RE Investment Dilemma. What would you do?

[Chocaholic]

I'll make it brief:

Married with three kids (9, 12 and 14)...management job with a large Medical company. Times are tough and, although I'm in good standing, I am somewhat concerned about corporate decisions as we approach our fiscal year-end in the spring. When changes are made...that's typically when it happens. No one is secure these days.

As the RE market began to tank last fall, we thought we'd take advantage and buy a house in Greenville to live in full time and keep our lake-house (where we're living now) for weekend use in the summer. Better schools, more job opportunities for my wife if times get tough, etc.

During our search we came across a new development in a great area. About 45 custom homesites with only three 'spec' homes built so far to seed the project. We stopped and looked at the most desireable of the three. Absolutely gorgeous and far above our budget for this effort. Asking price had just been reduced to $405k. We told the agent it would take a "steal" situation for us to swing it. It's in the best school district near I-car, BMW, etc. Very nice area. Well, we put it out of our mind...kept looking for a while and ultimately tabled the entire idea over fears of job instability, etc.

The plan was to put about 50% cash down and use HELOC or a new mtg to finance the rest. Affordable for us if things stay stable with my job. Idea was to find a $300k house and try to buy it for $225 - $250k. With times getting tougher, we decided to stay put and went about our lives.

Well....the agent at that new sub contacted us saying that it's time for our 'steal'. The builder is eager to get at least one or two houses sold and prospects are bleak right now. Get this....$280k! It really is an incredible opportunity....3400 square feet, granite, hardwood, crown moldings, stack stone, etc., etc.

Would you do it in the current environment? I'm normally very conservative...hence my apprehension. Wife is employable in the medical field if needed and has even begun working part time in case we need some back-up in come. Interested in your thoughts. . .

[VincentVega]

Offer 250, that's your budget right?

[Gogar]

My first thought is to ask if you've pre-qualified for the mortgage you would take out, or if you've investigated the HELOC yet. Credit is a little harder to come by, even if you're more than qualified.

That said, if you have get in a pinch and need to get back into one house, make sure you have enough reserves to 'wait out' the sale of one of the homes. Like, a YEAR or something.

[Chocaholic]

HELOC is secure. Getting the money is not the issue. Would even offer "cash" rather than present the need to qualify for a mortgage. Just concerned about the personal risk/stress if my job were to go away.

[Gogar]

Well, if you string yourself out to offer "cash", then lose your job, you could take out a HELOC on the house you paid "cash" for, to make the payments on the other HELOC you took out on the other house. . . . . . . .

[stomachmonkey]

I'd be more concerned about buying a house in a development that may not sell out.

You could be looking at piles of dirt and living in a construction zone for years.

Not fun. And the house won't appreciate in that situation, in fact you could lose value.

[ben parrish]

Originally Posted by stomachmonkey

I'd be more concerned about buying a house in a development that may not sell out.

You could be looking at piles of dirt and living in a construction zone for years.

Not fun. And the house won't appreciate in that situation, in fact you could lose value.

Good advice. Who will maintain the roads, water system,empty lots, common area, etc. if he goes belly up. While the deal sounds good, how is Greenville's overall job and housing market? If one of the large employers starts laying off workers, the housing market might take a bigger hit.
Basically, if all goes to hell, can you get the money out of the house if you had to sell?

Ben

[911Rob]

Wowsie!
That price is below cost.... way below. Hmmm?
$280K; the lot has to be worth $50K.
House for $230K and it's 3400 sqft.
That's $68/sqft.
With Granite, hardwood, etc. that'd be at least half price on the home construction; maybe more?

Keep in mind this developer is going to be your competition if you ever want to sell. He needs to sell another 40 homes there before any real appreciation kicks in. Buying in sub-divisions like this, that would be my main concern; re-sell value will take some time and the developer will set the values, not necessarily the market.

That being said, this sounds like a great buy and if it's what you want.... go for it.

I'd recommend changing your 'self talk' about your job security though; speak only of what you want. Good Luck Choc!

[stomachmonkey]

One of the other concerns will be what will the developer resort to in order to move the properties.

