So what does everyone think of the real estate market?

[slats]

I'm looking to move, and I have two very different properties that I'm interested in, and they would have two very different plans associated with them.

The first is the cheaper one. For under $200K I could get into this little 2 bedroom, neat as a pin home on a tiny lot. House has a nice open kitchen/living area, and I'm almost excited at the prospect of downsizing a lot of my crap. Everything is new; the house needs nothing. The plan with this place would be to live there until the ex has to either buy me out of our marital residence next summer, or I would buy her out and move back in there (more likely). At that time, I'd keep this little house and rent it out. It would cost me about $1500/month in mortgage/taxes/insurance, and I'm confident I could get between $1800-2000/month in rent for it - plus a handsome tax write-off.

Second house is much larger, an a huge (buy Long Island standards) 100' x 200' lot with an asking price of $270K. It's in need of some updating, but the only thing it would need immediately is a washer/dryer. This place is set up very nicely, with a walk-in closet in the master, as well as a room that's obviously designed to be a master bath but was never made into one. There's also a full basement downstairs with a private entrance that's about 80% converted into an apartment already. Already has a full bath and kitchen cabs/sink, just needs a stove and fridge -and maybe some carpeting/drywall- and it'll be ready to rent. Conservatively a $1200-1500 income potential. The plan for this one would be to make the place over - put in that master bath, redo the kitchen, put up a two car garage and maybe a built in pool, and live there for the next ten years or so (until I retire).

Plan #2 is a lot more expensive and a lot more work, although the illegal apartment downstairs would offset a lot of those costs. But my thinking there is that if the market turns back around, this place will be worth a lot of money by the time I'm ready to move. During the peak it's value would've been in the $400's, easy. The market comes back, plus the work I put in, and I'd get some serious money my way. But the thing is, I don't know if I have any faith in the market, and don't know if I want to sink too much into what would become a money pit.

[Maxman]

I say Plan # 2. Interest rates are in the 4% range. Houses are low price wise. I say take advantage of both, fix # 2 up slowly over the years and maximize your upside.

[Maxman]

The market will come back eventually. Real estate always does. Just view it as a long term investment...

[slats]

I say Plan # 2. Interest rates are in the 4% range. Houses are low price wise. I say take advantage of both, fix # 2 up slowly over the years and maximize your upside.

That's why I posted this here. I'm leaning plan #1, because the concepts of cheap and no work required are both near and dear to my heart. But I definitely understand the upside to plan #2.

I bought my last house after the last peak, and it took 10 years for it's value to budge - but when it did it doubled. My skittishness has to do with getting stuck 10 years from now when I'm looking to become an ex-pat.

[faba]

As one that bought a townhouse at the peak of the market and ending up swallowing a pretty nice loss take option one and live in it.

Do not have to put up with teanants also.

[Maxman]

That's why I posted this here. I'm leaning plan #1, because the concepts of cheap and no work required are both near and dear to my heart. But I definitely understand the upside to plan #2.

I bought my last house after the last peak, and it took 10 years for it's value to budge - but when it did it doubled. My skittishness has to do with getting stuck 10 years from now when I'm looking to become an ex-pat.

You are buying at the bottom now though, no way it would take 10 years to gain a decent amount of equity. Not sure how long the peak will take. Much like crusher with his shoes in the morning, I can't see the peak from where I stand.

[Maxman]

As one that bought a townhouse at the peak of the market and ending up swallowing a pretty nice loss take option one and live in it.

Do not have to put up with teanants also.

Stop being a conservative little Nelly.

[Bugg]

That's why I posted this here. I'm leaning plan #1, because the concepts of cheap and no work required are both near and dear to my heart. But I definitely understand the upside to plan #2.

I bought my last house after the last peak, and it took 10 years for it's value to budge - but when it did it doubled. My skittishness has to do with getting stuck 10 years from now when I'm looking to become an ex-pat.

Cheap and no work stand out. Also, at least in Suffolk, many neighbors do not appreciate illegal apartments taking up parking spaces and not paying higher realty tax rates they would on rental units.

While the idea is that real estate always rises, this current economy might be the exception long-term. Despite long-term record interest rate lows, doesn't seem to be increasing demand and there is a glut of homes on the market. As per the title company I use, who have been in business 30+ years, there has never been a slower housing market. There's even educated people who see long-term deflation of housing values. Less headaches(like being a landlord worrying about someone complaining) and a lower price would push me toward the 1st option.

