The Money Mustache Community
Learning, Sharing, and Teaching => Real Estate and Landlording => Topic started by: groove251 on March 25, 2017, 02:14:38 PM
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I was wondering if I could get some advice from you guys. Due to a number of circumstances, I can't help but feel like the real estate market is poised to fall again. My concerns are due to:
- Bad ratio of income vs. housing costs in most cities
- Unsustainable appreciation rates over the last two years
- Interest rates starting to rise (slowly, but still...)
- Everyone saying how great everything is (this scares me the most)
My situation is I have about $500k in equity in my house in Portland (I owe around $250K still). My job isn't dependent on local econmy. The house is in a hugely desired area that is walkable to everything and the house is beautiful. I've spent the last 4 years remodeling it and it would sell quite fast. Based on these factors, I was thinking of selling and renting in a less expensive city for a few years while this whole market falls apart again, and then buy my next property outright (with rentable adu or duplex).
Any thoughts or advice?
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I'd sell. Get rid of the mortgage, reduce your monthly payments AND pocket $500k, that's a pretty good deal. I too think housing will take a dive, maybe not this year, but probably within 2 years. You could hold on a little longer and get a bit more $$, but that's a lot of risk, IMO.
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I also think it is going to definitely slow down and then dive in the next couple of years . . . my local market is just starting to show the signs. I've actually stopped looking at new property as the valuations are getting too high in my areas of interest, and I'm just going to hold steady in a cash accumulation phase for a bit to see what happens.
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Thanks guys, it makes me feel better about it to hear you guys thinking the same thing. Portland prices are INSANE right now. Out of 11 homes in my neighborhood, 9 of them are priced over 1 million. Despite wages not growing at all. Makes no sense.
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I generally feel the same way. Pay is going up way slower than housing prices in many (most?) mid to large size metros. Couple that with higher rates and I don't see how prices don't drop at least some but I don't think it's anywhere as bad as 2008. All of this assumes a rational market but that might not be true.
In your place, I would probably rebalance my NW to have less tied up in the house unless I was planning to stay in the home for years. What worries me is that so many buyers are stretching to purchase based on two good incomes so, during a recession, there really isn't much insurance provided by having two incomes if one is lost since the other can't keep up with mortgage, car and student loans.
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What worries me is that so many buyers are stretching to purchase based on two good incomes so, during a recession, there really isn't much insurance provided by having two incomes if one is lost since the other can't keep up with mortgage, car and student loans.
Yes, it's called "Harvest Season" by landlords.
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Successful RE markets, like CA and Australia, have had ridiculous price/income ratios for decades. Desirable places to live appear to support higher RE valuations.
In some sense, I think it's related to wealth inequality. In these places, an unusually high percentage of people are renters and only the lucky few can ever actually own property.
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The Sacramento area is at the same level it was in 2007. I hope that we see a drop in the next couple years as we are at the point in our life where we would like to settle down soon...
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Unless there is a major shock to the economy, I would expect prices to level off and drop a few percent in the less desirable areas. Portland is becoming another highly desirable HCOL city, and Sol's comment about valuations in desirable locations is spot on. When the economy sours, you could see more of a drop. A 50 percent haircut? You need another 2008 to get that.
As an investor, I am selling a few rentals and using proceeds to pay off mortgages. It's a better uses of my capital when cash yields are so low and most of the appreciation in this cycle has already happened. However, investors have little effect on the HCOL markets, except for the foreign money seeking a safe haven. Making foreign investment difficult in Vancouver has affected the market, but not enough to make it profitable to have sold at the peak and buy back now.
Consider your selling costs and how much if any tax on the capital gain you would have to pay as part of your analysis. You may find the total cost of selling might be more than what you would gain by selling and buying back.
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I know a very wealthy couple that was considering retiring to the PNW. They would have bought a pricey house with assets accumulated elsewhere over a lifetime. Think of mustachian retirement math and then add on an extra decade of work. It would be easy to accumulate an extra million if one really wanted to retire someplace like Portland. Housing prices are not driven only by salaries.
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My feeling is that 2017 is a bit different from 2007 because if anyone said "Real estate never goes down" or "Your house is your best investment" in 2017 they would be laughed at.
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My feeling is that 2017 is a bit different from 2007 because if anyone said "Real estate never goes down" or "Your house is your best investment" in 2017 they would be laughed at.
You give people too much credit...most just think it won't happen to them.
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The areas we're talking about are all places where rich people live, folks. Bay Area, Portland, NYC, etc.
Rich/very upper middle class people have done awesome in the last few decades. I am not surprised that the places they (we) want to live continue to appreciate. Many of them have limited housing stock and/or very restrictive zoning that prevents dense/high housing or even new building at all for all practical purposes. That's a formula for crazy prices without any need for irrational buyers or an impending crash.
When crappy condos in the Central Valley or Phoenix or random places in the midwest are going for $400k in a bidding war, then I'll be convinced. Those folks here who have gotten a mortgage in the last few years know very well that no doc/stated income kinda stuff doesn't fly these days, too. Totally different situation than 2005.
Now, that said, I could see interest rates causing a *very* long stagnation in house prices at least at the high end. Demographics right now is going to mean that the entry level will do great in terms of demand (but prices may stay the same/go down as new housing gets built).
-Walt
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Thanks for the reply everyone. Very interesting to hear your thoughts.
To answer a question from above, our profit from the house will fall under the limit for capital gains on real estate, so we won't be taxed on that. I'll be selling the house and offering a 3% commission to a buyers agent, so that cost will be around $22,500. So we will have right at $500,000 after all is said and done.
