Hi I need some advice here from experienced investors, etc. I want to buy a new home some time in 2008. The prices in the neighborhood I am interested in are around 650,000-700,000. I have 3 outstanding mortgages and a HELOC: 1. 30 year fixed at 5.625 percent. Owe 315,000 on this loan still. House is appraised at around 620,000. 2. Took out 245,000 HELOC on home from #1. Owe nothing on it though. 3. 5 year interest only ARM that resets in 2010. Owe 108,00 on this. This investment property is in Baton Rouge and would appraise at around 155000 4. 10 year interest only ARM that resets in 2016. Owe 99,000 on this. This investment property is in Baton Rouge and would appraise at around 135000. Right now I only have around 50,000 in cash for a future down payment. My annual income is around 124,000. I get another net 5000 or so from the investment properties in #3 and #4. What should I do? I am assuming that I would have to sell the 2 houses in Baton Rouge. This would get some $$ towards a down payment and also relieve 2 mortgages off of me. What should I do about house #1. Ideally I would like to rent it out for a few years until the market bounces back. Especially since I have a very good interest, fixed interest rate on it. Also, would it be unwise to dip into my HELOC to help my down payment? I can lock in a rate for 10 years and it WSJ prime - 1.01. This may even go lower. I suppose that would depend on what sort of future loan terms I could get. Or should I basically liquidate everything I have? Would that make my next purchase a "primary residence" again with a lowest possible interest rate? Is there anyway I could somehow keep all my properties? I would hate to let go of any investment properties but a 4 mortgage (at around 500+k+ at that!!) would obviously be beyond my breaking point. And the 2 Baton Rouge houses are on interest only ARMs anyways. Any advice is much appreciated. THX!!!!
Wait awhile. Depending on where you are in the country, real estate's predicted to lose 20-30%. $540,000 is easier to swing than $700,000, though it probably means your other properties also go down in value. Also, check with the foreclosure sites and see if a homeowner in your neighborhood is in trouble... at those prices, it's probably just a matter of time. Then make him an offer he can't refuse just before the foreclosure... or talk to a bank that already repossessed a home. Good luck.
I don't mean to hijack the thread langal, but I have a question of my own if you don't mind. I myself am looking at an investment property close to downtown. Its a condo in a highrise and based on a little bit of research the single bedroom units usually go for #350-$550 PSF in similar highrises. I have an opportunity to purchase a 1000 sf apartment for $270,000. At $270 PSF it seems like a good deal. There are renters already in place. After insurance and HOA I'd be netting only $900 to pay a mortgage that will probably be close to $1600-$1800. So after putting down close to $50K downpayment, I would be putting in an additional sum every month. The only positive would be if the property rises in value. This is a distress sale and that is why its cheap at the moment. But with this real estate market I don't know.
Thanks for the advice. You're very correct in that waiting would probably be the wisest thing to do. Just that my kid starts kindergarten in in 2008 and I would like to get her in a good public school by then. I live in Los Angeles so prices will definitely drop some more. Should start keeping eye out for short sale/foreclosures, etc.
no problem at all. I can't really help you with this since I don't live in Houston but i would just like to point out that there are tax benefits that apply to investment properties. You can deduct 3 percent or so of the purchase price of the house each yeah. Also, I'm not sure if Houston is in a GOZONE area but you might want to read up on that too. GOZONE basically lets you deduct half the value of the home in the first year. Don't forget that the interest payment portion of your mortgage is all deductible too. I am guessing that would be around 24,000 a year or so in deductions.
yeah i wish. when a crappy house built in 1960 with a decent school costs around 700,000, just treading water takes a lot. sorely tempted to just move to middle-america one of these days where the homes and schools are nicer.
The thing about real estate is it doesn't appreciate, or depreciate in a linear fashion. Very tough to time. And you're already in the market, and want to stay in the market. You want to move from a $620K house to a $700K house, and you have $50K in cash. You're moving sideways, and a tiny bit up. You're putting a little bit more on the market, so if there's a general decline you stand to 'lose' a bit more -- but, really, unless you were going to get out of the market entirely to time the price drop, you're really only risking the decline on the extra amount invested. Your 5.65% rate isn't so great that it should muddy your decision. Of course, if you want to speculate on the real estate market, that's a different story. I don't know how you'd service $650K plus of new debt on your earnings and still buy the occasional decaf latte, but I guess maybe you could do it. If prices are dropping, then you could sell the $620K house, hold cash for a bit, and buy back in. Or if they're 'recovering, ' you could buy both, and sell the first one when the price goes up enough. But you need to know when the prices are going up, and when they're going down. If you master this, you should put on seminars. So unless you want to speculate, and if you're going to own a house anyway(currently) valued at $620K to $700K you should probably not spend too much effort trying to time the market, and instead find a house you like and give yourself enough time to sell yours. If it's a bad sellers market for your house, it's a good buyers market for your new one. Your investment properties and the small amount of equity in them is almost moot. Evaluate them separately. (note -- this is a different situation from someone trying to get into the market for the first time -- or significantly increase or decrease their investment -- in those cases it may make more sense to time things more).
langal-- It looks to me like you are in danger of getting overextended in mortgage debt. I don't know your other living expenses, but I can tell you that I have seen people with 3 or 4 mortgages end up in foreclosure on at least one of them and ending up in bankruptcy. While your income may be good right now, keep in mind that we are nearing a recession.
Since you live in California, you will want to check out www.foreclosureradar.com for sure. I agree with rimrocker, we may see prices fall 20-30% especially in places like Cali and Florida.