[bitonti]

the work is what kills plan #2. It's a headache. contractors are rolling your dice with the devil... can you do the work, well? illegal apt sounds great but also a headache. #2 mo money mo problems.

i think the overriding factor here is location. Where (school district) are these houses? if #1 is in a town center or on the shore that's a factor. If #2 is in the to that's another factor. which is closer to lirr or city? good location trumps everything, not just in this markets but all markets.

[Larz]

think re-sale

level lot ?

safe driveway ?

cracks in foundation ?

how old is the roof ?

what about the hvac system ? furnace/boiler, hot water, central A/C ?

drainage issues ?

good luck !

[PatriotReign37]

Option # 2. A 2 bedroom home will he harder to sell with option # 1.

Bigger is better. The basement apartment is a huge selling feature as a Mother in law apartment when it comes time to cash in.

In 10 years the market will be back with a vengeance and 400k could be on the conservative side. They aren't making anymore land.

Donald Trump would shoot for option # 2. Just sayin.

[JerryK]

Short answer: plan2. Owner-occupied for 10yrs means you'll pay the thing off (or nearly so) before it becomes a rental. That amount of equity is the only reason I'd do rentals again.

Long answer:

Having lost my arse with apartments, I'll tell you what I think. You get the benefit of learning this without all the fun of vacancy, threats of deficiency judgments and several months tap-dancing with a bankruptcy trustee. Here's Jerry's acrimonious dissertation on the 'rental property fad'.

Purchasing 2nd homes or apartments for rental is appropriate only for those who pay cash or having minimum 75% equity. 80/20 or 60/40 notes will not provide you enough real-world cashflow to make the payments. I say this because nobody assumes 2mo/yr vacancy or that tenants pi$$ on your apt and you have to dump cash on each turnover. If you do your own property management you'll make the payments, but long term you won't clear enough cash for it to be worth your time (versus putting that equity in something earning 7+% effortlessly). In fact I don't think rentals beat any other investment...at best they match a reasonable investment in funds.

Today I see rentals as a viable option for a senior citizen. You'd get the cashflow as walking money, and the tax deductions that come with the ownership. The ROI is less than a 'real' investment, but very liquid. I will do it again at that point in my life, but not until then.

I'd also be damned picky about what I buy.

- 3bedroom+ only. 2bedroom = vacancy. 2brs are everywhere, and if your 2 kids are boy/girl, you gotta have 3.

- townhouse design - No stacked apartments. With Up/Down apts, the upstairs people will overflow the crapper weekly and you'll be redoing the same drywall downstairs every month. But in a townhouse, if a dude's rented tv is downstairs, he'll grow a brain and think about a plunger before the 2nd flush.

- laundry in the apt. Shared laundry is lame. Everybody knows it.

- Gas furnace, no 'free heat'. With free heat, people will jack their apt to 90 degrees and run the AC simultaneously.

Robert Kyosaki would beg to differ with this, telling us that we can win with good ol' stick-toitiveness. But Robert can kiss my a$$. He makes money selling books and blowing sunshine, not looking at a balance sheet.

[The Gun Of Bavaria]

My only thought on real estate, as I sit in Michigan with 2 homes which are both upside-down in their mortgages, is that the "Home Loans For People Who Can't Afford Home Loans Program" pushed onto lenders by the Federal Government was a miserable failure.

[Bugg]

Short answer: plan2. Owner-occupied for 10yrs means you'll pay the thing off (or nearly so) before it becomes a rental. That amount of equity is the only reason I'd do rentals again.

Long answer:

Having lost my arse with apartments, I'll tell you what I think. You get the benefit of learning this without all the fun of vacancy, threats of deficiency judgments and several months tap-dancing with a bankruptcy trustee. Here's Jerry's acrimonious dissertation on the 'rental property fad'.

Purchasing 2nd homes or apartments for rental is appropriate only for those who pay cash or having minimum 75% equity. 80/20 or 60/40 notes will not provide you enough real-world cashflow to make the payments. I say this because nobody assumes 2mo/yr vacancy or that tenants pi$$ on your apt and you have to dump cash on each turnover. If you do your own property management you'll make the payments, but long term you won't clear enough cash for it to be worth your time (versus putting that equity in something earning 7+% effortlessly). In fact I don't think rentals beat any other investment...at best they match a reasonable investment in funds.