In terms of city prices, most of the major cities are really appreciating at a rapid rate. Portland has appreciated the fastest of any US city during the past 3 years (along with Seattle and Denver). The difference in many of these cities is that pay has not come up to match the cost. In San Fran. and NYC, the wages are much higher. Portland has an average pay of $40,000 per year. But you can't buy a house for less than $500,000 in the city. Those numbers are wonky and unsustainable. It doesn't matter how cool a city is if the underlying numbers don't support living there. I realize´there are people here who don't work in the local economy (like myself) and that number isn't reflected in the average, but still.
Many of the rapidly appreciating cities don't have incomes to match cost. I was offered a department management position in Denver for $60k. That job normally starts in the low $100k range. Real estate there is on par or a little more than Portland. Just the income to cost ratio of these cities makes me think it's unstable and unsustainable.
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Those numbers are wonky and unsustainable. It doesn't matter how cool a city is if the underlying numbers don't support living there.
It's not the cost of living there that is high, it's the cost of buying real estate.
The difference is important because rents are a much better indication of local salaries than are home prices. In places where home prices go through the roof but average incomes don't rise very much, like many of the places we've talked about, most people just rent. How many people do you know who own single family homes in New York City, or Seattle, or San Francisco? Only the very richest folks buy in these markets. Ordinary folks rent, which is much more affordable.
This makes these particularly bad markets if you're a (cashflow) real estate investor, compared to places in the midwest, because you will have to spend much more to acquire a property for a given rent value. People who already own these properties are reluctant to sell, because prices are rising 5 to 10 percent per year and their equity is increasing by two or three times the dollar value they could collect in rents, so no new equilibrium is reached.
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I live in the midwest. Salaries are low. The fuel to the crash IMO is the fact that america still can't come up with 20% down. The buyers around me want to buy all kinds of things, but they end up only able to buy "Perfect" homes through the FHA loans. They are more strict on the inspections, and many properties can't qualify. I use this to buy "less than perfect" houses for cash. Need a roof, needs windows, needs HVAC, needs electrical work. The seller is usually maxed out, can't afford the upgrades and sells for pay off. It usually takes a year of rotting on the market before I can get it. Will it crash? not as bad as 2007. Will it stagnate? Yes.
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The person making $40,000 and couples making $80,000 in Portland are not in the market for houses in Portland and have not been for a long time. They may own houses that they bought before Portland became expensive, they may rent in Portland, or they may live far enough outside of Portland to afford a house and commute a long distance. They are not part of the effective demand for Portland houses.
In the Bay Area, people commute to work from the Central Valley to afford a house. As the population increases, so does the commute radius. As long as there are plenty of households with incomes of $200,000 or more and people that have cash, houses in Portland and other highly desirable areas will continue to be very expensive and to appreciate.
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My feeling is that 2017 is a bit different from 2007 because if anyone said "Real estate never goes down" or "Your house is your best investment" in 2017 they would be laughed at.
You give people too much credit...most just think it won't happen to them.
You're assuming they actually (a) think about the topic or (b) actually noticed the cause of the problem last time or (c) bothered to remember.
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I live in the midwest. Salaries are low. The fuel to the crash IMO is the fact that america still can't come up with 20% down. The buyers around me want to buy all kinds of things, but they end up only able to buy "Perfect" homes through the FHA loans. They are more strict on the inspections, and many properties can't qualify. I use this to buy "less than perfect" houses for cash. Need a roof, needs windows, needs HVAC, needs electrical work. The seller is usually maxed out, can't afford the upgrades and sells for pay off. It usually takes a year of rotting on the market before I can get it. Will it crash? not as bad as 2007. Will it stagnate? Yes.
Yeah, this scenario (nobody can afford anything, houses sit on the market forever, investors swoop in to pick up distressed homes, etc) is the *opposite* of what you'd expect in a RE bubble.
The Midwest writ large has been hollowing out for a couple of generations, though. Not so much Portlandia and the Bay Area and ski towns/resort towns.
Really I think the story here is about the massive income/wealth inequality gap. Rich folks are congregating in desirable spots and house prices that seem crazy to middle America are no big deal.
-W
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My advice, for what it's worth, is that you should avoid making a big-time bet based on speculation about what the local market might do. Even if you are correct about a crash coming at some point, you could be off by years as to the actual timing.
If it makes sense to sell and buy a place in a less costly area, then by all means, do it. But it needs to make sense regardless of what will happen in your current market, which you shouldn't assume you can predict.
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Once you sell and cash out, where would you put your money? Put it all into S and P?
People are saying the same thing about S and P, that it's an all time high and may crash.
Other peoples thoughts about putting it all into S and P?
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It's kinda sad, but the middle class spent, and borrowed itself into extinction. Diversification is the secret to the housing, investment. In 2007 my dad's stocks tanked... His rentals went down in value, but the rents never changed. Now the rents are all higher and the real estate is still under priced. His stocks rebounded, but the rentals carried him. I max out the retirement at work, and try to add 1 house a year. I want to stop at 8 houses. that should be a cozy $50k a year income from the rentals. Everything will be paid off, and then it will be up to the wife when she fully pulls the plug. Is the market gonna crash? For our sake, I hope so! For all the sukka's that are running on fake bank money and "equity"... They better go to church.
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I agree with some of your conclusions, but not your reasons for them...
