Somewhat OT - Real Estate

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Where we are looking at places, most attractive homes seem to be under contract within a week of listing.

In our area, many properties were put up on the MLS for comp purposes only, having already sold. Finally figured out that you have to have a Realtor send you the “coming soon” listings, which only are seen by MLS professionals and do not show up on Realtor.com or Zillow until 3 days later when they are officially for sale, so we were always late to the game. It may be the same way in your area. It’s one of the ways around here that the Realtors are protecting their sales turf.

We bought 3 homes in the last year or so in a highly competitive market. RE agent is key, they should set up the notification for you, redfin is adequate usually. Then they should be able to send someone to video tour for you within 2 days, most homes list on the week then pick a bid after the weekend. You can try a big over offer on day 1 with 24 hour period, but most buyers don’t fall for that. Don’t bother visiting, you just want to know big issues, a bedroom that is actually a loft with a closet or something, if a room can fit a king bed etc. They should also have someone who can do the inspection in 3 days or less.

You also need to bid to understand what is going on, you can waive inspection contingency, then you get your inspection in the 3 days before escrow is due, if you don’t like what the inspection says, never put down escrow, you’re out of the contract in 3 days and ready to move on, out only $500 for inspection.

There are a lot of drop out bids, with it so competitive people bid, win, then get cold feet, agents would go through the top 5 or so before they find someone who really are going to buy, so you don’t have to be #1 all the time.

It is also good to understand how much a remodel costs in the area, floors for 2000 sq ft, $12k, etc, then you can reasonably value not updated homes. My wife got hung up on paint alot, but it was like 3 days and $3000 to paint, so not even worth considering overall. Even flooring was cheaper than I expected, we don’t tolerate carpet. Kitchen cabinets and roof you want to avoid replacing, but if you have to at least the roof is easy just pricey, call someone and they do it all, no real management on your part.

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22

I’ve heard plenty of people say they would love to put their house on the market to take advantage of these high prices, but where would they go?
…

Don’t know, don’t care. Just reading the data. Folks don’t have to go elsewhere move 20 or 30 miles, downsize, etc.

Obviously, I don’t care either. They do, which is why they are not moving out and increasing inventory unless absolutely necessary. In todays real estate environment, it’s easier to stay put if one can.

IP

23

I assume one of the reasons owning your own home is so desired, besides the breaks you get for mortgage interest deductions, is because it somewhat freezes your monthly nut.

It’s the benefit of control over your life, be it controlling costs beyond a lease term or being able to paint rooms the color you wish. We made a brief excursion to NJ prior to retirement, choosing to rent and not buy for what was to have been 18 months but turned into 3 years. Had one house sold out from under us and we had to move to another place, this time without the benefit of being moved by work. And these days your costs for a rental could gap up 20-40 percent in one year. It’s a crazy rental market.

IP

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24

Just a thought–if there is that much demand, you might find there is someone–likely a company–
willing to buy your house and rent it to you month to month till you want to move.
It saves a move, and a lot of hassle.

How to find such a company?
I’m in a position where I’m seriously thinking of moving, my market is hot and the new location market is also hot and has low inventory, including rental inventory.

Selling my place and renting it back until I can pounce on something in the new location seems very attractive. Some individual might give you a rent-back, but many individuals want to move in ASAP and enjoy their cool new place. I’m talking with a conventional realtor but haven’t signed yet.

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Additionally, as the SFHs get bought up in volume by large corporations, … It’s a huge problem right now in Charlotte. And because corporations get their funding by bonds, not mortgages, it makes it near impossible to buy a house unless you have cash, since sellers understandably prefer a cash offer.

FWIW, Mortgage debt went up by $1.9 Trillion in 2021.

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26

Just a thought–if there is that much demand, you might find there is someone–likely a company–
willing to buy your house and rent it to you month to month till you want to move.
It saves a move, and a lot of hassle.

How to find such a company?
I’m in a position where I’m seriously thinking of moving, my market is hot and the new location market is also hot and has low inventory, including rental inventory.

You don’t need a company, just tell your listing realtor that you want 3 or whatever months leaseback for 0 a month and they put that in the listing and the potential buyers know what they’re dealing with. Obviously you can play with the numbers and do whatever, but a hot enough housing market and you can ask for a lot of stuff.

This is common in CA because it then allows the sellers to have non contingent buy or enough cash to do a cash offer for their next home.

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27

FWIW, Mortgage debt went up by $1.9 Trillion in 2021.

Higher prices will impact that too, as would refinances with cash out. What I am saying is be sure that the number you look at is due to the reasons you think they are, before you make decisions based on those numbers. Is the number actually measuring what you think it’s measuring? Is lower volume of sales due to lack of demand, or lack of supply? To get a true reading based on numbers only, the supply/demand needs to be balanced. It’s not. We are short of supply.