Today I see rentals as a viable option for a senior citizen. You'd get the cashflow as walking money, and the tax deductions that come with the ownership. The ROI is less than a 'real' investment, but very liquid. I will do it again at that point in my life, but not until then.

I'd also be damned picky about what I buy.

- 3bedroom+ only. 2bedroom = vacancy. 2brs are everywhere, and if your 2 kids are boy/girl, you gotta have 3.

- townhouse design - No stacked apartments. With Up/Down apts, the upstairs people will overflow the crapper weekly and you'll be redoing the same drywall downstairs every month. But in a townhouse, if a dude's rented tv is downstairs, he'll grow a brain and think about a plunger before the 2nd flush.

- laundry in the apt. Shared laundry is lame. Everybody knows it.

- Gas furnace, no 'free heat'. With free heat, people will jack their apt to 90 degrees and run the AC simultaneously.

Robert Kyosaki would beg to differ with this, telling us that we can win with good ol' stick-toitiveness. But Robert can kiss my a$$. He makes money selling books and blowing sunshine, not looking at a balance sheet.

Being a landlord is overrated. Section 8 tenants (which you cannot have in an illegal rental anyway) have killed more budding Donald Trumps than anything else.

And the joys of housing court! Had a client who expected to make a small fortune on a 3 family in Rockaway, only to find 2 tenants weren't fond of paying rent. And the 3rd, while mostly current, decided not to use the toilet and simply urinated on the hardwood floors to spite the owners. Suffice to say they sold as quick as they could to another sap who also thought she was on the cusp of millionairehood rather than a conveyor belt between the property, her home, the bank, Home Depot and Housing Court.

[faba]

IMO People have to get used to a change in mindset- owning property will not ride out with huge gains in appreciation and equity- own a place for you living comfort. Conservative yes but I think valid.

[slats]

Excellent comments in here! Thank you, everyone!

Both houses are in the same school district. The smaller one is probably in a little better neighborhood. The smaller one needs nothing. Roof, heating, appliances... everything's good.

Yeah, the illegal aspect of the apartment is a big factor for me. I think if it was a legal two-family, I'd be more inclined to dive in. It's not so much the neighbors I'm concerned with (although I don't know them), it's my scorned ex-wife who I could see placing anonymous phone calls to the proper authorities.

You guys are scaring me with the rental stories! Plan #1 is to eventually rent that house out, too. If it looked like I was going to stay there anything like long term, I'd probably contract to add a master suite upstairs. I figure that will make it more pleasant for me to live in (I agree that's what houses should be for), but also that I'll get my money out of it if/when I convert a 2 bed, 1 bath house into a 3 bed, 2 bath house. But for the short term, the kids (yes, a boy and a girl) could get by with one bedroom. It's not ideal, but I've talked to them about it and they're cool with the idea. FWIW, they both prefer the smaller place.

But anyway, I'm hoping to get my real estate empire started with these moves. Once I sell the house I'm currently living in, I was hoping to buy a big ol' legal multi-family in Huntington village (thinking a better clientele than the Rockaways) with 20% down and rent the whole thing out. Take advantage of the low interest rates, and maintain a relative safe positive cash flow once all the tax deductions were factored in. Thought Long Beach, too, but I figure that's leaving myself open to more destructive tenants and the global warming floods.

[JerryK]

Bugg is correct.

When I'm old (60+) , I might pay cash for a stretch of townhouses...just for the cash income & tax deduction. But the places will be wrecked in 20yrs and there won't be anything to leave my kids, so I wouldn't put my entire fortune into it.

[visajets]

Slats take your time and look around. Theres alot of homes on the market. Many for short sale. Im in a similiar predicament my wife and kids want a shore house. I was able to find a nice 3 bedroom beach block smaller home for a decent price.Only problem is its on a land lease. The price is right and the time is right. Im just not 100% sure. My lawyer advised to me wait until December or January and low ball offer. I think im gonna listen to him. In your case search everywhere and remember a 3 br will be worth more in the long run when you decide to sell.