My situation is I have about $500k in equity in my house in Portland (I owe around $250K still).
Wow. Even without getting mortgages on the rentals, this amount of cash is enough to support $40,000 of cashflow in my neighborhood.
My job isn't dependent on local econmy.
The best way to leverage your job is to live somewhere cheap. You could sell this house, buy 3 houses in cash that rent out for $1500/month each. Get a property management company to handle finding tenants and checking on properties. You could even move to an expat beach in Mexico, live on the rental income alone while saving 100% of the income from your location-independent job. Years later you'll have a fortune saved to rule the world return to the overpriced Portland market.
I was thinking of selling and renting in a less expensive city for a few years while this whole market falls apart again, and then buy my next property outright (with rentable adu or duplex).
Any thoughts or advice?
Considering how far your money goes in so many other parts of the country (if not the world) I think getting out is a great idea. Planning to get back in is possibly not such a great idea, but years of living it up in a low cost of living area with a high income might get you used to the good life. If you keep watching Portland area real estate, and it doesn't crash for a DECADE, will you get disillusioned and buy back in anyway at high prices?
I find it crazy ironic that the World Wide web created pockets of expensive real estate markets like Silicon Valley in California, and Portland Oregon, when the technology itself doesn't really require these areas. You're finally starting to see technology startups in midwest locations where rent and electricity is cheap. I think that trend will continue.
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Once you sell and cash out, where would you put your money? Put it all into S and P?
People are saying the same thing about S and P, that it's an all time high and may crash.
Other peoples thoughts about putting it all into S and P?
Well, setting aside it's current valuation, the S&P has historically returned about 7% after inflation. Housing has returned about zero (obviously some locations have done much better or much worse than that).
So if you're uncertain what to invest in, the choice is IMO pretty easy.
-W
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Once you sell and cash out, where would you put your money? Put it all into S and P?
People are saying the same thing about S and P, that it's an all time high and may crash.
Other peoples thoughts about putting it all into S and P?
Well, setting aside it's current valuation, the S&P has historically returned about 7% after inflation. Housing has returned about zero (obviously some locations have done much better or much worse than that).
So if you're uncertain what to invest in, the choice is IMO pretty easy.
-W
Return is composed of two things, income and appreciation. Ir's quite possible to make 10 percent per year in income on real estate that does not appreciate. It's also possible to lose money in cash flow on an income property in the Bay Area and make a large net return on the resale (if you bought right).
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Once you sell and cash out, where would you put your money? Put it all into S and P?
People are saying the same thing about S and P, that it's an all time high and may crash.
Other peoples thoughts about putting it all into S and P?
Well, setting aside it's current valuation, the S&P has historically returned about 7% after inflation. Housing has returned about zero (obviously some locations have done much better or much worse than that).
So if you're uncertain what to invest in, the choice is IMO pretty easy.
-W
Return is composed of two things, income and appreciation. Ir's quite possible to make 10 percent per year in income on real estate that does not appreciate. It's also possible to lose money in cash flow on an income property in the Bay Area and make a large net return on the resale (if you bought right).
All completely true, but in the aggregate stocks have historically been a better investment by several orders of magnitude, even if you include rental income/reinvestment. Capital as a class has accumulated more and more of the real economy in that time, and stock prices reflect that.
I mean, you could cherry pick BAD real estate numbers too, right? I'm not picking any stocks here, just saying you're buying into the whole market (which admittedly would have been a lot harder to do 100 years ago). If you did the same with RE (say, 1000 houses scattered randomly around the country) you'd do much, much worse.
https://en.wikipedia.org/wiki/Case%E2%80%93Shiller_index
-W
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Once you sell and cash out, where would you put your money? Put it all into S and P?
People are saying the same thing about S and P, that it's an all time high and may crash.
Other peoples thoughts about putting it all into S and P?
Well, setting aside it's current valuation, the S&P has historically returned about 7% after inflation. Housing has returned about zero (obviously some locations have done much better or much worse than that).
So if you're uncertain what to invest in, the choice is IMO pretty easy.
-W
Return is composed of two things, income and appreciation. Ir's quite possible to make 10 percent per year in income on real estate that does not appreciate. It's also possible to lose money in cash flow on an income property in the Bay Area and make a large net return on the resale (if you bought right).
All completely true, but in the aggregate stocks have historically been a better investment by several orders of magnitude, even if you include rental income/reinvestment. Capital as a class has accumulated more and more of the real economy in that time, and stock prices reflect that.
I mean, you could cherry pick BAD real estate numbers too, right? I'm not picking any stocks here, just saying you're buying into the whole market (which admittedly would have been a lot harder to do 100 years ago). If you did the same with RE (say, 1000 houses scattered randomly around the country) you'd do much, much worse.
https://en.wikipedia.org/wiki/Case%E2%80%93Shiller_index
-W
You don't do that in the stock market because it is very difficult to pick winners. The aggregate market is the measurement standard. In the real estate market, someone with experience and some skill will do much better than the aggregate real estate market. If you are not making stock market returns or better in real estate, including both appreciation and cash flow, you are taking on more risk than is justified by the reward.
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Yeah, it's definitely apples to oranges - RE is running a business/using skill. Stocks is just going along for the ride (if you're smart).
-W
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All completely true, but in the aggregate stocks have historically been a better investment by several orders of magnitude, even if you include rental income/reinvestment.
...
https://en.wikipedia.org/wiki/Case%E2%80%93Shiller_index
-W
Do you have a better link for rental historical performance? The one linked to only says this:
"The index is a simplification of home values and does not account for imputed rent and home mortgage interest deduction, both of which are included in profit/loss considerations for investment purposes."
