[The Beast1]

I'm getting very sick and fed up with having to deal with landlords, leasing agents, and rent payments.

Yet, I don't have millions of dollars to spend on a home going through the traditional real estate process.

I've noticed homes that are in foreclosure that are listed well below the typical market value and other homes that go to auctions.

Is this a way for one to break into home ownership? Can I show up at a home auction and buy a home for way below the typical real estate agent process?

Genuinely curious how this process works.

[RoastBeefCurtains4Me]

Depending on where you are, homes should cost a lot less than millions of dollars.

How long are you expecting to own the property?

How far from your city center are you willing to live? If you're single and wanting to bring women home, it's better to be closer, but if you have a family already, you might prefer living a little farther from the city center. Houses are usually newer and larger, with bigger yards and garages if you go a little farther out, and also much less expensive.

What is your local real estate market like? Rising, stagnant, falling?

You'll need a fair amount of savings for a down payment, but there are some exceptions. A VA loan is your best option if you served (I've read many of your posts, but can't remember right now). If not, an FHA loan sometimes allows a small down payment of 3%, but the need for mortgage insurance can make this less attractive. Ideally, you'll want 20% down to get the best deals.

Also, it's best if your target mortgage payment is easily within your budget. In the US, they look for the mortgage to be less than 28% of your pre-tax income, and the total of all loan payments (student loans, car loans, credit cards, etc.) should be less than 36% of pre-tax income.

Most of this you can easily find online. The biggest question is one of strategy. Buying a home ties you down. That may or may not be good. If you have a family and are prepared to stay in the home a long time, I think owning a decent house in a good neighborhood creates a much more stable home atmosphere, and allows your kids to grow up with some roots. In this case, you can weather the ups and downs of the market, and are primarily just paying for living space. If you might move in a few years, buying a home can be a big money suck.

If you're looking for an investment opportunity, this is tricky. Many people think their home has been a tremendous investment, because it's gone up a lot in value. However, if you look at the actual gains based on principle, interest, and insurance paid in vs. total final equity, it's often not a very high performing investment. Of course, you have to live somewhere, but even so, many people have calculations that show renting is more efficient financially. Home maintenance expenses factor in here too. Can you do your own work? Some things, like roofing, siding, blown out water mains and the like can be amazingly expensive, and just about have to be done by a contractor. Likewise, remodeling outdated kitchens and bathrooms can be amazingly expensive, even if you buy materials and do it yourself.

If you're primarily looking to invest in real estate, I think I'd buy properties with the intent of renting them on Airbnb, but of course you'd have to do your own due diligence on any investment like this.

[Leonard D Neubache]

The thing to be aware of is that a house is not a simple asset like a brick of gold. There are associated costs with maintaining it and you have to be aware of those, or the bargain you get for pennies on the dollar will end up bankrupting you.

Buy a cheap house that turns out to have shitty foundations and you will find this out the hard way.

Generally speaking if you're not real-estate and DIY savvy then you're best off simply looking for the smallest, cheapest place you can find. Get a professional to look it over (worth the $). The problems they discover will aid your negotiations to bring the price down anyway, or at worst they'll tell you to walk away (in the same manner that no car is worth buying if it has structural rust for example).

But don't think that you're on to a good thing that everyone else is too foolish to cash in on. If the price is low then there's a reason. Market values are not random.

[TheFinalEpic]

I'm a real estate agent. Don't do it.

Unless you really want the responsibility of a mortgage, and love the place you live, it's not worth it. It's for regular people, and I sell to regular people. Like Leonard pointed out, people find out the hard way that real estate is not a liquid asset by any means, and that it also doesn't always go up in value. You actually must do heavy research both in your city, and specific neighbourhood to understand the investment, and please treat it like an investment; 98% of my clients don't.

[The Beast1]

(03-27-2017 06:29 PM)TheFinalEpic Wrote:  

I'm a real estate agent. Don't do it.

Unless you really want the responsibility of a mortgage, and love the place you live, it's not worth it. It's for regular people, and I sell to regular people. Like Leonard pointed out, people find out the hard way that real estate is not a liquid asset by any means, and that it also doesn't always go up in value. You actually must do heavy research both in your city, and specific neighbourhood to understand the investment, and please treat it like an investment; 98% of my clients don't.

So I should add to this guys, that i'm a regular person (well I like to think I am) . As in married, want to start a rather large family soon, and gainfully employed.

I don't particularly see a home as an investment and I don't have many qualms in doing home repairs myself.