[slats]

Slats take your time and look around. Theres alot of homes on the market. Many for short sale. Im in a similiar predicament my wife and kids want a shore house. I was able to find a nice 3 bedroom beach block smaller home for a decent price.Only problem is its on a land lease. The price is right and the time is right. Im just not 100% sure. My lawyer advised to me wait until December or January and low ball offer. I think im gonna listen to him. In your case search everywhere and remember a 3 br will be worth more in the long run when you decide to sell.

I'm steering clear of short sales, there are a lot of them where I'm looking.

The 2 bed house is appealing to me because it's cheap, and because I like the idea of renting it out as soon as a year from now. Like I said, I could put a master suite up top if I decide to stay longer.

I'm pressed for time a little because my son really wants to live with me, but wants to stay in his school. So the only way I can make that happen for him is if I move into the district. With prices and interest rates so low, I can't see myself renting in this environment, so that's why I'm looking to buy cheap now.

[SouthernJet]

I'm looking to move, and I have two very different properties that I'm interested in, and they would have two very different plans associated with them.

The first is the cheaper one. For under $200K I could get into this little 2 bedroom, neat as a pin home on a tiny lot. House has a nice open kitchen/living area, and I'm almost excited at the prospect of downsizing a lot of my crap. Everything is new; the house needs nothing. The plan with this place would be to live there until the ex has to either buy me out of our marital residence next summer, or I would buy her out and move back in there (more likely). At that time, I'd keep this little house and rent it out. It would cost me about $1500/month in mortgage/taxes/insurance, and I'm confident I could get between $1800-2000/month in rent for it - plus a handsome tax write-off.

Second house is much larger, an a huge (buy Long Island standards) 100' x 200' lot with an asking price of $270K. It's in need of some updating, but the only thing it would need immediately is a washer/dryer. This place is set up very nicely, with a walk-in closet in the master, as well as a room that's obviously designed to be a master bath but was never made into one. There's also a full basement downstairs with a private entrance that's about 80% converted into an apartment already. Already has a full bath and kitchen cabs/sink, just needs a stove and fridge -and maybe some carpeting/drywall- and it'll be ready to rent. Conservatively a $1200-1500 income potential. The plan for this one would be to make the place over - put in that master bath, redo the kitchen, put up a two car garage and maybe a built in pool, and live there for the next ten years or so (until I retire).

Plan #2 is a lot more expensive and a lot more work, although the illegal apartment downstairs would offset a lot of those costs. But my thinking there is that if the market turns back around, this place will be worth a lot of money by the time I'm ready to move. During the peak it's value would've been in the $400's, easy. The market comes back, plus the work I put in, and I'd get some serious money my way. But the thing is, I don't know if I have any faith in the market, and don't know if I want to sink too much into what would become a money pit.

bourgeoisie

[visajets]

Short sales are a great way to buy a home worth alot more than what the market rate is going for. Hire a good lawyer do a thorough title search and you can get a deal. I know a guy who bought a home appraised at $450k in an upscale neighborhood in need of some minor work for $225 through a short sale. The bank just wanted all they could get out of it. Vacant homes require a monthly cost and banks and lending institutions dont want any part of that.

[PatriotReign37]

I'm steering clear of short sales, there are a lot of them where I'm looking.

The 2 bed house is appealing to me because it's cheap, and because I like the idea of renting it out as soon as a year from now. Like I said, I could put a master suite up top if I decide to stay longer.

I'm pressed for time a little because my son really wants to live with me, but wants to stay in his school. So the only way I can make that happen for him is if I move into the district. With prices and interest rates so low, I can't see myself renting in this environment, so that's why I'm looking to buy cheap now.

It sounds like youve already made up your mind.

I hope it turns out well for you.

[villain_the_foe]

I'd wait.

Unfortunately The housing collapse is not done. Its probably about half way done. We should expect about another 8 million houses to forclose. My opinion, wait it out a couple more years and you'll be able to purchase your new home "in full". Stay away from home loans. Credit (debt) is the country's problem in the first place.

[Biggs]

I'd wait.

Unfortunately The housing collapse is not done. Its probably about half way done. We should expect about another 8 million houses to forclose. My opinion, wait it out a couple more years and you'll be able to purchase your new home "in full". Stay away from home loans. Credit (debt) is the country's problem in the first place.

You might be right? Here's the thing the population is growing and rents are allready starting to turn because nothing has been built for several years.