Real estate is a much less efficient market than stocks, IMO. You have to analyze the reason for the numbers, not just the numbers.

IP

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28

What I am saying is be sure that the number you look at is due to the reasons you think they are, before you make decisions based on those numbers.

Exactly. Corporate/ or Investment buyers are not cash buyers. Still they are < 15% of total sales, and if you eliminate black communities they are actually < 10%. Yeah corporations pre-dominantly target black neighborhood’s and other minority neighborhood’s. Why, it is well documented fact that blacks and minorities have challenges in getting mortgage debt and often settle for ‘renting’. The corporate buyers for reasons unknown don’t target middle class white communities.

There are many reasons. Primary reason being, after housing bubble, homebuilders were not building enough and the market is under-supplied and it is exacerbated by covid. Higher interest rates typically don’t bring home prices down, rather reduces people who want to own house etc. However, just before the tightening the market witnessed frenzy like people paying $200K, $300 K over asking price etc. We have written multiple offers where we have bid $200 K over asking price and the highest is $300 K. In all instance we lost! (I cannot thank god enough, on saving me from myself). Now that excess is draining away and many who sat on the fence are putting their homes on market. The listings have increased, the time on market has increased, and a small %age of houses are seeing price reduced.

If Federal Reserve continue to increase rates and continue with QT, I am expecting by October, the actions of Federal Reserve will be felt in the market. Until then, my down payment is going to sit in US Treasuries, a currency that is going to lose value (LOL).

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29

Exactly. Corporate/ or Investment buyers are not cash buyers.

Any real estate contract that does not have a financing contingency is considered a “cash” buyer by the seller, whether or not they get financing. We bought our residence as a “cash” buyer, with an appraisal contingency and a closing far enough away so that our mortgage broker could get us a mortgage. Not getting that mortgage was not an out on the contract, however, and we would have had to pay cash, had to show proof of funds with the contract. “Cash” buyers often don’t use cash, but as far as the seller is concerned, it’s as good as.

IP

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30

It’s not exactly a surprise that so few rent since the government has been pushing home ownership hard, on dodgy reasoning and economics, for many decades.

I’m not at all sure all the reasoning and economics are dodgy in the US. As a 65 year old in California, I have $500k or so “stored” in the appreciation of my house. My sister has about $400k appreciation “stored” in her house after taking $800k appreciation out of her previous house maybe 6 years ago.

As you can imagine, those of our local peers who have rented all their lives have not real estate appreciation, and currently pay rents that are significantly higher than the mortgage+taxes that owners who have owned for 10+ years are paying.

There may be peculiar things about the US market or there may not, but it really does seem that those of us who have owned have gotten even more than we expected in savings usable in retirement out of the deal. And it is usable savings: we can if we like move to many different locations where comparable houses cost ~1/3 what our houses cost, and we can use the 2/3 of the “stored value” we don’t spend on the new house to replace years, or even decades of work income in retirement.

We may not be typical, but we have mostly owners and a few renters in my family, and no one is worried about who is classier, but we are all interested in who has made the more fortunately economic decisions, and the owners are currently winning.

R:)

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31

“We may not be typical, but we have mostly owners and a few renters in my family, and no one is worried about who is classier, but we are all interested in who has made the more fortunately economic decisions, and the owners are currently winning.”

Interesting read and there seem to be so many ways of getting to a happy financial place. I was single and a renter the first 23 years beyond college. This suited me and allowed me to save and invest more during those early years which has been nice in recent years given the wonders of compounding. Many colleagues at the time speculated that it was a silly decision not to buy a condo or a small house to appreciate however I have no regrets on those youthful decisions. That being said, I am now a happy homeowner now since 2017 and definitely enjoy the benefits for the family but do not look at my house to appreciate like I do my equities.

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32

Interesting read and there seem to be so many ways of getting to a happy financial place. I was single and a renter the first 23 years beyond college.

In US, home ownership is a very good way to build equity, given the tax breaks and generally other benefits. My and my spouse siblings all own multiple houses, most retained their starter house when they moved up, all of us were lucky, and could easily afford both mortgages, or didn’t require the equity from the first house for the second house purchase etc.

OTOH, we (me) are renting so far. Our choices are influenced by our individual circumstances. But, For over 15 years, you cannot talk to your family or friends without answering why we are not buying an house. It didn’t help that I advised my brother to buy multiple rental property. The point is home ownership is not about just having a place to live, or about building equity. The emotional value of an house goes beyond finance.

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Interesting read and there seem to be so many ways of getting to a happy financial place.

There’s no one way of doing anything. Know thyself.

IP

34

As you can imagine, those of our local peers who have rented all their lives have not real estate appreciation, and currently pay rents that are significantly higher than the mortgage+taxes that owners who have owned for 10+ years are paying.

