Posted on 04/20/2007 6:27:01 AM PDT by RexTheRunt
Did she make a "down payment" (remember those? Some of us are old enough to) and refrain from getting a refi for those improvements?
My SIL and her husband did the same thing with a car. He wanted to trade it after a year and owed more than it was worth. He couldn’t understand it... of course missing a couple payments in that year certainly didn’t help and explained why the bank wanted to give him his next car loan at 24% interest...
Taylor, a high school teacher, said,
“I don’t think I can take $100,000
into the stock market and lose it faster.”
Gosh, folks. Sorry it didn’t work out for you. Reality bites sometimes.
Near the end of the cited article, we find out that Mr. Taylor makes $70,000 per year.
There is no planet where the laws of economics apply on which you can buy a house at 8x your income and expect to be able to keep it.
They might have been using two incomes to afford it. If she made as much as he did a $140,000 income could have afforded the house.
That is why when I pass through the D.C. suburbs of MD and VA I see, too often, typical middle class homes with 3 or 4 taxicabs parked outside.
Another lesson - real estate is not a short term investment, and neither is the stock market.
I know he didn't expect to sell the house 5 months after buying it, but he is. He made it into a short term investment.
He could have very easily lost $100K in the stock market by investing $538K and selling it 5 months later.
No financial planner worth anything would say that the stock market is a good short term investment, and neither is Real Estate.
Where's my bailout? Who's gonna help me? Why can't I get my story in the paper? WAAAAAAHHHHHHHH!!!
sarcasm off
And this high school teacher is teaching our kids??!!
Also..he may have to pay taxes on that $100,000 loss. The Feds may determine that the forgiven amount of the short sale was income. His pain is not over.
stocks, effectively zero carrying cost compared to RE taxes, HOA fees, insurance, maintenance
stocks, effectively zero transaction cost as compared to 5-8% cost to sell RE
stocks are liquid and traded at a consistent price, you don't have to haggle
Against that, if you happen to get into RE at the beginning of a once-in-a-century bubble, you can make out like a bandit if you get out in time. But that can happen in the market too......
Why does the expensiveness of the locale have ANY bearing on how reasonable the cost is, given a specific income?
Either you can afford it, or you can't. It doesn't matter what your neighbors can afford.
Oh yeah, one other point, it’s a lot easier to diversify $100,000 in the market than in buying houses.
When ever it is a seller’s market, and I need a home, I build it myself and broker the materials. In doing so, I immediately gain 50 to 70% equity, no matter what the market is doing.
In a buyer’s market, we look at newer, well built homes that are priced at 50% of their seller market value.
We’re on our 6th home, and became completely debt free after the sale of the second one. The last 3 sales, netted us at least 100% of the original investment.
Our 6th home is our last, because it is truly built exactly as I and my wife want it. We will retire in this one.
What we’ve learned over the years is, the Housing market is always in and out of buyer’s and seller’s markets. Knowing how to take advantage of this phenomena are the keys to turning a profit. Like the stock market, long term stability is critical to any gains.
Americans expect instant gratification these days and wonder why they can’t make a killing with such stupid moves, like the people illustrated in this article exemplify.
I think most of her problem was overpaying in the first place for a house in an area with a crummy economy.
Heck when I moved from there (Akron) in 1982 it was lousy.
And you're paying 2x-3x the going rental rate (in the major bubble areas)
And you're paying the taxes and insurance on top of that.
And you can't bail out on short notice like a renter.
But of course you do get to paint the walls a color you like better, and put some nails in the wall to hang your favorite pictures....so I guess it all works out, huh??
I think you can have a prepayment penalty clause to drop a little off the APR. Such a clause is usually just in the first 3 years if I recall correctly.
I ended up going a different route (FHA loan), so I didn’t investigate any further. I will have to pay a recapture tax if I sell before 9 years and make more than a certain threshold on the house, but for a full percentage point lower than comparable 30yr fixed, it was worth it.
But I also don’t plan to sell within a year of buying it, unlike the people in the article.
Depending on what they had in the way of a down-payment, $140K a year still doesn't leave a lot of money left over, if you're paying off a $500K + mortgage. What about retirement savings, and other expenses?
This is one example of how foolish (maybe just naive) Americans can be--considering how much the real estate market has changed in the past year or so, and they think they're going to realize equity in a house deal.
The markets have shifted, and yet, there's this tone of blame throughout the article. "Woe is me...something's terribly wrong with the economy, because I can't continue to make in excess of 20% on a real estate deal..."
Bought my house in close-in Arlington, VA for a little over 400K in 2001. Now (based on recent sales in our neighborhood) it’s worth at least 800K. You can walk to the Metro subway station from our neighborhood, so we haven’t seen any decline in house prices here. That’s pretty typical in the traffic-choked Washington area: if your house is within walking distance of a subway station, you’re virtually immune to any decline in real estate values.
As a federal employee, I’d say my real estate investment, together with my pension and federal 401K plan will provide for a very comfortable retirement.
The 100k is income only if the debt is forgiven. He either owes the 100k or owes the taxes. Never both.
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