My market is Los Angeles and i'm basically looking to live any where north of i10, east of the 405 (including small parts of the coast, north ridge, etc), and west of Pasadena. Not trying to be too north of Burbank and Van Nuys. Is this at all feasible to do so in any of the areas i'm interested in?

[Sonoma]

I don't know own what SoCal is like, but where I live in California houses are often going for 20-40 over listing, and foreclosures are bought up cash by investors.

That being said, I'm buying a house too, because the interest rates right now are stupid low and I don't care if the market falls out, I just want a low low interest rate and a payment I can afford (800-900k) isn't too terrible

[Ranch Hand]

I have bought 7 homes and 2 commercial properties, sold 6. Each time the bank wanted to lend me more money (both before and after 2008) but I was the only adult in the room paying attention to any idea of a personal budget.

Your market is very unfamiliar to me, but anything in LA area is likely pretty pricey.

Try to keep your entire PITI payment under 33 %, max 40%, of your monthly personal income. Of course the more money you make then the more leeway you can get. But trust me, life still adds up (especially if you want all those kids) and that last $150/month can hurt.

I have made great money on real estate, sometimes at substantial risk, and I've lost a few times also (gratefully not too bad).

In real estate, you make money by BUYING WELL - at a low cost/SF. When it becomes time to sell, There is Shit All NOTHING you can do about the selling market (which is subject to forces beyond any of our individual ability to influence). When you go to sell, the best you can expect to do is multiplying appropriate Comps (in the last 3 or so months) X square footage of your house and hoping for the best. Of course there is some leeway in this (did you really fix it up or not, etc.), but that is my way of seeing it.

This implies finding hidden value in a beat up place, in a great neighborhood, that can give high return once you get thru your fixes. In the meantime, you get to live in a partial construction zone and all the difficulty that provides.

[Ranch Hand]

And to really answer your question: foreclosure homes selling at auction for very low prices are usually going to cash buyers. I have not done this but know a little about it.

This is a hard game for a young guy to play, but there are occasionally cash investors looking for willing and able "flippers" to do the dirty work and share profit. It kind of craps on the dirty work guy, because they expect to flip and sell the home ASAP, so don't expect to "settle in" someplace.

[JamesPaulson]

I don't have much idea about this.

[Leonard D Neubache]

If you're in the market for a fixxer-upper you need to make an honest assessment of what you're capable of (and be aware of what work it's literally illegal to do without a license like electrical).

I can do walls and paint in my sleep. Basic carpentry is not out of the question. I can lay flooring easily enough and do concrete work.

Plumbing, though? Water and gas? There's just too many important little details that I'm just not educated on. And one screwup could cost me extremely dearly so I don't mess around with that stuff.

Once you're comfortable with what you're capable of it will make sorting out prospective houses easy. For me I would look at the plumbing and electric and if they were fucked I'd walk away in a heartbeat.

Good plumbing and electric? Well I can do the rest myself.

Also keep in mind that renovations are not such a big deal when they're in spaces that have alternatives. You can renovate a living room and just watch TV in your bedroom for a few weeks. A bathroom, however, will make life a living hell if it's the only one in the house and you can't complete it in record time.

[TheFinalEpic]

One thing I'll mention about foreclosures is that you likely need to be in the know when it comes to mechanical systems, roofing, electrical, exterior grading, etc. "As is where is" in most cases means that you can't perform an inspection and ask the person selling (in most cases it's the bank) to fix anything as a term of the purchase contract. It also means that if the owner is pissed, any time between now and the date you take possession, they can come with a sledge hammer and fuck your new home to shit. They can steal all the appliances (I've seen it), flood your basement or condo unit (I've seen it) or do one of a million things. You add a layer of risk when going this route. For some, it pays off bigly. For some, they walk into a living hell the day they turn the key in the lock.

[booshala]

(03-27-2017 09:18 PM)The Beast1 Wrote:  

So I should add to this guys, that i'm a regular person (well I like to think I am) . As in married, want to start a rather large family soon, and gainfully employed.

I don't particularly see a home as an investment and I don't have many qualms in doing home repairs myself.

My market is Los Angeles and i'm basically looking to live any where north of i10, east of the 405 (including small parts of the coast, north ridge, etc), and west of Pasadena. Not trying to be too north of Burbank and Van Nuys. Is this at all feasible to do so in any of the areas i'm interested in?

TLDR: Good foreclosure deals are almost always snapped up before they hit the market or auctions. What's left is mostly the marginal deals and even then you gotta bring 100% cash money. My opinion is that buying in LA is a mug's game.