My real estate purchases have been useful because you can't buy stock on margin with 20% down, on a 30-year repayment plan where the dividends cover the loan payments, and where your loan is never called if you continue making the payments.
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Do you have a better link for rental historical performance? The one linked to only says this:
"The index is a simplification of home values and does not account for imputed rent and home mortgage interest deduction, both of which are included in profit/loss considerations for investment purposes."
My real estate purchases have been useful because you can't buy stock on margin with 20% down, on a 30-year repayment plan where the dividends cover the loan payments, and where your loan is never called if you continue making the payments.
We discussed this in some depth in a thread on the RE forum about failure modes/equivalent of 4% rule for RE. There is very limited data on rental rates, and rents are very region-specific (or even town specific). OER goes back to the early 80s I think but it's a national aggregate.
The general consensus, though, is that rents rise with (wage) inflation. This makes sense if you think about it a little - if a worker spends 40% of their income on rent, and rents only rise, say, 2% faster than inflation, then in 35 years that same worker needs 80% of their income to pay rent. Obviously that won't work, so rental rates are restrained by wages in general.
If you sit down and work through all the numbers on a 1% rule rental property, you end up right around stock market returns (but with the bonus of the principal paydown and the negative of possibly higher risk).
-W
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Just chiming in to say that banking on a RE crash in Portland is a very risky proposition. The fact is that Portland is most likely the newest member of the Bay Area/Seattle/Vancouver triumvirate. Prices aren't going up because people are over-leveraging themselves, prices are going up because demand is shooting through the roof. People are trading their Seattle and San Francisco houses for an upgrade in trendy Portland of the NW, a city with all the charms of the other large western cities, but without many of the annoyances of its larger neighbors. If anything, I wouldn't be surprised to see Portland's market continue upwards. Hell, even secondary western cities such as Bellevue, Tacoma, Eugene, Salem, Corvallis, Bend/Redmond, Ashland, Redding, Sacramento, Santa Rosa, etc are going through their own mini-booms.
I could see the market flattening out... I would be very surprised to see it actually drop. How did the 2008 crash affect San Francisco and Seattle? How quickly did they recover? Now the markets their are above where they were during the previous bubble and still climbing. Unsustainable? It's hard to say, but given the economic growth in the tech sector, I wouldn't bet on it.
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His rentals went down in value, but the rents never changed. Now the rents are all higher and the real estate is still under priced.
I don't want the rental houses I bought to go up in sale value until it's time to sell. (Then I want them to skyrocket up in value!)
Why?
Because as long as I hold on to them the property taxes will be lower.
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Even though pops was happily retired, he bought two more when the market tanked... The numbers were just too good not to add more... Added another $1400/mo for a $85k investment. He is now selling off one because he is 72. It's time for him to start downsizing as the income is less important. Sold his weakest one and added two of his best.
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We live in the heart of Denver. We're fortunate that our rent went form 700 a decade ago to 850. Rents around us are 1600 and 1900 for 2bed. Houses in the area sell for 300-600k right now.
Wages have nowhere near kept up, so I hope that there's at least some leveling off as the builders catch up. I'm not terribly convinced we'll ever own unless a crash happens AND our incomes go up a the same time.
We probably still spend more than is healthy, but a full 24% of my income goes into 401k before I touch it, and most months I put away 1500-2k cash per month. There's still A LOT of frippery, like fancy pants vacations. We spent like rockstars from Nov to now. A car (3500), new couch, and a new computer for me. But to hell with it, we have no debt and we use all that stuff every day.
I know single people who make less than me that live far beyond their means. New new car, 2k/mo rent, never cook a meal, etc. Fortunately most of them are much younger, so there's hope :P.
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You should sell your house. That seems like a better idea in current situation.
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Where would you go if you do decide to sell and leave?
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I find it crazy ironic that the World Wide web created pockets of expensive real estate markets like Silicon Valley in California, and Portland Oregon, when the technology itself doesn't really require these areas. You're finally starting to see technology startups in midwest locations where rent and electricity is cheap. I think that trend will continue.
You seem to underestimate the synergy that can happen in a tech concentrated place like Silicon Valley. Everyone knows someone who knows someone that can help entrepreneurs get things done. Much harder to establish solid networking contacts when you work from home in some remote locale. It works very well for its market.
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I think if we were going to sell, we would move to a smaller city with hopefully a similar attitude that Portland has. Asheville NC is on our short list. We would buy a place there with an ADU or duplex to rent out and pay for the whole thing with cash. That would take our $1425 a month mortgage and turn it into about a $1000 or so income. Not too shabby of a plan I think.
If we leave Portland, we wouldn't want to come back. The weather is pretty hard to take and this year has been brutal with rain almost daily since late October. That's 6 months of straight rain and it's still here. Kinda hard to take that if you like being outside a lot (which we do).
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I think if we were going to sell, we would move to a smaller city with hopefully a similar attitude that Portland has. Asheville NC is on our short list. We would buy a place there with an ADU or duplex to rent out and pay for the whole thing with cash. That would take our $1425 a month mortgage and turn it into about a $1000 or so income. Not too shabby of a plan I think.
If we leave Portland, we wouldn't want to come back. The weather is pretty hard to take and this year has been brutal with rain almost daily since late October. That's 6 months of straight rain and it's still here. Kinda hard to take that if you like being outside a lot (which we do).
