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Unthinkable Happens: Manhattan Apartment Prices FallPosted by ahc99 on September 8th, 2008

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Photo by Bob Jagendorf

Whodathunkit?!

Like this article states: ‘This Clearly Indicates That the Market Is Not What It Was’

From the New York Sun, apartments in prime Manhattan neighborhoods are actually selling for less than their purchase prices. This is something that has never happened in the New York City real estate market. The newly released city records show apartment sales are falling, which debunks the previous assertions that the New York house markets are impervious to the housing slowdown taking place across the country. In addition, with the ongoing layoffs on Wall Street and an expected drop in bonuses, more apartments are expected to be sold at a loss.

“This is just the beginning,” Mr. Gross, a business analyst at real estate Web site StreetEasy.com said.

I believe this has much greater ramifications than just the Wall Street professionals losing money on their multi-million dollar condos, it shows that much of the effects of the sub-prime mortgage crisis that were initially thought to only affect the lower ends of the social ladder are now spreading throughout the country and into all social circles. It goes to show that no one is immune to the affects of the housing crisis.

In addition, it seems the affects of the sub-prime mortgage crisis are also bleeding into various other industries. It has sparked both the ongoing credit crisis and banking crisis (much due to the reason that financial/banking companies are now risk-adverse and afraid of finding any other hidden “surprises” in their financial statements).

This is just the beginning indeed.

Is It Better to Buy or Rent?Posted by ahc99 on September 3rd, 2008

Tool by New York Times

In today’s unsure housing markets I still see people grabbing housing opportunities hoping to have landed buys at a market bottom. I personally know three people that have scooped up either foreclosed or bank-owned houses in the last month. It’s understandable though, they wanted to move out of their rental homes/apartments and finally live the American dream by moving into a house. But truthfully? I think doing that right now is like investing in the financial market, you are trying to catch a falling knife. You just don’t know if you’re gonna screw yourself over later on. Of course, if you find a really good deal (and I mean really good) then I say go for it. But there’s a couple of things you need to keep in mind if you decide to go from renting to buying:

• Mortgages are harder to get now and so the Interest Rate you need to accept and/or points you need to pay are greater, making the loan even more expensive than before.
• You need to pay property tax, an expense you wouldn’t need to pay as a renter. In addition, in an overpriced housing market (which it still is, ortherwise it wouldn’t be called a buyer’s market) the amount you are paying for property tax is also exaggerated.
• You need to pay for property insurance
• Maintenance/Repair fees, which can be much greater than you expected… especially if you bought an REO or foreclosed house since the prior tenants have little incentive to upkeep the house (I’ve already read horror stories of smashed walls, broken windows, stolen sinks and bathtubs).
• AND most importantly, house prices are still falling (the inventory of unsold homes just keeps on increases every month) so even if everything else is okay, you don’t want to be stuck with a home that has a more expensive mortgage than it can be sold on the open market.

However, if you find a good house on the market and are torn between renting and buying, a good place to start is with this tool that the New York Times had created to help you calibrate which would be a better path to take.

Mortgage CalculatorPosted by ahc99 on September 3rd, 2008

Tool by BankRate

One of the best tools I use online is the Mortgage Calculator that can be found at Bankrate.com. I use it every time I find a good housing deal (REO, foreclosure, FSBO, etc…). Basically, to use it you input the following information:

• Mortgage amount (the total amount you have borrowed)
• Mortgage term (the length of time you have to pay off the loan)
• Interest rate (the exact annual interest rate of your mortgage)
• Mortgage start date (when you took out your mortgage)

From this the calculator will output your monthly payment and present an amortization table showing how much of the loan you owe after every passing month and when it gets paid off (hopefully it decreases per month and you didn’t get just an interest-only or balloon payment loan).