Long version: How much money do you make? Obviously, you're not going to want to broadcast your entire financial situation to a bunch of Internet strangers, but hopefully you'll be honest and ascertain if you really make enough to buy in LA.

I'm not trying to burst your bubble but unless you're making big bucks, you're going to find it extremely difficult to live in the area you've described. I have several friends that live in the area you've laid out (East of 405, N of the 10, W of the 605) and they're all lawyers/doctor/finance couples or successful small business owners making mid six figures. Even these people are complaining about how shitty their houses are compared to what they thought they could afford once they started making money.

Ktown, which was long one of the cheapest areas to buy/rent has shot up insanely in price. Nearby, the median home price in Echo Park (this is where cholos used to dump bodies in lake in the 90's) is $786,000. Everywhere in SoCal prices have appreciated 30-50% since the 2008/09 crash.

About foreclosures and auctions: LA is home to some of the sharpest real estate investors in the country so all the good deals are long gone before it even hits the MLS. Title agents, bank employees, RE agents and all the people in the process tip off their go-to guys. My folks aren't even big-time, but they've developed a reputation in their circle as no-nonsense buyers with cash so they get a fair number of deals thrown their way that are much better than the average deal...

As a regular Joe you basically only have a very few options to buy a house that'll have enough room for a big family if you're not making big bucks:

1) Have someone float you a huge downpayment (several of my friends have had their parents or in-laws give them a $500k+down payment as a wedding gift). That way you'll be able to make the monthly nut on your PITI mortgage that will hopefully be under the 36% price to income ratio that another poster mentioned. Shit, even with a $500k house on a 1.25M house (nothing special), you'll still be on the hook for a nearly $5000 monthly payment with principal + interest + taxes + insurance. Even then, you'd need to be making $166k to meet the 36% PTI requirement.

2) Move all the fuck away into the deep IE or Antelope Valley. Traffic will be a bitch, demographics are pretty awful but you can get a lot more house for your money. Personally, I'd never pick this option, but I used to work with a guy who had 7 kids, and he'd make the 2:30 commute each way into Beverly Hills from Moreno Valley each day so he could live in a 5 bedroom house. These places are still gonna run $400k+, $500k if you don't want to live right next to undesirables.

3) Try and con some old person to give you really good terms on a sale and/or seller backed financing. RE gurus used to pitch this a lot back in the first boom (2002-2006) and I've done deals like this myself, but it's basically finding a needle in a haystack. For completeness sake, I've included it in the list.

All this is basically a long-winded treatise on why I think buying (in general and especially in LA) a big mistake. As much as rents have shot up in recent years, the rent/buy ratio in LA is still strongly skewed towards renting. I understand the nesting instinct and the appeal of having one's own house but the cost to attain homeownership in LA is untenable for many young, urban professionals. Please don't stretch your finances to the brink just to buy a crapshack that will likely fall apart on you merely for the "pride of ownership".

Why don't you carefully vet your next landlord just as much as he'll probably vet you, and see if he has the type of personality that won't clash with yours. If you're dead set on buying, first try finding the most reasonable rental possible and bank as much cash as you can, preferably earning some sort of return. Then, when the next housing crash comes (nobody knows when, yet it's all but a certainty) you'll hopefully have decent scratch to bring to the table, plus favorable buyer's terms when panicked sellers are trying to get out at a big discount.

However, currently from the info you laid out, it doesn't seem like buying a house that can accommodate a big family in the area you're describing is realistic. That is, unless you're making a lot of money or have a huge down payment laying around. Sorry dude, wish I had better news for you.

[wi30]

Have you thought about buying a condo or town home? Yeah HOA's are a bitch, but if you can't afford a house in that market it might be your only option as a starter home.

The market I'm in now is insane. I could own a decent 2 story 2 bedroom town home with a mortgage the same price as my rent for a shitty 1 bedroom apartment where most of my neighbors only speak Spanish.

I want to save up and buy a house but I'm not in a position to pay 300k for a small old ranch house that needs 50k in repairs. So I'm planning on trying the condo or town home route for now.

(03-28-2017 01:08 AM)JamesPaulson Wrote:  

I don't have much idea about this.

What a detailed and valuable post.