I was curious to see if you had other interests in leaving PDX or if it was just a money thing. I guess you do.
Asheville's not as bad as Portland for price appreciation, but I think it's having a bit of the same problem. It seems like most of the places with a similar attitude to Portland are getting a bit pricey.
I was wanting to move back to Portland in a few years when we hit FIRE, but I don't think I'm willing to stack that much up any more. It will probably be Chattanooga or maybe even Mexico for us.
I think that at some point prices are going to drive out the people that made Portland a nice place to live in the first place. Not all that long ago Portland was a cheap place for unconventional people to go to work to live instead of living to work. Not so much anymore. You'll have to come back and let us know if you find somewhere that's still like that.
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Two questions for the OP:
1) How close to FIRE are you and/or what is your net worth? If trading your Portland house for a similar place in Tulsa or Nashville left you with, say, $1M in liquid assets, then you could retire immediately because the numbers are so much different in flyover country. I would do that in a heartbeat rather than working extra years to afford a more expensive house.
2) To buy a "protective put" on your housing investment and limit the impact of any market crash, you could take out a loan on your home equity and invest the proceeds in relatively safe assets with yields similar to your mortgage. If your home loses half its value, let it be foreclosed. You might lose 20%, but as long as you walked away, that's all you'd lose. With investment yields offsetting interest expenses, and the mortgage interest deduction offsetting the taxable income from investments, the cost of this put option is just the fee for setting up the loan.
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US housing has been cheap for a long time, and there's plenty of room for prices to grow. Look at other worldly cities for comparison.
North America: https://www.numbeo.com/property-investment/region_rankings.jsp?title=2017®ion=021
Europe: https://www.numbeo.com/property-investment/region_rankings.jsp?title=2017®ion=150
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PTF
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I would argue that nobody knows what the future will bring.
Your location may become the galactic hub for the next most amazing business that does not currently exist or maybe the ground zero for the newest bubonic plague.
If you feel like your money could be better invested elsewhere, sell and do that.
We all can notice possible or likely or even educated guesses about the future but nobody KNOWS.
Do what helps you sleep at night.
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I would argue that nobody knows what the future will bring.
Your location may become the galactic hub for the next most amazing business that does not currently exist or maybe the ground zero for the newest bubonic plague.
If you feel like your money could be better invested elsewhere, sell and do that.
We all can notice possible or likely or even educated guesses about the future but nobody KNOWS.
Do what helps you sleep at night.
This is the best answer. No one can predict the outcome of housing prices.
But there is always something to say for spreading your assets. That is a good argument for selling your house and investing the profit into different things.
I am a bit in the same boat as you. We have 80% of our money invested in one house. Our government is making it less attractive to buy a second house. Therefore experts believe the housing prices will stagnate and even drop a few percent in the coming years. Is it smart to keep living in our house until FIRE (in 7 years) or should we have invested the money in many other things? We'll never know.
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You also need to take into account that you are better positioned and prepared to sell and buy. Everyone other than us (mustacians) blinded by the landscaping, granite, and stainless appliances. They pay top dollar (someone else dollar) for everything in order to maintain their image. It is safe to assume that you can sell and buy and come out ahead. The only exception to this is if you have a very specialized home. I live in a beautiful big house that I bought at the lowest point in the crash. I have it financed at 3.5% fixed for 30 years. It is a great home for my family. When the family is grown, the wife and I will sell this property and remodel a smaller home for sustainability and retirement. I will then sell of the big house and reap the benefits. Sounds like you have the same plan, just make sure you do it your way on your terms. The coolest part of being stable is we have the luxury of making big moves on our terms rather than rolling from crisis to crisis.
Every time I turn over a rental I always love to hear the sob stories of "poor me" and then throw away fast food bags, pizza boxes, broken Chinese plastic junk, and clothes. This is my saddest time because I am sustaining my family and retirement from the bad decisions and lifestyle of the public.
SELL WHEN THEY'RE BUYING AND BUY WHEN THEY'RE SELLING!!!!!!
Always remember the most important rule of all sales... An item is worth exactly what someone is willing to pay you on the day you want rid of it!!!!! No more no less.
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I have it financed at 3.5% fixed for 30 years.
This boggles me! Canada people, is this an option in Canada??? Have I not been seeing the option to lock in for the entire period?? My experience is: Lock in for the few years allowed, by renewal time interest has skyrocketed, people lose homes, repeat.
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RE: 3.5%... I did this probably 4.5 years ago. Rates kept dropping and dropping trying to "re-start" the us economy. I refinanced from 4.5 down to 3.5. I figure after I write off the interest and take inflation into account it is "free" money. I still pay it off at a 10 year loan pace, AFTER I max out everything else. I have the flexibility of making the 30yr payment if something better comes along. Life is very different since I took up frugality. In 3 more pos my wife will be part time, and I will remain self employed. Lots of family time, no financial stress, and a happier marriage... All in exchange for shiny, stupid purchases. Done deal.
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My feeling is that 2017 is a bit different from 2007 because if anyone said "Real estate never goes down" or "Your house is your best investment" in 2017 they would be laughed at.
I hear my friends in Portland say this all the time.
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Always remember the most important rule of all sales... An item is worth exactly what someone is willing to pay you on the day you want rid of it!!!!! No more no less.
Really? My mother's house (according to my mother) is worth 650.000 euro (the highest price it ever had), even though a similar house in the same street recently was sold for 380.000 euro. I guess the truth is too hard to swallow.