I've seen them start building smaller homes, less architecturally interesting homes (boxes to reduce cost), offer less options etc...

You could find yourself with $400k worth of house in a neighborhood of $2-300k homes.

[Chocaholic]

You guys are amazing. Great advice. We've thought about the "joys" of living in a construction zone...but didn't really anticipate the possiblility of it being....years. I didn't think about competing with the builder should we need to sell a year or two down the road, especially if the economy doesn't improve.

Rob....I thought it was a good deal, but didn't realize it was that good. Makes me wonder about the builders plans and financial stability. Lastly...your words about not worrying about the job, in place of simply making plans based on imagined doom and gloom. Too much CNN!

Thanks guys. Much appreciated.

[BGCarrera32]

[QUOTE=stomachmonkey;4360461]
You could be looking at piles of dirt and living in a construction zone for years.
QUOTE]

Then take what neighbors you have, get on really good social terms with them, and buy the kids Motocross bikes and enjoy.

[JavaBrewer]

There's a similar scenario being played out here in Carlsbad. The final home development for a new master planned community, Bressi Ranch, with a great North County location (top schools, close to SD, close to beach) . These were the most expensive homes in the community, 6000+ sq/ft homes on larger lots, were initially offered in the low $1M range. Smaller home developments in the community were in the $400-$700K range (in the 2005 market).

Fast forward to today. The models were purchased by an investment company and are un occupied. Of the 35 or so total homes in the plan ~ 1/3 of the homes were sold and occupied. Several of those are now bank owned. About 1/4 of the homes are in various states of construction (empty lots, poured foundations, partial framing, waiting for stucco, etc...) and the construction crews are long gone.

I would be really bummed to be one of the original owners. Here they were thinking they were moving into the "premiere" neighborhood and instead it's little Tijuana... WIth the economy looking like it is I would plan for many years of incomplete status.

Bottom line - I would be very worried about the future of the development and what may happen to the remaining uncompleted site.

[911Rob]

Yeah that price he's offering is sooooo scary.

People in my Region are preaching doom and gloom all the time lately. So far I have seen no sign of it; only a badly needed correction so far. In other words, nothing has dropped to 'below' cost; when people start selling stuff at a loss, then we've shifted from a correction to a recession. Sounds like the area you're in?

At my age, that would clearly mean "Stop" and "Hold", but if I was younger I'm wondering if I wouldn't be looking at buying up the entire sub-division and developing it myself? Ha! About 4 years ago I shifted to the "10 Year Plan", whereby my wife and I agreed that any purchase/play that we made financially we would have to be prepared to accept it for 10 Years, cuzz we knew the correction was a coming. So far, stuff is still moving here, just slower and at a more reasonable price.

Glad you're playing it safe Mike,
Cheers

[jhynesrockmtn]

My Fiance bought in a 10 unit development at the beginning of 08. Right now she's the only owner there. Builder couldn't sell anymore and rented them all out. He's one of the lucky one's and seems to be in a position to carry it until the market turns around.

She's not real happy about the situation but so far it seems to be ok.

If the builder of the development you're considering is not in a position to float the project long term and finish it, I would stay away. Your warranty will be worth nothing and if the development is partially finished you may own something you won't be able to sell eventually.

I'm also not a fan in general of being an early buyer in a new development or brand new homes in general. I'd rather see what something looks like a few years in. How it holds up. There are a lot of 2-3 year old homes around here that look worse than my POS place built in the 50's. Siding sagging, cheap materials, settling..................................

What's the old saying "if it sounds too good to be true, it probably is"

[p911dad]

Choco, I ask what has changed in your life to make you and your wife reverse field and go from staying put, playing safe to "go for it"? If it is the call of a great deal, remember that no deal is great is you (a.) don't need it or (b.) can't really afford it or (c.) worry that external forces may strip you of job and income.
Also, there is some great advice from others above, especially the idea that the developer may never complete the subdivision. We have a subdivision near us that has 3 nice houses out by the main road finished and sold, and the view to the rear is a sea of lots covered with weeds and some framed out shells. Sign falling down.