[brick tamland]

Can't help with the specific questions. But I guarantee it's not just Americans having the same conundrum.
Things have changed a lot in just 1 generation. Incomes don't stretch as far. I think all the warnings by others are valid. You wouldn't want to regret overspending and being a slave of a 20 year loan while things fall apart around you and you can't just cancel the lease as you could as a tenant. There are things you can't do anything about such as changing neighbourhood demographics that you didn't bargain for (like a mosque being built a few streets away - speaking from experience), the market itself, the economy, interest rates, threats to your income, rising property taxes etc.
Homeownership isn't "the dream" any longer. The stigma of renting is a thing of the past.

[captain_shane]

(03-27-2017 10:01 PM)Sonoma Wrote:  

I don't know own what SoCal is like, but where I live in California houses are often going for 20-40 over listing, and foreclosures are bought up cash by investors.

That being said, I'm buying a house too, because the interest rates right now are stupid low and I don't care if the market falls out, I just want a low low interest rate and a payment I can afford (800-900k) isn't too terrible

I see this argument quite a bit that low interest rates are a good reason to buy right now. I don't believe so.

Example A: 200K House with 4% rate for 30 years.

- Total cost of mortgage: $343,739

Example B: Same House but cheaper since rates are higher. 150K at 8%

- Total cost of mortgage: $396,233


Looks like Example A wins. But taking into account that you can write off mortgage interest, both end up about the same.

Myself? I'll take Example B every time and just make extra payments on the property.

I have quite a few lender friends in the industry and they all believe that this is 2005-2006 all over again. Prices are going up much faster than rents and there are hundreds of thousands of bank owned properties around the country just sitting there.

I won't be buying any property at these prices for the foreseeable future.

[Troller]

(03-27-2017 05:34 PM)The Beast1 Wrote:  

I'm getting very sick and fed up with having to deal with landlords, leasing agents, and rent payments.

Yet, I don't have millions of dollars to spend on a home going through the traditional real estate process.

I've noticed homes that are in foreclosure that are listed well below the typical market value and other homes that go to auctions.

Is this a way for one to break into home ownership? Can I show up at a home auction and buy a home for way below the typical real estate agent process?

Genuinely curious how this process works.

Legally bribe real estate agents.

[Neo]

I don't have any familiarity with your particular area, however if you're married and stacking enough cash then it's reasonable to think about buying a home.

Especially if you plan on kids it's difficult to raise kids in an apartment. It's doable, but personally I wouldn't do this myself.

I'd research the decision heavily as I know a lot of people who got bad deals. If you're dead set on buying a house then be sure you'd like to stay in the area and have a stable job because relocation is a bitch.

Having a debt payment hanging over your head for 30 years really limits mobility and freedom.

[The Beast1]

(03-28-2017 12:20 PM)booshala Wrote:  

Why don't you carefully vet your next landlord just as much as he'll probably vet you, and see if he has the type of personality that won't clash with yours. If you're dead set on buying, first try finding the most reasonable rental possible and bank as much cash as you can, preferably earning some sort of return. Then, when the next housing crash comes (nobody knows when, yet it's all but a certainty) you'll hopefully have decent scratch to bring to the table, plus favorable buyer's terms when panicked sellers are trying to get out at a big discount.

However, currently from the info you laid out, it doesn't seem like buying a house that can accommodate a big family in the area you're describing is realistic. That is, unless you're making a lot of money or have a huge down payment laying around. Sorry dude, wish I had better news for you.

Thanks Booshala for the hard news. My gut was sort of leading towards this but it's good to hear this out. The combined income of the wife and myself can certainly swing a nice place in Riverside or the like, but i don't have much of a desire to live in the Inland Empire.

I have a plan B which is inter-generational living which might work. Need to talk about that more with the family member i'm thinking of.

However, if that doesn't work I'll probably end up doing remote work and moving to the sticks. It's a shame, but even with my current credentials and the like I doubt i'll be able to live here long term.

Thanks for the information gentlemen!

[Troller]

Delete

[The Beast1]

Honestly, this whole thing was really driven by the fact that my new apartment complex has explicit rules about fixing cars in the garage which is BS because it's not a big garage or complex.

I'm not planning on replacing an engine or rebuilding a transmission, but i would like to do some preventative maintenance like brakes, fluid, filters, etc. All of this stuff I can do in half a day.

The language of the "rules" says no repairs and no washing. So i'm tempted to just go ahead and do the work anyway. When someone makes a stink, i'll just go and say i'm doing "upgrades" which aren't mentioned in the rules. If they want to throw a stink, they can try and evict someone who is paying full rent on time.

Which is ironic because the cunt bag of an agent said it wouldn't be a problem. Literally got this stupid rule after I signed the lease and walked into the apartment building to see the paperwork in my unit. Drives me up the bloody wall having to deal with a "boss" in an apartment building I pay money to live in.