In addition, one of the advantages of using this calculator is that you have the option of seeing how extra payments can affect your overall loan amortization. It lets you add extra money to your monthly mortgage payment on a recurring monthly basis, yearly basis, or one time basis. I can’t tell you how useful that tool has been in calculating our own home mortgage. Every time we have extra money to use, we go to this website tool and check how our loan would be affected if we used the money to pay off the mortgage. Usually after doing that we have enough motivation to not spend the money on a big screen TV or vacation and instead we use it to just pay off our loan.

Bank Owned (REO) versus Foreclosure PropertyPosted by ahc99 on May 8th, 2008

With the sweep of foreclosures and REOs hitting throughout Southern California, it is tempting to start looking for good investment deals. The key is to find one property that can grow it’s own equity. I want to find a property with a monthly rental income that is able to cover it’s own mortgage expense, home insurance, property tax, and Homeowner’s Association (HOA) fee. And of course, I’ll be putting 20% down, even though some REO’s are now only requiring you to put 3% down (which is basically no money down, and we all know how well that worked out in the past).

Talking to our real estate agent yesterday, we found out that the best deals currently around the Los Angeles region are either Bank Owned (REO) or Foreclosure properties. So we asked what is the difference between these two types of properties and she told us:

• Foreclosure properties happen when the homeowner cannot pay their monthly home mortgage and are usually behind by three payments. The lender then files a Notice of Default and starts the foreclosure proceeding by trying to sell the property at a foreclosure auction. Usually the auction price starts with a minimum bid that includes the loan balance, accrued interest, attorney fees, and any other costs associated with the foreclosure process. An important thing to note is that the property is sold in an “as is” condition, which might include a disgruntled tenant still living in the property, property in a run down condition, or having other liens against the property such as a second mortgage. Thus, before buying any foreclosure property it is crucial to see pictures of both the interior and the exterior conditions of the property. Also, make sure to do a title search and verify there are no other liens against the property.
• Bank Owned (REO) properties are those real-estate owned properties (hence the REO) that were unable to be sold through the foreclosure proceedings. Thus, they revert back to property of the bank and is sold by the bank on the open market. Since the property is now owned by the bank, the previous mortgage loan no longer exists. In addition, the bank will handle the eviction of the current tenant and help perform some of the necessary repairs on the property. They also will negotiate with the IRS for removal of the tax liens and pay off any HOA dues. When a REO is sold, they receive a title insurance policy against any outstanding liens on the property. However, like the foreclosure property, banks also sell the property in an “as is” condition, but unlike how foreclosure properties don’t let you actually walk in and see the property, most banks will allow you to get all the inspections you want. Thus, with a REO, the buyer doesn’t need to beware as much.

After hearing about both types of properties from our real estate agent and investigating more online, the REO sounded like a much better investment than the foreclosure property. In addition, the bank has a higher incentive to get rid of the property because they don’t like to keep illiquid investments on hand. And with property foreclosures triggering all over Los Angeles, you can bet that the banks have a much larger than normal inventory of REOs.

Just asking our real estate agent yesterday about available REOs yesterday gave us two leads in the Diamond Bar area. Currently there are two REO condos in Diamond Bar selling for $200,000 each. Both are two bedroom and two bathrooms. The HOA fees for both are $400 and $250 a month. All things being equal, the $250/month REO condo sounds better since the HOA is a recurring monthly fee that would eat into my profits. We further asked about the going monthly rental income rate for condos in that area and she said it was $1,250 a month. That sounded about right. So then I fired up Bankrate.com to see what would the monthly mortgage payment be if I put 20% down on a $200,000 property, spread over 30 years at a 6.0% rate. After inputting the variables, it said $959.28 a month. Adding in the HOA fees ($250), home insurance ($50), and property tax ($166) would amount to $1,425 a month in costs. This would then put me in a hole by $175/month. Unless the rent can cover the $1,425 of costs I don’t think this would be a good idea. Otherwise, another alternative would be to put a larger down payment. I would then need a down payment that could decrease my monthly mortgage payment to $784/month. Using Bankrate.com again, I calculated that I would need to put about $70,000 down to accomplish that. A final way would be if I can get a lower interest rate than 6.0%. I need to rethink my options and see what is the best course to take.