Nobody knows where the markets are going however we do know that Government debt is growing and current interest rates are very low based on low risk tolerance by the general public. On top of that there is a significant tax deduction for mortage interest. At some point if and when the economy starts to recover we will have serious inflation, rising tax rates and rising interest rates.

Stretching to get the best property you can with the biggest mortage you can get today is likely to pay off. If we don't have a recovery millions of people are going to walk on their house debt anyway. You're only going to lose a small percentage of your investment.

If we do get a recovery houseing like other tangible assetts will inflate in value and since your mortage is locked in it provides a hedge for that inflation. On top of that as your tax rates increase the mortaged deduction increases in value. Of course they could reform the tax code and get rid of mortage deductibility but I think that's less likely.

[slats]

Stretching to get the best property you can with the biggest mortage you can get today is likely to pay off. If we don't have a recovery millions of people are going to walk on their house debt anyway. You're only going to lose a small percentage of your investment.

Probably. That's where I'm looking to hedge my bets right now.

I definitely agree that these interest rates are here to take advantage of, but I'm also not sure that the housing market isn't done dropping. That's why I'm looking to buy cheap, because I'm looking to keep my exit plan cheap and easy as well. When I buy this house to live in, I could be there a year, or ten years, but probably not longer than that. Not sure if that'll be long term enough to really pay off on a large investment. I do, however, want to buy an investment property for exactly the reasons you cite. That'll be something I'll look to hold -possibly- for life. I need to sell what I'm living in now before I do that, though.

[#27TheDominator]

Probably. That's where I'm looking to hedge my bets right now.

I definitely agree that these interest rates are here to take advantage of, but I'm also not sure that the housing market isn't done dropping. That's why I'm looking to buy cheap, because I'm looking to keep my exit plan cheap and easy as well. When I buy this house to live in, I could be there a year, or ten years, but probably not longer than that. Not sure if that'll be long term enough to really pay off on a large investment. I do, however, want to buy an investment property for exactly the reasons you cite. That'll be something I'll look to hold -possibly- for life. I need to sell what I'm living in now before I do that, though.

You're kind of stuck there. As soon as the raise the rates the market is going to drop again. If you wait that long your house will cost less, but it won't be cheaper.

One thing about LI is that the taxes are out of hand. My wife and I were looking and plenty of places with reasonable home prices are getting more than $10K a year in taxes. I'd probably be better off just overpaying for a house in Belle Harbor or something at that point.

[Biggs]

Probably. That's where I'm looking to hedge my bets right now.

I definitely agree that these interest rates are here to take advantage of, but I'm also not sure that the housing market isn't done dropping. That's why I'm looking to buy cheap, because I'm looking to keep my exit plan cheap and easy as well. When I buy this house to live in, I could be there a year, or ten years, but probably not longer than that. Not sure if that'll be long term enough to really pay off on a large investment. I do, however, want to buy an investment property for exactly the reasons you cite. That'll be something I'll look to hold -possibly- for life. I need to sell what I'm living in now before I do that, though.

That's good sound thinking. If this is a short term play liquidity is very important. The thing about housing is in a less than robust market even though there is value it isn't very liquid. Not a good idea to buy as an investment if you think you may need to turn it on a dime.

On the other hand if you're just afraid you're not getting in at the very bottom, chances are very good that you will be buying into a higher price. Sentiment is pretty negative and that's a sign that we are very close to the bottom.

[slats]

On the other hand if you're just afraid you're not getting in at the very bottom, chances are very good that you will be buying into a higher price. Sentiment is pretty negative and that's a sign that we are very close to the bottom.

That's nice to read.

I'm not sinking my life savings into any of these places, and I don't expect to hit the exact bottom of the market - but I definitely think that this is an excellent time to buy.

[visajets]

That's nice to read.

I'm not sinking my life savings into any of these places, and I don't expect to hit the exact bottom of the market - but I definitely think that this is an excellent time to buy.

Have you considered renting. Rentals are also down and theres quite a few deals for apartments and homes. More so in the townhouse or condos which no one is buying. Im on my way out the door to look at a shore house with no intent of bidding on it until December or January when the place will be there for the taking at a ripe price.

