Author Topic: Hometown market head scratcher  (Read 2011 times)

Travis

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Hometown market head scratcher
« on: October 11, 2019, 09:49:39 PM »
My SIL called to say the house across the street from her is now on the market if we're interested*. I went on Trulia and saw that in her city (population 60k) there are 181 homes for sale and 32 homes for rent.  The median sale price is $320k, and the median rental price is $1700.  These numbers appear to me to show either 1) all of these homes were purchased a long time ago when prices were lower or 2) many landlords are barely making any money. A random sampling of this market seems to be #2.  The most expensive rental in town sold in 2017 for $500k, but is being rented for $2500. One of the "average" homes was sold last year for $290k and is being rented for $2200.   Sale prices appear to be rising 6%/year.  Is any of this information useful to me as a future potential homeowner?


*We're looking to buy here in about four years, but not at the price point of that particular house. That house is going for $350k and we'd prefer to buy in the low-mid $200s.

Another Reader

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Re: Hometown market head scratcher
« Reply #1 on: October 12, 2019, 05:23:22 AM »
None of it is useful to you because you are not in the market today.  There is no way to predict what prices and rents will be four years from now. 

However, it's been a given for the last 40 years plus that demand by owner occupants exceeds supply in the Bay Area.  Prices have never made sense for landlords that want to purchase an investment that cash flows from the beginning.  People that buy rentals here are buying for appreciation, not cash flow.  They hope to cover costs with rent while they wait for prices and rents to rise. 

When times are good, prices rise in outlying areas because of affordability.  The areas north of Sacramento are more subject to boom and bust because people have short memories and focus on the payment relative to the income from their jobs.  Demand in outlying areas comes from the lower end of the employment spectrum.  When the jobs disappear, these people are less capable of holding on and prices drop.  If we get another 2009-2012 period where prices are depressed, in your shoes I would consider picking up a house in your desired area and renting it out until you need it.  That may be the only way to get something in your desired price range. 

However, in your situation, your future employment depends on the whims of the Army.  I would not consider buying anything until I knew whether I would be able to get the 20 years in.  If you can't, then  your employment when you leave the army will drive where you live.

Travis

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Re: Hometown market head scratcher
« Reply #2 on: October 12, 2019, 07:46:07 AM »
Thanks for the insight. I suppose with how California housing has gone recently it might appear to be a good idea for some landlords to count on appreciation.  It just looked strange to me that out of an entire city, small as it is, nobody was cash-flowing their properties.  Like folks who secretly wish for a stock market drop, I wouldn't mind it if housing in the greater Sacramento/Sutter county areas leveled off or dropped a little in about 5 years.  I'll know for sure next summer what Uncle Sam has in store for me.  While we'd love to go back home, my family is aware that if it doesn't go to plan we'll go where the work is.

Le Poisson

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Re: Hometown market head scratcher
« Reply #3 on: October 15, 2019, 08:10:58 AM »
I think that most mustachians rely on cash-flow for rentals. It's the approach I've taken anyways, but it is becoming nearly impossible to find places that work around here. When you find a listing that does work, you end up in a bid war with 10 other people. (Toronto market)

However, cashflow is only one way to play the Real-estate game. An eye-opening post was made years ago where @arebelspy ran down different ways he knew of to make cash in the real-estate market. I couldn't tag that post now, but there were about a half-dozen ideas he shared ranging from selling already-made deals to prospective buyers to reno-flips, to buying on speculation, to being a market watcher and selling notifications, etc.

Your market sounds like a flip market or a spec market. The people are renting out the homes for just enough to carry a mortgage for a year, then selling for profit. No budget for repairs because they won't fix anything, utilities carried by the tenant, etc. This rapid turnover is pretty common in a hot market, and RE Agents love it. They make 5% on two deals 18 months apart - and everytime they resell the same house, they cash in again.

clarkfan1979

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Re: Hometown market head scratcher
« Reply #4 on: October 21, 2019, 07:53:56 PM »
If you have annual appreciation of 6%, rentals are not going to cash flow right away. To me, this is normal market, not a head scatcher. 

I have a single family home in Fort Collins, CO that I rent to college students. In 2007, I bought it for 182K and put 10K of renovations into it. The original rent was $1250/month. Today it's worth 385K and rent is $2500/month. Original PITI was $1,000/month.

Yes, $2500/month on a 385K house isn't great, but over the past 11 years, appreciation of rent and house price has been around 6% annually. This resulted in rent and house price to double in the past 11 years.

waltworks

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Re: Hometown market head scratcher
« Reply #5 on: October 22, 2019, 12:15:29 PM »
Yes, $2500/month on a 385K house isn't great, but over the past 11 years, appreciation of rent and house price has been around 6% annually. This resulted in rent and house price to double in the past 11 years.

LOL. What was happening back in 2007/8? I can't remember...

I did great buying properties post-crash too. That was probably a once in a lifetime event, though.

-W

BicycleB

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Re: Hometown market head scratcher
« Reply #6 on: October 27, 2019, 08:56:26 AM »
@Travis, as has been said before, the Army lifestyle makes purchasing unwise generally, meaning under most circumstances.