I’m pretty sure it’s been somewhere between a wash and a significant net win for me to have rented since 1997 and been putting those tens of thousands of $/year in excess mortgage / principal payments into (mostly) Berkshire instead of into a lender’s pockets. YMMV.

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35

I’m pretty sure it’s been somewhere between a wash and a significant net win for me to have rented since 1997 and been putting those tens of thousands of $/year in excess mortgage / principal payments into (mostly) Berkshire instead of into a lender’s pockets. YMMV.

More than one way to skin a cat. It’s all about discipline and developing an understanding of what you are doing, no matter which approach you take.

Real estate provides nice diversification. We have done very well with it, but it is not the largest part of our portfolio, which is very stock heavy. Real estate also requires more work than stocks/mutual funds do, and one can’t simply sell off a share of a property if you want a bit of cash. Stocks are much easier and cheaper to liquidate should the need for realizing profits arise. I’ve always considered real estate to be my bond portfolio however, not stock replacement. Our real estate holdings have blown away all the bond market benchmarks, even those that were our personal properties rather than rentals, with the rental we just sold having converted $70K initial investment into a $270K return, after expenses and estimated taxes, in 3 years. I am good with that.

I do not have the personality to have a manager take over, so we recently sold our rental in order to free ourselves up for travel down the road. Though our rental had great cash flow and was highly profitable, I want less income for tax purposes, preferring to realize capital gains by selling off stocks here and there. Real estate is not for everyone, but it works well for many. No one size fits all.

I can certainly see why people who invest in BRK, not wanting dividends, would avoid real estate. Lack of dividends is one reason why I am investigating the stock for our proceeds from the sale of the rental.

IP

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36

A home you live in as an investment is obviously very dependent on what area of the US you live in. In my smallish Texas city I’ve seen little to no appreciation in our home over the 15 years we have owned it. For us, it’s a place where we raised kids and made good memories, and it’s a comfortable refuge from the rest of the world around us. But it’s definitely not a good investment in our case after factoring in our high RE taxes and upkeep required to keep it looking good.

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37

I’m not at all sure all the reasoning and economics are dodgy in the US. As a 65 year old in California, I have $500k or so “stored” in the appreciation of my house.

Like Platycurtic said, the 90s pessimistic climate models may have sown the seeds of their own destruction by getting Western nations to act on their predictions. Similarly, why you have a high equity can be explained by government intervention. Specifically, Fannie and Freddie mollycoddling our beloved banks who are guaranteed a buyer for their loans inthe secondary market. The housing market has far more liquidity and depth due to securitization of mortgages, similar to the stock market vs buying individual companies whole. The indirect effect is the investors lowering the required rate of returns from housing, inflating housing prices. (I am using inflating in a nonjudgmental way to indicate prices higher than a truly free market with no government help).

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38

A home you live in as an investment is obviously very dependent on what area of the US you live in. In my smallish Texas city I’ve seen little to no appreciation in our home over the 15 years we have owned it. For us, it’s a place where we raised kids and made good memories, and it’s a comfortable refuge from the rest of the world around us. But it’s definitely not a good investment in our case after factoring in our high RE taxes and upkeep required to keep it looking good.

Don’t forget the imputed value of rent. If you didn’t own, you’d be renting somewhere else. It still might be cheaper to rent, but over any long period of time owning has to be cheaper otherwise there wouldn’t be any landlords.

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39

Don’t forget the imputed value of rent. If you didn’t own, you’d be renting somewhere else. It still might be cheaper to rent, but over any long period of time owning has to be cheaper otherwise there wouldn’t be any landlords.

When I run the numbers I always get renting to better than buying financially, perhaps not emotionally.

Using the following:

Assumption

Cash is available to buy house with 20% down and enough to invest in BRK to pay for yearly costs.

BUY

House purchase $600,000
Closing cost $12,000
20% down payment ($123,000)
30 yr mortgage at 4% $28,188

Annuity required to pay mortgage assuming return on investment is inflation (3%) plus 7% (after tax which is minimal) $294,000

Annual expenses that are subject to inflation (assume 3%) Insurance, HOA, Maintenance, Tax etc. $12,000/yr

Annuity required to pay for annual inflation adjusted expenses $124,000

Total required cash outlay to own home for 30 years = $123,000+$294,000+$124,000=$541,000

House value after 30 yrs = $600,000 * 1.04)^30 = $1.48M (assume house increases at 1% above inflation rate)

RENT

Rent = 5% of house cost increased by inflation (3%)

Invest $541,000 at inflation plus 7% in BRK. Capital gains tax minimal on the amount removed each year to pay for rent.

At 30 years, BRK value is $2,28M or $600k better than buying

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40

When I run the numbers I always get renting to better than buying financially, perhaps not emotionally.

Great point, and it is something I should have appended to my post. Even though owning ultimately will be cheaper than renting, it does not follow that owning is automatically the optimal use of your money.