First-time home buyer seeks help making a good investment
May 22, 2009 7:08 PM Subscribe
First-time home buyer seeks help making a good investment
I am interested in purchasing a short sale property. I am a first time home buyer. I'm hoping to buy an undervalued condo, live there for a few years to build equity, and hopefully trade up in a few years if (when?) prices begin to bounce back. The places I've been looking at would cost approximately the same or slightly less than renting the same type of unit...so my hope is that this is a low-risk proposition since I need somewhere to live anyway.
I am just learning about all of this so I have a lot of questions.
1. How can I tell if a property is undervalued? For example, I recently saw one that sold only a few years ago for approximately twice what I could get it for now. Assuming the inspection is clear, can I reasonably conclude that this short-sale property is undervalued?
2. What do I need to know about purchasing a short sale property? If they are a good value, why aren't more people buying them?
3. How much does the "assessed value" tell you? For example, I looked at one property that will sell for $150k less than last year's assessed value versus one that's only $35k less than the assessed value. In other words, if the sale price is close to the assessed value, am I less likely to make a profit upon resale?
4. I have substantial fixed-rate student loan debt. I can lower my monthly payments by consolidating over a longer repayment term (25 years). However, this will cost me more interest in the long run. What would make a bank look upon me more favorably--lower monthly payments or my attempt to pay it off faster?
5. What are the best resources to learn what I need to know?
I am interested in purchasing a short sale property. I am a first time home buyer. I'm hoping to buy an undervalued condo, live there for a few years to build equity, and hopefully trade up in a few years if (when?) prices begin to bounce back. The places I've been looking at would cost approximately the same or slightly less than renting the same type of unit...so my hope is that this is a low-risk proposition since I need somewhere to live anyway.
I am just learning about all of this so I have a lot of questions.
1. How can I tell if a property is undervalued? For example, I recently saw one that sold only a few years ago for approximately twice what I could get it for now. Assuming the inspection is clear, can I reasonably conclude that this short-sale property is undervalued?
2. What do I need to know about purchasing a short sale property? If they are a good value, why aren't more people buying them?
3. How much does the "assessed value" tell you? For example, I looked at one property that will sell for $150k less than last year's assessed value versus one that's only $35k less than the assessed value. In other words, if the sale price is close to the assessed value, am I less likely to make a profit upon resale?
4. I have substantial fixed-rate student loan debt. I can lower my monthly payments by consolidating over a longer repayment term (25 years). However, this will cost me more interest in the long run. What would make a bank look upon me more favorably--lower monthly payments or my attempt to pay it off faster?
5. What are the best resources to learn what I need to know?
1. you need to get a feel for the market you're working in. look at a lot of properties. before too long, you'll find yourself muttering, "they're asking way too much," or, "this seems more reasonable" while you walk through.
2. i've never dealt with a short sale property, but from what i understand it's a major pain in the ass and it takes forever to close any sort of deal. expect the seller's bank to throw a monkey wrench into your plan every time you make an offer.
those are the two things i can answer off the top of my head. you should get some books on the home buying process before you start. i read Home Buying for Dummies and it was good source of information. you might want to talk to a Buyer's Agent since this is your first time buying a home.
posted by TrialByMedia at 9:04 PM on May 22, 2009
2. i've never dealt with a short sale property, but from what i understand it's a major pain in the ass and it takes forever to close any sort of deal. expect the seller's bank to throw a monkey wrench into your plan every time you make an offer.
those are the two things i can answer off the top of my head. you should get some books on the home buying process before you start. i read Home Buying for Dummies and it was good source of information. you might want to talk to a Buyer's Agent since this is your first time buying a home.
posted by TrialByMedia at 9:04 PM on May 22, 2009
The assessed value is what you're going to be paying taxes on, unless you petition the county assessor's office for a reduction. I'd prefer to have the assessed value somewhat below the purchase price, not above. The lower the assessed value, the less you'll pay in property taxes.
Everything is negotiable in real estate. People get too focused on labels - short sales, foreclosures, bank-owned, etc. (and these are often more trouble than they are worth). Find 10 houses you like and make 10 lowball offers - someone is going to be desperate enough to accept.
posted by Ostara at 9:24 PM on May 22, 2009
Everything is negotiable in real estate. People get too focused on labels - short sales, foreclosures, bank-owned, etc. (and these are often more trouble than they are worth). Find 10 houses you like and make 10 lowball offers - someone is going to be desperate enough to accept.
posted by Ostara at 9:24 PM on May 22, 2009
Value is whatever some idiot is willing to pay you for it.