I concur with the other posters that in an expensive place, that means don't buy unless there's been a crash and the time is right for you personally. You have the capacity to pay for what you need in life, don't rush into bad deals just because a "special" deal is there. There will be another good deal tomorrow. The whole point of savings is that you will be able to wait for even better deals.

Practice the art of maintaining relationships but not spending money! Tell SIL it's not time for you to buy yet, you love them and do look forward to living nearby one day.
« Last Edit: October 27, 2019, 08:58:37 AM by BicycleB »

Travis

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Re: Hometown market head scratcher
« Reply #7 on: October 27, 2019, 05:10:44 PM »
@Travis, as has been said before, the Army lifestyle makes purchasing unwise generally, meaning under most circumstances.

I concur with the other posters that in an expensive place, that means don't buy unless there's been a crash and the time is right for you personally. You have the capacity to pay for what you need in life, don't rush into bad deals just because a "special" deal is there. There will be another good deal tomorrow. The whole point of savings is that you will be able to wait for even better deals.

Practice the art of maintaining relationships but not spending money! Tell SIL it's not time for you to buy yet, you love them and do look forward to living nearby one day.

Tracking all. As I mentioned at the beginning this particular house is above my price points anyways.  I brought it up because I looked into that city's housing market and it appeared to me that none of the landlords were in the black on the houses they were renting out unless they bought them several years ago

nancyfrank232

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Re: Hometown market head scratcher
« Reply #8 on: October 27, 2019, 05:13:44 PM »
If you have annual appreciation of 6%, rentals are not going to cash flow right away. To me, this is normal market, not a head scatcher. 

I have a single family home in Fort Collins, CO that I rent to college students. In 2007, I bought it for 182K and put 10K of renovations into it. The original rent was $1250/month. Today it's worth 385K and rent is $2500/month. Original PITI was $1,000/month.

Yes, $2500/month on a 385K house isn't great, but over the past 11 years, appreciation of rent and house price has been around 6% annually. This resulted in rent and house price to double in the past 11 years.

How do you plan to access this dead equity as your yield continues to collapse over time?

BicycleB

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Re: Hometown market head scratcher
« Reply #9 on: October 27, 2019, 05:15:02 PM »


Tracking all. As I mentioned at the beginning this particular house is above my price points anyways.  I brought it up because I looked into that city's housing market and it appeared to me that none of the landlords were in the black on the houses they were renting out unless they bought them several years ago

Good observation! Your eye is getting sharper, keep it up.

Another Reader

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Re: Hometown market head scratcher
« Reply #10 on: October 27, 2019, 09:15:28 PM »
If you have annual appreciation of 6%, rentals are not going to cash flow right away. To me, this is normal market, not a head scatcher. 

I have a single family home in Fort Collins, CO that I rent to college students. In 2007, I bought it for 182K and put 10K of renovations into it. The original rent was $1250/month. Today it's worth 385K and rent is $2500/month. Original PITI was $1,000/month.

Yes, $2500/month on a 385K house isn't great, but over the past 11 years, appreciation of rent and house price has been around 6% annually. This resulted in rent and house price to double in the past 11 years.

How do you plan to access this dead equity as your yield continues to collapse over time?

You don't access the "dead equity" in your IRA or 401k, do you? No, you let it compound and grow.  When you need to use that equity, you sell.  Same with the income property.  Or, you can refinance, pull out cash, and buy another investment.  Can't really leverage that "dead equity" in your retirement account, can you?

Le Poisson

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Re: Hometown market head scratcher
« Reply #11 on: October 28, 2019, 05:05:21 AM »
If you have annual appreciation of 6%, rentals are not going to cash flow right away. To me, this is normal market, not a head scatcher. 

I have a single family home in Fort Collins, CO that I rent to college students. In 2007, I bought it for 182K and put 10K of renovations into it. The original rent was $1250/month. Today it's worth 385K and rent is $2500/month. Original PITI was $1,000/month.

Yes, $2500/month on a 385K house isn't great, but over the past 11 years, appreciation of rent and house price has been around 6% annually. This resulted in rent and house price to double in the past 11 years.

How do you plan to access this dead equity as your yield continues to collapse over time?

You don't access the "dead equity" in your IRA or 401k, do you? No, you let it compound and grow.  When you need to use that equity, you sell.  Same with the income property.  Or, you can refinance, pull out cash, and buy another investment.  Can't really leverage that "dead equity" in your retirement account, can you?

Well said.

clarkfan1979

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Re: Hometown market head scratcher
« Reply #12 on: October 28, 2019, 09:52:35 PM »
Yes, $2500/month on a 385K house isn't great, but over the past 11 years, appreciation of rent and house price has been around 6% annually. This resulted in rent and house price to double in the past 11 years.

LOL. What was happening back in 2007/8? I can't remember...

I did great buying properties post-crash too. That was probably a once in a lifetime event, though.

-W

I bought the house in May 2007, which was the peak of the housing boom, not bust. I'm guessing most people who bought in May 2007 didn't do very well.

waltworks

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Re: Hometown market head scratcher
« Reply #13 on: October 29, 2019, 09:28:36 AM »
Congrats, then, you *really* got lucky!

-W