Real Estate Mortgage Guys

[stomachmonkey]

Seem to be a few of these threads today.

Here's my deal.

Have 2 properties. Both worth around $450 K in todays market. (We are taking a bath up here in NY, lost 100k value on both in the last 2 years.

Property 1 is my residence. Owe $99k on it at 7.25%

Monthly nut all in with mortgage, taxes, insurance is ~$1,500.
Rental value is`low side $2,000 to max $2,500

Home is 11 years old so no major maintenence items expected for a while.

Property 2 was my fathers house. Owe $160 k at 7$ and proceeds need to be split 3 ways after bank payoff.

Monthly nut is ~$3000. Rental value is that, probably less though.

I am moving to TX and am trying to sell both houses.

Property 2 is on the market nearly 10 months now, property 1, 4 months.

There is zero activity in the housing market up here. Stuff that used to sell in 2 weeks is languishing for 6,8, 12 months or more.

Property1 makes a good rental, property maybe 2 breaks even, most likely just slows the bleeding.

I can dumb them both if I firesale them. Makes sense on property 2 as each month that I pay it is money off the bottom line. Take my losses and be happy.

Property 1 looks to be a good rental situation. If I pull the down for the TX house out of the equity in property 1. Rental should cover initial mortgage and a big chunk if not all of the equity payment.

I need to really evaluate the TX market. If it's going to decline I might be better off renting for a year till the market corrects there.

Thoughts?

Thoughts?

[turbo6bar]

Quick thoughts: (disclaimer, I have been bearish on RE for several years now)

1) I take rent and multiply by .75. That accounts for vacancy, repairs, and maintenance. That's what you net to pay for the mortgage. You're modestly cash-flow positive if you get high-end rental amount. I would be very cautious about using high-end numbers, because the rental market is quite soft in many areas. Make certain your area is not one of the soft zones.

2) If you recently inherited property 2, seriously consider dumping it. You get rid of a headache at a stepped-up basis (meaning little/no tax liability). Long distance landlording is a Pain in the Ass from what I've heard. It's hard enough to manage properties nearby. I can't imagine playing phone tag and managing from afar.

In my opinion, the market is not going to turn around in year's time. Fear is emerging in market participants. Fear has a long half-life, particularly when folks have been exposed to a decade long rise topped off with a massive boom.

In conclusion, property 2 is ideal for liquidation, and I would strongly consider selling property 1 sometime between now and 2-3 years from now, so as to avoid capital gains. If I had guess, the risk of prices declines is greater than potential gains from appreciation.

Do not underestimate the pain of landlording. Try to remove emotions from the decision process. Don't be guilty of chasing the market to the bottom. Don't underestimate the value of a good night's sleep.

Regardless of your decision, I do wish you the best luck.
Jurgen

[stomachmonkey]

Originally Posted by turbo6bar

2) If you recently inherited property 2, seriously consider dumping it. You get rid of a headache at a stepped-up basis (meaning little/no tax liability). Long distance landlording is a Pain in the Ass from what I've heard. It's hard enough to manage properties nearby. I can't imagine playing phone tag and managing from afar.

Jurgen

Been trying to dump for 10 months. Never considered it as a rental, the economics were never there.

Firesale price today = price you wish you would have sold at when you think about it next year.

-Wayne

That's pretty much how I've been feeling, at least with property2. Property1 has a lot more upside.

I'm always a fan of taking money of the table. Bulls and Bears make money, pigs get slaughtered.

[Neilk]

What's your price range for housing in Texas? We haven't had any wild increases here except for a few select areas, so I think house prices will be pretty stable in the 400k plus market. New homes on the lower end that were bought be people needing subprime lows might drop some. Good luck.

[Neilk]

Check out this article on the local housing market.

[turbo6bar]

Often-held opinion is that when a property does not sell:
1) Overpriced
and/or
2) Not marketed properly

We are likely entering the initial stages of the first nationwide housing bust. It's anyone's guess where this will go, but I feel confident in saying the next 5 years will be nothing like the past 5. In other words, the worst is yet to come.

[Porsche-O-Phile]

I hate to be a downer, but I seriously think the idiocy of the last few years and the "irrational exuberance" of overly-giddy, get-rich-quick McFlippers is going to SERIOUSLY screw things up for the next 3-5 years and we're going to find ourselves in a prolonged recession directly as a result of the unjustified and unsustainable run-up in housing costs.

"Reversion to the mean" kids, it's inescapable reality.

[stomachmonkey]

Originally Posted by Neilk

Check out this article on the local housing market.

Good article, thanks.

Looks like the DFW area is about a year behind NY/LI.

If the trend holds it may pay to rent.

Bargaining positions should be squarely in my favor in 6 months and I can recoup lost value here in a better value in TX.

[stomachmonkey]

Originally Posted by turbo6bar

Often-held opinion is that when a property does not sell:
1) Overpriced
and/or
2) Not marketed properly

Or as is the case here on LI, excessive inventory, buyers expectations are not in line with the current market values or they are just waiting for it to backslide more, stricter lending practices, banks changing the rules on comps making financing tougher.

It's a cycle, we experienced the same thing in the mid to late 80's.

[Porsche-O-Phile]

"But this time's different!!!"



(it IS! it IS! it IS!!!)

[turbo6bar]

Originally Posted by stomachmonkey

Or as is the case here on LI, excessive inventory, buyers expectations are not in line with the current market values or they are just waiting for it to backslide more,.

Exactly. Properties are not priced at equilibrium.

[Aurel]

Originally Posted by Wayne at Pelican Parts

Firesale price today = price you wish you would have sold at when you think about it next year.

-Wayne

I hear you. Just sold my house for $365k, which I bought for $155k in 1999. I pretty much maxed out all the money that could be extracted from this house.$193k profit after commissions, NJ taxes and loan payoff. Not too shabby, but I still have to double my mortgage for the next house...At least I bought and sold at the perfect times. I am not expecting to do that well next time around.


Aurel

[Aurel]

By the way, we had our first offer after three days on the market, a second one after two weeks. Never even did an open house. How did it sell so quickly when most houses stay 6 mo-1yr on the market in our area?
1. We were not too greedy, listed at the price our realtor recommended.
2. Some nice updates and good maintanance.
3. We had no competition in that price range (for first time buyers).

Aurel