An individual has maybe $160,000 cash. She does not have 'normal' employment. She is an artist, a painter, where she makes minimal money, and she works elsewhere in an irregular position where she may make anywhere from zero-60,000 plus a year.
She loves the Emerald Coast, but might also want to travel a bit. She sees that the economy here is depressed and housing prices have fallen significantly, and sees an opportunity for long term investment for her retirement. She is 40ish.
Issues. She has found a townhouse that she would love, but hates the idea of paying $300 plus in Association fees every month. She doesn't quite undertstand all the issues associated with an Association and doesn't particularly want to pay what amounts to an additional 'rent' after buying a dwelling.
She has seen some properties in the $150,000 range and wonders about placing a low bid on one, paying all cash, and having a bit left over as a cushion.
She knows the concept of 'Using other people's money' in borrowing from the bank, but also knows that a $150,000 dollar house becomes over 300,000 dollars spent after 30 years. So she wonders if paying cash is smart, being that her money really won't make that much in any investment vehicle anyway, unless she exposes it to much risk.
She also considers buying one of those really low dollar places, she's seen some in Panama City and Destin, which are old, and ugly, but in the $75,000 range. That would leave an even bigger cushion for her, and she could always work on making it more visually appealing.
She has also thought of buying a place, like one she saw with two little houses on a piece of property, where she can rent one and live in the other. I think the price was $180,000 or so. Again, not attractive, very vanilla, but when things go back up, hopefully within the next 15 to 20 years, that too will appreciate.
She wonders how the airport will affect things and if she should actually think of buying something in Crestview, or Freeport, or Niceville, though she absolutely loves being nearer the beach. She wonders if moving closer to he airport in Panama City is a smarter idea or if the benefits to 30-A will corrspond exactly to that of PC and it really doesn't matter where. She knows that any benefits from the area from the airport are years down the line.
She wonders a lot. Does anyone have input on what might be her best way to invest. She has even wondered about buying something here and renting it out, moving away to try to get a taste of living in another area, but having the property here as a future investment, because she believes in this area.
Any input? I realize buying real estate and investing in general is a very personal choice, but with all of the 'expert knowledge' from those on this site, perhaps someone will have something to say.
Replies
20
Beach Lover
Hi Mike,
IMHO, working "elsewhere in an irregular position where she may make anywhere from zero-60,000 plus a year" could create problems for her in seeking conventional financing. With that said, if I were her. I would probably try to get as large a loan as possible, but she should expect that a healthy down payment might be required. I think she should conserve her cash as right now, cash is king. She can always pay down the principal if she finds herself making more money than anticipated, either through her art or her "elsewhere" employment.
As far as buying something here to rent out while living elsewhere, she'll have tough competition. There are alot of properties on the rental market and unless hers is particulary wonderful (read - cheap), it might not rent for enough to pay for itself. Of course a main house with a guest house is nice for the additional income. IMHO.
IMHO, working "elsewhere in an irregular position where she may make anywhere from zero-60,000 plus a year" could create problems for her in seeking conventional financing. With that said, if I were her. I would probably try to get as large a loan as possible, but she should expect that a healthy down payment might be required. I think she should conserve her cash as right now, cash is king. She can always pay down the principal if she finds herself making more money than anticipated, either through her art or her "elsewhere" employment.
As far as buying something here to rent out while living elsewhere, she'll have tough competition. There are alot of properties on the rental market and unless hers is particulary wonderful (read - cheap), it might not rent for enough to pay for itself. Of course a main house with a guest house is nice for the additional income. IMHO.
SoWal Insider
Avoiding HOA fees is a very good goal to have, they eat away at anything you might gain in appreciation and really don't provide all that much in terms of value. (Location is more important.) The closer to the beach she is, the higher her cost of ownership is going to be, besides HOA fees, she should also take into account flood zones, e.g. insurance costs, property tax costs, maintenance costs, loan payments, etc.. Home ownership is not 'free'. She should know exactly what the yearly burn rate is going to be before she buys. (I live in a gated community in a small two person house that suits me perfectly, and my burn rate is around 10K a year. It adds up.) On those years she earns nothing, how will she pay to keep the house?
On financing, personally I would pay cash, that's just me. I hate paying banks for the privilege of spending their money. There are plenty of online amortization calculators she can use to get a feel for how much she'll pay for the house, and how much she'll pay the bank.
"Real estate investing" is sort of a misnomer these days, I think she should be shopping for property that she would love to live in. If she doesn't want to live here yet, she shouldn't be shopping for property yet. If she doesn't like the house that's a steal, she shouldn't buy it. She can also use Walton, Okaloosa, and Bay county records to check past ownership on anything she likes - I would suggest avoiding sellers who purchased in 04, 05, 06, and 07.
As far as renting goes, it's a time consuming business filled with hassles. The amount of return (especially if she takes out a loan on the property) is usually not as good as the return on an investment in the market. She should ask herself if it's really worth the hassle. Rent however can provide regular cash flow, in her situation that might be a plus.
Overall, I would recommend your friend take her time, build a bigger cash position and not buy anything for at least two years. Otherwise she'll be throwing a nice chunk of that hard earned cash to the wind. This market is still going down down down. The most important advice I could give is - don't feel rushed, she has all the time in the world to find a nice place that fits what she's looking for. I would also recommend she not spend every dime she has on the house she buys. E.g. keep a cash cushion in the bank, investments, whatever. Diversity is a good thing.
On financing, personally I would pay cash, that's just me. I hate paying banks for the privilege of spending their money. There are plenty of online amortization calculators she can use to get a feel for how much she'll pay for the house, and how much she'll pay the bank.