Seriously, landlords and "investor" property owners who have these stupid rules can go and burn in hell /rant over

[booshala]

(03-28-2017 07:18 PM)The Beast1 Wrote:  

Honestly, this whole thing was really driven by the fact that my new apartment complex has explicit rules about fixing cars in the garage which is BS because it's not a big garage or complex.

I'm not planning on replacing an engine or rebuilding a transmission, but i would like to do some preventative maintenance like brakes, fluid, filters, etc. All of this stuff I can do in half a day.

The language of the "rules" says no repairs and no washing. So i'm tempted to just go ahead and do the work anyway. When someone makes a stink, i'll just go and say i'm doing "upgrades" which aren't mentioned in the rules. If they want to throw a stink, they can try and evict someone who is paying full rent on time.

Which is ironic because the cunt bag of an agent said it wouldn't be a problem. Literally got this stupid rule after I signed the lease and walked into the apartment building to see the paperwork in my unit. Drives me up the bloody wall having to deal with a "boss" in an apartment building I pay money to live in.

Seriously, landlords and "investor" property owners who have these stupid rules can go and burn in hell /rant over

While I can commiserate with your situation, the general demographic that want to work on cars around the unit aren't usually well educated or conscientious people. It sucks that you fall through the cracks, but apartment owners don't want their entire investment at risk after an environmental inspector finds illegally dumped oil/chemicals contaminating the grounds. I'm positive it's a risk-mitigation tactic, although your agent is a bitch for lying about it.

You make a good point on the evictions in this state though... incredibly difficult to evict even deadbeat scumbags. The last one that broke me and led me to sell all the units I had took over 6 months, $4500 in lawyers fees and a picket line outside of the house comprised of the tenant's extended family (like 50 people!). Fuck that noise... now I just invest in REITs for my RE exposure and leave the bullshit to the professionals.

[Kona]

I say buy your home.

There is something to be said for owning your own piece of earth.

I've had mine for years and I'm proud to say its mine, all mine. Its maintained expertly, and I've added to and updated all kinds of things. Its kind of a work in progress that never ends.

Money wise its worth way more than I ever paid for it, but I'll never sell.

Regarding auto repairs, try to see that one from the owners prospective. Washing is a little stretch, but who pays the water bill?

Aloha!

[Ranch Hand]

(03-28-2017 01:08 AM)JamesPaulson Wrote:  

I don't have much idea about this.

Hold on there, James... Any relation to Hank Paulson?

[Laner]

I am raising a family in 1000sqft condo. Kids do not give a shit that there is no yard to run around in when they can jump on the elevator to play with their friends in the pool or watch movies in the building theater. Last weekend I drank beer and bowled in a private bowling alley while the kids ran around. Yeah, I pay $400 a month in fees, but I have a pool, 2 gyms, sauna, movie theater, billiards room, party room, library, underground parking, 24 hr concierge.

I like that I can constantly update my place and always have a project on the go. It adds value and pride and gets me extra enthusiastic BJ's. I was a happy renter for a long time, but when I saw rents take off I jumped into the market fast. I had been doing my research (location, buildings) for a long time so it was just a matter of finding the right deal. I paid $580 sqft at a time when the price was $650 because my building, while only four years old, had finishings that looked from the 90's. Prices are now $950 to $1100 for comparable.

In my research I found that they were putting an elementary school in the highrise across the street. Also, there were whispers of the new art gallery 100m away, and the idea of one of North Americas leading research hospitals a 10min walk away. The hospital just secured $75million in a single donation, today, by one of Canadas richest men, so it will be moving ahead next year. All these things set a neighborhood on fire. Demand is insane now, but it was low when I moved in. It can still be a sketchy hood, but with these new announcements, the new school and these prices the area is improving fast.

It sounds like you want roots. So whatever you find, make sure you can afford a correction in the market without going crazy. Suburban markets with entry homes needing a commute are the first to go negative. You never want to be in a situation where you have to sell in a down market. For me, I would rather buy something in a growth neighborhood, good bones, close to work and close to things that people want to be around.

[edlefou]

My opinion is that a home should generate cash or some kind of economic value ignoring capital appreciation.

Get something where you can rent out part of it and have someone else pay some of your mortgage.

I think a man should be handy and be able to handle most repairs and renovations.

I'm not a suburbs person so I would never do that.

I was in LA a year and a half ago I saw huge old houses in an area that was kind of rough but cleaning up. It was around highway 10 and S Western.