very high here. House is of high quality construction

Situation: Owner, widower retired and moved out of state. He is quote "very motivated" He just missed the RE party last year by listing too late (last Dec) and too high (by @$50K) Orignal list price was $479. Now down to $379 asking.

The property has serious potential and we like it. From my research the most potential for above average appreciation even in this area in the next 15-20 year time frame.

Down Side: House is very dated with only roof (shingle over) and new appliances in the last 3 years. All other systems OE to the house. Property is overgrown and would need major tree cutting trimming, but most of the tress are 100ft+ in height requiring pros ($$$)

What action? If we buy now we would offer $319K, firm and all parties feel that he would most likely accept it as no one previous has made any serious offers and he is "Very Motivated!"
Our offer is about 5% above what the house would be worth given average appreciation in this area starting from 2001 to now @7% per-year.

If we do not buy my fear is that the costs of first trusts will ramp up in the next year making the same house too costly to buy and fix up

Advice please.

Tishabet · 07:00 AM

How long were you and the wife planning to live there? If the answer is 5 years +, I'd say go for it.

asphaltgambler · 10-18-2006, 07:11 AM

We are looking long term minimum 15 to max 30+

Would invest time and $$ over the upcoming years for improvements

Problem is I'm worried that buying now (1-2 months) in a still declining market that there will be a better (much?) property to hit the market in the future as far as our likes and appreciation potential.

ben parrish · 10-18-2006, 07:24 AM

Appreciation WILL happen over the next 15-30 years. If you like the house, low ball and work up from there. Many people seem to forget that the rapid appreciation over the last 4-5 years is not a "normal cycle". Prices are dropping because too much property is on the market that is over priced. Find historical data on the neighborhood sales prices 5 years ago and go from there. Your local countys tax office will have the info and it may be available via the internet.
Good luck

Porsche-O-Phile · Porsche-O-Phile's Garage

You're probably BEST off waiting, but to echo what's been said, if you're in a position to make a move now and you're reasonably certain you can ride out at least one "down" cycle (3-5 years long) or otherwise don't care about property values in the short-to-intermediate term, I'd say you're probably okay.

Make sure you don't get taken by a delusional seller (there seem to be lots of 'em) that thinks they can still get last year's price today. You're in control - not them. Good luck.

JeremyD · JeremyD's Garage

Buy low - sell high - If it's the location that you want then pull the trigger. If you can accurately time the real estate market - then you have no business not being a real estate investor - and making millions in the process.

Dantilla · 10-18-2006, 07:36 AM

If you're looking to stay for the long term, a couple thousand bucks either way is insignificant. If it makes your heart go pitter-patter, jump on it, and be happy.

For a quick flip, or investment property, price is paramount. But for home sweet home, buy something you will enjoy for the long haul.

Twenty years from now, whatever you pay will sound rediculously cheap.

legion · 10-18-2006, 07:39 AM

Quote:

Originally posted by JeremyD
Buy low - sell high - If it's the location that you want then pull the trigger. If you can accurately time the real estate market - then you have no business not being a real estate investor - and making millions in the process.

And keep in mind for every Donald Trump, there are tens of thousands of guys who got killed trying to time the peaks and valleys just right.

I say if you can afford to live there and plan on doing it long-term, then go for it. Lots of good advice on this thread.

vash · vash's Garage

i'd say buy it.

someone once said, "the first step to wealth is to own a house to live in". (something like that)

having bought my first house, i have to admit, sometimes fixing stuff sucks. but if you plan on staying for more than five years, go for it. treat it as the rest of your durable goods purchases.

Rot 911 · 10-18-2006, 08:05 AM

Sounds like you know what you are getting into. Even with the market drop, it is not going to drop that much considering what you are paying for the house. Keep in mind that you will be needing a new HVAC system, new septic, new hot water heater in the coming years. Just budget for those items.

craigster59 · craigster59's Garage

If you plan on living there long term, go for it. As has been said here before in the RE thread, "It's not timing the market, it's time in the market."