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Here's a quick shot at Denver's current houses for sale. 3 br with 1.5 bath. Are you telling me this is normal and makes sense for half the people (making over the median)? This is insane.
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We have made the decision to rent our house in portland out all summer while we check out other cities (asheville, etc). We are selling next April. Hope the market can hold on until then! *fingers crossed*
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Here's a quick shot at Denver's current houses for sale. 3 br with 1.5 bath. Are you telling me this is normal and makes sense for half the people (making over the median)? This is insane.
You do not understand the market. You do not live in a balanced market. Demand significantly exceeds supply. There are far more buyers at or above the median income than there are sellers. Your market is dominated by higher income buyers, people moving to Portland from more expensive areas with equity in hand, investors, and likely some cash buyers from overseas. As long as that demand exists, your market will not decline. The market will only change when the buyer pool changes.
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I hear ya, and want to agree with it. That is exactly what has driven up the costs. My fear is that any failing of the job market will cause people to not be able to pay the extremely high cost of living (no job = no money). So you are right that as long as everything continues with big equity payouts from other home sales and people keep working at super high paying jobs and can pay rents/mortgages, then everything will be fine.
But, if you have read the book "Black Swan", it has a premise that you will not see a big fail coming. Some big thing can happen like a 9/11, etc. and can cause a whole market to crumble.Which is why we like to try to mitigate risk as much as possible and not live above our means.
I agree with a previous post, sell when people are buying and buy when people are selling. We are going to cash out next April. Maybe it's too soon? No one can know. But what I love about this community is it helps answer the question of "How much is enough". For us, we have hit that point and we aren't going to try to chase the market to the peak. I don't have enough assets and other income models that allow for the flexibilty (and risk) of that (yet).
This one sale will allow us to have a massive amount of freedom and flexibilty and I guess that's enough for me. Maybe I'll be kicking myself after I see portland keep going up, but something about it doesn't feel right to me and i think this house of cards is coming down again. Not due to sub-prime like last time. Maybe it will just be buyers saying "I'm not paying this much for a tiny little house" and then the market corrects, etc.
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I hear ya, and want to agree with it. That is exactly what has driven up the costs. My fear is that any failing of the job market will cause people to not be able to pay the extremely high cost of living (no job = no money). So you are right that as long as everything continues with big equity payouts from other home sales and people keep working at super high paying jobs and can pay rents/mortgages, then everything will be fine.
But, if you have read the book "Black Swan", it has a premise that you will not see a big fail coming. Some big thing can happen like a 9/11, etc. and can cause a whole market to crumble.Which is why we like to try to mitigate risk as much as possible and not live above our means.
I agree with a previous post, sell when people are buying and buy when people are selling. We are going to cash out next April. Maybe it's too soon? No one can know. But what I love about this community is it helps answer the question of "How much is enough". For us, we have hit that point and we aren't going to try to chase the market to the peak. I don't have enough assets and other income models that allow for the flexibilty (and risk) of that (yet).
This one sale will allow us to have a massive amount of freedom and flexibilty and I guess that's enough for me. Maybe I'll be kicking myself after I see portland keep going up, but something about it doesn't feel right to me and i think this house of cards is coming down again. Not due to sub-prime like last time. Maybe it will just be buyers saying "I'm not paying this much for a tiny little house" and then the market corrects, etc.
It wouldn't matter what Portland's housing market does in the future if you're happier somewhere else. Shouldn't it be about where your quality of life is the best (and cost of housing is one factor in that)? I hope you're going TO somewhere (sounds like you are), and not just leaving Portland.
It will be interesting to see what happens as interest rates go up.
I'm going to put in my plug for Chattanooga while you're down this way.
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We checked out Chatanooga last summer and really liked the direction they are headed! Really cool place!
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I agree with some of your conclusions, but not your reasons for them...
My situation is I have about $500k in equity in my house in Portland (I owe around $250K still).
Wow. Even without getting mortgages on the rentals, this amount of cash is enough to support $40,000 of cashflow in my neighborhood.
My job isn't dependent on local econmy.
The best way to leverage your job is to live somewhere cheap. You could sell this house, buy 3 houses in cash that rent out for $1500/month each. Get a property management company to handle finding tenants and checking on properties. You could even move to an expat beach in Mexico, live on the rental income alone while saving 100% of the income from your location-independent job. Years later you'll have a fortune saved to rule the world return to the overpriced Portland market.
I was thinking of selling and renting in a less expensive city for a few years while this whole market falls apart again, and then buy my next property outright (with rentable adu or duplex).
Any thoughts or advice?
Considering how far your money goes in so many other parts of the country (if not the world) I think getting out is a great idea. Planning to get back in is possibly not such a great idea, but years of living it up in a low cost of living area with a high income might get you used to the good life. If you keep watching Portland area real estate, and it doesn't crash for a DECADE, will you get disillusioned and buy back in anyway at high prices?
I find it crazy ironic that the World Wide web created pockets of expensive real estate markets like Silicon Valley in California, and Portland Oregon, when the technology itself doesn't really require these areas. You're finally starting to see technology startups in midwest locations where rent and electricity is cheap. I think that trend will continue.
Where do you find these houses that you can buy for 150k that rent for 1500 a month. Please help I would buy 10 of those today.
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Here's a quick shot at Denver's current houses for sale. 3 br with 1.5 bath. Are you telling me this is normal and makes sense for half the people (making over the median)? This is insane.
Crazy here, but it is worth noting that you captured the most expensive quarter of the city.