[slats]

Have you considered renting. Rentals are also down and theres quite a few deals for apartments and homes. More so in the townhouse or condos which no one is buying. Im on my way out the door to look at a shore house with no intent of bidding on it until December or January when the place will be there for the taking at a ripe price.

I have, but it's not really for me. I need the tax write off of a mortgage and taxes. Most suitable rentals would cost me a lot more per month than option #1 in my original post, anyway, that's one of the reasons I'm leaning in that direction - to live there temporarily, and then start renting it out at a profit as soon as next summer.

[JerryK]

Slats, I'm not a New Yorker, what's so 'illegal' about one of the apartments?

If you must do this, I'd recommend the owner-occupied option so you can pay it off

(or nearly) before you move out and completely rent it.

Biggs' comments about a recovery could happen in NY/NJ, but it's regional though. States like Michigan have jobs that are just *gone*. Many bodies are leaving the state and not being replaced, so we're looking at a housing glut for years.

[SouthernJet]

I have, but it's not really for me. I need the tax write off of a mortgage and taxes. Most suitable rentals would cost me a lot more per month than option #1 in my original post, anyway, that's one of the reasons I'm leaning in that direction - to live there temporarily, and then start renting it out at a profit as soon as next summer.

I am starting to like this guy called slats

[slats]

Slats, I'm not a New Yorker, what's so 'illegal' about one of the apartments?

If you must do this, I'd recommend the owner-occupied option so you can pay it off

(or nearly) before you move out and completely rent it.

Biggs' comments about a recovery could happen in NY/NJ, but it's regional though. States like Michigan have jobs that are just *gone*. Many bodies are leaving the state and not being replaced, so we're looking at a housing glut for years.

It's really just a matter of zoning. In this case, it's a basement apartment and they're always illegal. Generally what you would do if you were busted is disconnect the stove and let the inspectors look and see that you've diabled the apartment, then put it back up for rent the following week. The problem there is really my nasty ex-wife. She seems to take every opportunity to screw with me, and that would be a pleasant one for her. It's a risk.

There are a lot of homes for sale on Long Island, and the market is definitely slumping, but this is always a pretty strong area of the country. NYC and the ocean beaches are always going to make this a desirable place to live. I read your comments with the idea that you were bringing a Michigan perspective to the table.

I've talked with other people who own investment properties in the area, and most of them have positive things to say. It's not headache free, but it's a nice way to make a small amount of money every month while writing off depreciation and gaining equity at the same time. I wouldn't be putting all my eggs in this basket, but it seems like a good nest for a few of them. You can write off the entire value of the property as depreciation over 30 years (based on your income), and that never expires. While I'm working, I can't really take advantage of that. But once I retire, and can still write off everything I couldn't earlier. It's like saving up tax write-offs for the future.

[visajets]

How much further do you think the market will fall? This shore house turned out to be really decent for the asking price. Only thing missing is an HVAC system. Its also in a great rental area. Should I wait it out or bid on it now. The realtor openly admitted no one is looking these days and with this property having a land lease on it makes it a harder sell. So lets hear it experts.

[villain_the_foe]

You might be right? Here's the thing the population is growing and rents are allready starting to turn because nothing has been built for several years.

Nobody knows where the markets are going however we do know that Government debt is growing and current interest rates are very low based on low risk tolerance by the general public. On top of that there is a significant tax deduction for mortage interest. At some point if and when the economy starts to recover we will have serious inflation, rising tax rates and rising interest rates.

Stretching to get the best property you can with the biggest mortage you can get today is likely to pay off. If we don't have a recovery millions of people are going to walk on their house debt anyway. You're only going to lose a small percentage of your investment.

If we do get a recovery houseing like other tangible assetts will inflate in value and since your mortage is locked in it provides a hedge for that inflation. On top of that as your tax rates increase the mortaged deduction increases in value. Of course they could reform the tax code and get rid of mortage deductibility but I think that's less likely.

I'd wait. I'd take my money and find an investment that can hedge me against inflation in order to maintain my purchasing power during the time that I wait while at the same time gain me profits. If Slats has no choice but to leave then I say he should find the best deal for him at the moment, which your advice seems pretty sound, but if he can wait and its not a situation of him being forced to leave his current resting place I would wait and when the market completely collapses I'd buy up everything with full money down.

He'll probably have enough to purchase multiple houses and be able to live in one and earn income on the other.