Moneyguy1 · 10-18-2006, 10:15 AM

Gambler

YOu keep asking the same basic question over and over. No one can precisely time any market, especially real estate. Some are lucky, most get burned. If, as some have suggested, you are in it for the long haul, go for it. A few thou in the short run will not be detrimental. As for financing, consider a 30 year conventional and pay it down as if it were a 15 year loan. That way, if at sometime in the future you have a temporary reversal of fortune, you can drop back to the lower 30 year payments for awhile.

Are you pre-approved for a mortgage?

asphaltgambler · 10-18-2006, 10:36 AM

Just being overly cautious as I got burned big time about 16 years ago in the last down turn. Very, very painful

I appreciate input here as most are in this profession in one way or another.

We are not pre-approved yet, but know that we well qualify for most all types mortgages that we have shopped for.

turbo6bar · 10-18-2006, 10:40 AM

Hi gambler, how's it goin'?

When the market slows, the best properties in the best areas will present the best value. The other value is when you can buy well below market valuation. When I buy, I like to get at least $2 equity for each dollar I invest. For example, if I spend $20k in repairs and remodeling, I want the value of the home to increase by $40k. This gives you that equity cushion, and increases your yield. Of course, more is better.

Your proposed timeline gives you a lot of protection. The paper gains (or losses) will be tempered by inflation. The downside of your long-term planning is the fact you really need to find the perfect property. I would settle for nothing less, even if it means paying more OR waiting longer.

The cost of money is irrelevant, in my opinion. If mortgage rates go up, the buying pool goes down, and eventually the market will settle to lower prices, particularly for that "special" property you're considering now.

Again, I would only pull the trigger if this really is the one. Then, determine if you can acquire it at the right price.

Time is on your side. The buyers garner leverage as the market softens.

Moneyguy1 · 10-18-2006, 11:07 AM

Getting pre-approved is essential. Do it!!

asphaltgambler · 10-18-2006, 01:04 PM

Thanks all for the input.

Jims5543 · 10-19-2006, 04:43 AM

Get pre approved thats the most important part.

Offer 319K with a side note that the only answer back is a yes or no one. State also that wehn the offer is made you can guarantee that you will close the property within 30 days or you loose your deposit.

Getting the financing is the hardest part once that is in place title work, inspections and a survey should be done in 2 weeks time.

If he declines your offer or come back with a counter walk away and find another home to buy. Never get emotional over homes and cars.

I did this with the house in North Carolina, we loved it but never showed that to our realtor or the homeowner when we looked at the house. We made a low ball offer with a yes or no answer, they countered, we walked. They called back and accepted.

I did this also with my house in Florida except this time I was dealing directly with the homeowner. She was pissed but took my offer. This Yes or No method has worked very well for me.

Good luck!!

asphaltgambler · 10-19-2006, 04:47 AM

Again thanks all.

sammyg2 · 10-19-2006, 07:40 AM

I say go for it.

IMO there is never a bad time to buy RE, only a bad time to sell.

jyl · jyl's Garage

How much to care about catching the bottom of the market depends on (1) how unhappy you are with renting, either where you are or somewhere else, (2) how certain you are that you'll stay in that house for 5-10 years, (3) relative tax-adjusted cost of renting vs mortgage on this house (remember, in early years of mortgage you are paying down almost no principal, the only way you build equity is if the house price rises, if house price stays flat you are simply paying rent to the bank), and (4) whether you can invest your money elsewhere. Ultimately a personal decision.

On the negotiations, Jim's approach makes sense. Don't get emotional or attached to a prospective house. There's always another house. There's usually a good reason why something looks like a bargain.

One issue is seems owner may have neglected the upkeep of the house. Make sure you've thought through the cost of upgrading/repairing whatever you already know will be needed. Then add guess for things that the inspection may discover. Once he's been strong-armed into $320K, his back will be to the wall and probably very hard to adjust price downward for inspection items. Cost includes your time and the hassle of living in a construction zone, if that's what it will be.

Make sure you know what comparable houses are really selling for in the area. If you have a broker/agent, assume he's lying to you.

Once you buy the house, be prepared to lose money over the next 2-4 years.

I bought a house in Portland earlier this year. I went through the same process. I assumed I would lose 10% in the next couple years and that over a few years, I would make no money on the house. So effectively I'm just paying rent. But I also made sure the house was in perfect condition and will need no work or updating for years. And I did check the after-tax cost of mortgage vs a rental.