This depends on the buyer's ability to pay, which is powered by the buyer's after-tax income, prevailing interest rates, loan programs (eg. interest-only loans enabled buyers to pay more for the same house), loan underwriting (loans are limited by the lender's debt-to-income ratio).
Plus also the buyer's expectation of future price appreciation/depreciation. This is the speculative premium, not really present today but quite a factor during the bubble era.
So you need to get in your time machine and set it to when you want to sell your property.
Will there be more people moving into your area, or will it be depopulating? Will there be a massive dotcom II employment boom to make the Google millionaires pikers or will there be mass unemployment? Will the dollar have lost purchasing power like it did in the 1970s, and will wage-earners have been able to negotiate higher wages in response, or will rents and home prices just declined in response? Will mortgage interest rates be 4% or 24%?
Will tax rates be at their current historical lows or will takehome pay be reduced?
When we bid on homes we generally do a budget on how much we can afford, and one of the factors that goes into this is our expected budget getting to and from work, since for most of us if we can't get to work we can't pay the mortgage. Will energy prices be lower or higher? If a tank of gas costs $100 and wages haven't risen much then home prices will have to come down if the house is far from employment centers. Same thing if it costs $500/mo to heat the place.
I could go on, but let me just this image, 'cuz a picture is worth a thousand words.
Now, I don't know what the future holds, but I think we're going to need some wage inflation or some deus ex machina intervention like aggressive tax credits for home purchasing.
posted by toroi at 10:44 PM on May 22, 2009
This depends on the buyer's ability to pay, which is powered by the buyer's after-tax income, prevailing interest rates, loan programs (eg. interest-only loans enabled buyers to pay more for the same house), loan underwriting (loans are limited by the lender's debt-to-income ratio).
Plus also the buyer's expectation of future price appreciation/depreciation. This is the speculative premium, not really present today but quite a factor during the bubble era.
So you need to get in your time machine and set it to when you want to sell your property.
Will there be more people moving into your area, or will it be depopulating? Will there be a massive dotcom II employment boom to make the Google millionaires pikers or will there be mass unemployment? Will the dollar have lost purchasing power like it did in the 1970s, and will wage-earners have been able to negotiate higher wages in response, or will rents and home prices just declined in response? Will mortgage interest rates be 4% or 24%?
Will tax rates be at their current historical lows or will takehome pay be reduced?
When we bid on homes we generally do a budget on how much we can afford, and one of the factors that goes into this is our expected budget getting to and from work, since for most of us if we can't get to work we can't pay the mortgage. Will energy prices be lower or higher? If a tank of gas costs $100 and wages haven't risen much then home prices will have to come down if the house is far from employment centers. Same thing if it costs $500/mo to heat the place.
I could go on, but let me just this image, 'cuz a picture is worth a thousand words.
Now, I don't know what the future holds, but I think we're going to need some wage inflation or some deus ex machina intervention like aggressive tax credits for home purchasing.
posted by toroi at 10:44 PM on May 22, 2009
. . . to keep us from following that curve down to previous market levels.
posted by toroi at 10:48 PM on May 22, 2009
posted by toroi at 10:48 PM on May 22, 2009
Nthing that these issues are much more complex than you seem to realize. Neither the price a property sold for a couple of years back, nor the assessed value, are reliable indicators of future value. Keep in mind that everyone else in the housing market knows as much as or more than you do about the likely trajectory of housing prices, and those expectations are already factored into market prices. You're not going to beat the market at this game unless you're unusually knowledgeable (read lots!) or are very lucky.
It sounds as if you're fairly young, so it's worth considering your likely career trajectory. If you buy a house and can't sell it quickly then you can't easily move, which makes it much harder to take advantage of career opportunities elsewhere.
posted by jon1270 at 4:27 AM on May 23, 2009
It sounds as if you're fairly young, so it's worth considering your likely career trajectory. If you buy a house and can't sell it quickly then you can't easily move, which makes it much harder to take advantage of career opportunities elsewhere.
posted by jon1270 at 4:27 AM on May 23, 2009
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2. See: 1
3. see: 1
4. How much you have left every month:how much you can borrow (although, this sometimes lead nations to: 1)
5. I learned most of my financial tricks here, but then, I'm not rich yet so YMMV.
posted by ddaavviidd at 8:58 PM on May 22, 2009