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I agree with some of your conclusions, but not your reasons for them...
My situation is I have about $500k in equity in my house in Portland (I owe around $250K still).
Wow. Even without getting mortgages on the rentals, this amount of cash is enough to support $40,000 of cashflow in my neighborhood.
My job isn't dependent on local econmy.
The best way to leverage your job is to live somewhere cheap. You could sell this house, buy 3 houses in cash that rent out for $1500/month each. Get a property management company to handle finding tenants and checking on properties. You could even move to an expat beach in Mexico, live on the rental income alone while saving 100% of the income from your location-independent job. Years later you'll have a fortune saved to rule the world return to the overpriced Portland market.
I was thinking of selling and renting in a less expensive city for a few years while this whole market falls apart again, and then buy my next property outright (with rentable adu or duplex).
Any thoughts or advice?
Considering how far your money goes in so many other parts of the country (if not the world) I think getting out is a great idea. Planning to get back in is possibly not such a great idea, but years of living it up in a low cost of living area with a high income might get you used to the good life. If you keep watching Portland area real estate, and it doesn't crash for a DECADE, will you get disillusioned and buy back in anyway at high prices?
I find it crazy ironic that the World Wide web created pockets of expensive real estate markets like Silicon Valley in California, and Portland Oregon, when the technology itself doesn't really require these areas. You're finally starting to see technology startups in midwest locations where rent and electricity is cheap. I think that trend will continue.
Where do you find these houses that you can buy for 150k that rent for 1500 a month. Please help I would buy 10 of those today.
Don't know about that, but we got our rental house for $74k and are renting it for $800/mo. Of course that was in 2011.
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My realtor sends me a quarterly update on the Denver market I like to read it and see what is happening.
http://www.denverrealestate.com/blog/2017/03/denver-home-supplies-dip-record-low/
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Selling and moving to a less expensive area makes sense. However, if your long-term plan it to re-enter the Portland market at a later date, I think it would make less sense. Buying and selling real estate is a very expensive transaction. It's very difficult to time the market and come out ahead.
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Bear in mind that one of the most influential measures in our economy is "consumer confidence"... AKA... How dumb are you with your money and how much debt are you willing to carry? It is once again rising by the minute. Then there is the mystical "jobs" and "unemployment" numbers that can be swung around. Basically, money is easy to borrow and America's thirst for more and nicer things can never be quenched. The last bail out proved that you will not have to be held accountable for your actions financially. Will it CRASH? probably not. Will it slow down? Maybe. As long as the bank will lend it, the fools will spend it. Our community is not the "norm" we refuse to drink the cool aid. If you can sell and profit, then go for it. If you can rent it and make money... Do it. Detaching ourselves from the "Joneses" in our neighborhood is one of our many super powers. I love my house dearly... Offer me twice what I paid and you own it! I can always find another one.
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I find it crazy ironic that the World Wide web created pockets of expensive real estate markets like Silicon Valley in California, and Portland Oregon, when the technology itself doesn't really require these areas. You're finally starting to see technology startups in midwest locations where rent and electricity is cheap. I think that trend will continue.
Agreed. We are tied to Seattle due to my husband's job and so wishing that there were better jobs throughout the beautiful state of Washington... :( However, tech companies like to be close together for collaboration, recruitment, and innovation.
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I don't think I'll be returning to Portland once we sell. Too expensive and too much rain. If you like being dry while you hike, bike, run, etc., Portland is not the place for you. 8 months of rain typically which is then followed by the most glorious summer months ever. This tends to make people forget the 8 months of dreary greyness that settles over the city. Places like Bend Or, Denver Co, Asheville, etc have a much more balanced weather pattern. Each gets their share of unpleasantness, but not 8 months worth! haha! We are outta here!
PS, if anyone wants to buy a beautiful house in a great (and walkable/bikeable) area of porltand, let me know! 4 br/2.5 bath with a 3 floor elevator. Also separate art studio! $800k
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Too expensive and too much rain. If you like being dry while you hike, bike, run, etc., Portland is not the place for you. 8 months of rain typically which is then followed by the most glorious summer months ever. This tends to make people forget the 8 months of dreary greyness that settles over the city. [...] PS, if anyone wants to buy a beautiful house in a great (and walkable/bikeable) area of porltand, let me know! 4 br/2.5 bath with a 3 floor elevator. Also separate art studio! $800k
Worst real estate ad ever ;)
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haha! How about "Who wants to buy a totally overpriced home in an area that I think is going to crash?".
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:)))))
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Too expensive and too much rain. If you like being dry while you hike, bike, run, etc., Portland is not the place for you. 8 months of rain typically which is then followed by the most glorious summer months ever. This tends to make people forget the 8 months of dreary greyness that settles over the city. [...] PS, if anyone wants to buy a beautiful house in a great (and walkable/bikeable) area of porltand, let me know! 4 br/2.5 bath with a 3 floor elevator. Also separate art studio! $800k
Worst real estate ad ever ;)
At least the photos are from the summer. We need a picture from an extra dreary day in January to complete the ad.
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We need eight photos through a rain-blurred lens, to represent each of the rainy months, and four like the above. Informed decision and all that.
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8 months of dreary greyness that settles over the city.
I prefer to think of the Pacific northwest skies as exploring the full spectrum of the steely slate palette. Think of it like a black and white photography exposition, all about balancing textures and contrasts.
Don't say dreary, say seriously artistic. It requires a certain sophistication to appreciate the subtleties of our grey skyscapes. It's not for everyone, I'll admit.
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^ Totally bringing sol's take with me on my upcoming "nonpreferred" relocation to the coast :)
(I do genuinely see a lot in shades of grey, having even chosen my mountain bike and exterior house paint colours in these!)
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When we moved to Portland five years ago, it was with great reluctance on my part, because I was convinced that I was going to die from depression. I think I still carry those low expectations with me, because every winter I'm still surprised and delighted every time the blue sky peeks out (which I'm pretty sure it does at least once a week). My colleagues tell me that ten years ago, it was grey for the entire winter, but that hasn't been my experience and I love how green it is here as well. Though I do feel that I'm sheltered from some of the grey when I'm in the office all day in the winter-- maybe if I were FIRE'd and at home, I'd feel it more strongly.
My Seattle friend is convinced that both Seattle and Portland are grey, but that "Portland is a lighter, brighter shade of grey". Austin would get these heavy clouds that felt low and oppressive, and I've never felt that here. Anyway, if you can't stand the weather, then I see no reason not to cash out on your home's gains and find another place to live!
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Where do you find these houses that you can buy for 150k that rent for 1500 a month. Please help I would buy 10 of those today.
Haven't tried properties in that price range yet. I've been buying and repairing houses for $45K to $50K that rent for $800.
Don't know for sure which path is best. 1/3 the number of HVACs and Roofs to repair, etc., but 160% of the gross rent.
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When we moved to Portland five years ago, it was with great reluctance on my part, because I was convinced that I was going to die from depression.
I was definitely concerned about that last time I moved from bright + dry to the coast. I too was happily surprised to find my mood stayed cheery regardless of the cloud cover. I did see a lot of other people struggling under it, though. Definitely different experiences for different bodies, ya.
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When we moved to Portland five years ago, it was with great reluctance on my part, because I was convinced that I was going to die from depression.
I was definitely concerned about that last time I moved from bright + dry to the coast. I too was happily surprised to find my mood stayed cheery regardless of the cloud cover. I did see a lot of other people struggling under it, though. Definitely different experiences for different bodies, ya.
I think bright indoor lights help me a lot. I definitely am prone to SAD and I have a 400-watt halogen bulb dawn simulator which is like waking up to sunshine. Also, PNW folks should all take Vitamin D :)
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I think the 50 shades of gray over the NW affect different people differently. It didn't bother me. The constant damp cold was what I personally found mildly annoying. Some people have real trouble with the lack of sun, though.
(https://wcuk.files.wordpress.com/2007/06/emo.jpg)
If you're of pasty white northern European descent, you probably shouldn't be somewhere with too much sun anyway.
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I have it financed at 3.5% fixed for 30 years.
This boggles me! Canada people, is this an option in Canada??? Have I not been seeing the option to lock in for the entire period?? My experience is: Lock in for the few years allowed, by renewal time interest has skyrocketed, people lose homes, repeat.
Here in canada we lock in from 1 to 5 to 10 years at at time. when that period is up, we renegotiate rate and term of the new contract. For the last 8ish years we have done nothing but go down. its not till the last little bit that we have seen rates actually increase, though not hugely at this point.
The debt ratios here are crazy, even the bank of canada is warning people about their debt. though no one is really listening. house prices just keep going up fueled on cheap mortgages and greedy banks. and places like toronto and vancouver are so over priced its horrible. I thought the new rules about stress testing mortgages would have cooled it off more than it has. in my prairie city places are still going at asking price up to 20k over asking price for mediocre houses. Alberta is still taking a hit, from the oil slow down. I know people almost a year later still don't have jobs. Lots are trying to go to home provinces but the skilled trades are full for what they do. I still think a slow down is coming, even if it doesn't crash. all it would take is a sudden interest rate hike and a lot of people would be blocked from what they want.
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^ Yeah, in another thread I posted about my parents and neighbours going through that 20% spike when I was a kid. I remember the stress of it; itreally put me off mortgaging.
I realize a 20% spike doesn't happen frequently, but other yucky rates sure do, and it doesn't take much of an increase to kill some people's ability to pay. Even a hike of 2% on a large mortgage can do a family in.
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I have it financed at 3.5% fixed for 30 years.
This boggles me! Canada people, is this an option in Canada??? Have I not been seeing the option to lock in for the entire period?? My experience is: Lock in for the few years allowed, by renewal time interest has skyrocketed, people lose homes, repeat.
Here in canada we lock in from 1 to 5 to 10 years at at time. when that period is up, we renegotiate rate and term of the new contract. For the last 8ish years we have done nothing but go down. its not till the last little bit that we have seen rates actually increase, though not hugely at this point.
The debt ratios here are crazy, even the bank of canada is warning people about their debt. though no one is really listening. house prices just keep going up fueled on cheap mortgages and greedy banks. and places like toronto and vancouver are so over priced its horrible. I thought the new rules about stress testing mortgages would have cooled it off more than it has. in my prairie city places are still going at asking price up to 20k over asking price for mediocre houses. Alberta is still taking a hit, from the oil slow down. I know people almost a year later still don't have jobs. Lots are trying to go to home provinces but the skilled trades are full for what they do. I still think a slow down is coming, even if it doesn't crash. all it would take is a sudden interest rate hike and a lot of people would be blocked from what they want.
It would be a little nerve-wracking to me to have a mortgage that could randomly just go up in X number of years. You could end up getting your mortgage payment doubled. It also seems like it would make the housing market more prone to boom and bust.