"Real estate investing" is sort of a misnomer these days, I think she should be shopping for property that she would love to live in. If she doesn't want to live here yet, she shouldn't be shopping for property yet. If she doesn't like the house that's a steal, she shouldn't buy it. She can also use Walton, Okaloosa, and Bay county records to check past ownership on anything she likes - I would suggest avoiding sellers who purchased in 04, 05, 06, and 07.
As far as renting goes, it's a time consuming business filled with hassles. The amount of return (especially if she takes out a loan on the property) is usually not as good as the return on an investment in the market. She should ask herself if it's really worth the hassle. Rent however can provide regular cash flow, in her situation that might be a plus.
Overall, I would recommend your friend take her time, build a bigger cash position and not buy anything for at least two years. Otherwise she'll be throwing a nice chunk of that hard earned cash to the wind. This market is still going down down down. The most important advice I could give is - don't feel rushed, she has all the time in the world to find a nice place that fits what she's looking for. I would also recommend she not spend every dime she has on the house she buys. E.g. keep a cash cushion in the bank, investments, whatever. Diversity is a good thing.
Edited
Banned
30a great post. you summed everything up to a t. thats the demons i'm fighting. i want to buy something yet i'm just not seeing prices off near enough to jump yet. this is were the problem lies. 90% of homes for sale seem to be from 2004-2007 which means the sellers are very anxious yet they don't want to take a lose thus thats were the standoff between buyer and seller is. the buyers know the economy is tanking and know many sellers will be forced to sell at some pt or go in foreclosure so they wait. but many of these buyers that can buy today might not be able to buy tommorrow as they could lose there job or other economic factors come in later. my own plan of action is if i can't get a great deal well under current mkt i'm waiting. if a deal never comes so be it i'll rent for 4 months of the year at 1/10 the the price of buying. to the patient all things come. 30 a are you in real estate? do you live on 30a?
SoWal Expert
I think she should rent in the area for a while to see where she would want to be long term - then buy something once she gets a better feel of the area.
In the current climate, buying a 150K house w/ no income and only 160k in the bank isn't a very wise move - especially when she wants to have $ to travel. She could take quite a vacation on a $300 a month association fee - $3600 a year saved if she rents.
In the current climate, buying a 150K house w/ no income and only 160k in the bank isn't a very wise move - especially when she wants to have $ to travel. She could take quite a vacation on a $300 a month association fee - $3600 a year saved if she rents.
SWGB
HOA and COA fees are very similar to living in your very own little country. Those that control may or may not spend your "taxes" wisely. While some people feel that they are throwing money away that is not the case. Generally at the very base HOA/COA dues will cover water/sewer (condos), outside electricity such as lighting, and basic maintenance. In addition you should always look at the age of common elements and the reserve funds available to replace/repair them. In some cases COA/HOA dues can actually be very beneficial for someone living in them fulltime. Again it all depends on the board and management. Much like government if you never look at where the money goes or stand up against paying higher dues you will continue to do so.
Banned
Some people still buy property, improve and sell. It is however very much a business. I think if your friend wants to get serious about research and ultimate buying for investment she can do well. Most important is baby steps. Thoughtful, deliberate, baby steps.
On financing, there are local banks who can set your friend up with financing on their portfolio of properties currently in play. These are non-conventional transactions and do not require the conforming income guidelines.
All that said, I'd be more interested in buying a property for $325,000 with quality rental prospects that is also marketable for sale some day than getting into a property for 160,000 that may be harder to liquidate someday.
On financing, there are local banks who can set your friend up with financing on their portfolio of properties currently in play. These are non-conventional transactions and do not require the conforming income guidelines.
All that said, I'd be more interested in buying a property for $325,000 with quality rental prospects that is also marketable for sale some day than getting into a property for 160,000 that may be harder to liquidate someday.
Beach FanaticAuthor
Great, well thought out responses. She discussed some real estate investment groups and thought of joining one to learn more about the area and the possibilities. I know of someone down in the Clearwater area who joined a group and said they benefited from the experience. They have sinced made some investments and done well. That area has been hit hard it also.
I agree that the bottom has not arrived yet. I moved here January 30th and remember a condo (a tiny, tiny condo) in west 30-a going for 150,000. I think it was about 350 square feet. Anyway, I think it's for sale for 90,000 now. Besides the fact that less than 400 sqaure feet is flat out claustrophobic, 60,000 off of 150,000 in less than a year tells me I'm sure glad I didn't buy then. It's funny, I have heard for the past several years from certain people that this is the time to buy (a buyer's market). I heard it when that condo unit was 150,000, and now that it's 90,000, I still here it. While there is some truth to that, I agree that the bottom has not arrived and really, as stated earlier, I think it's best for her not rush, but rather, find what it is she really wants. I think it's fruitless to try to 'time' the bottom. I think it's better to weigh other factors, since the bottom is not a firm thing anyway.
I talked to one guy who told me he made off good this past year, having bought a home, fixing it up himself, and selling it. He told me he only lost $100,000. Wow! I wonder if anyone is 'making' money in real estate now. I mean, I guess some investors could buy now and rent the properties out while they wait for the cycle to return in another decade or so, and then sell for income. Anyway, thanks guys!
I agree that the bottom has not arrived yet. I moved here January 30th and remember a condo (a tiny, tiny condo) in west 30-a going for 150,000. I think it was about 350 square feet. Anyway, I think it's for sale for 90,000 now. Besides the fact that less than 400 sqaure feet is flat out claustrophobic, 60,000 off of 150,000 in less than a year tells me I'm sure glad I didn't buy then. It's funny, I have heard for the past several years from certain people that this is the time to buy (a buyer's market). I heard it when that condo unit was 150,000, and now that it's 90,000, I still here it. While there is some truth to that, I agree that the bottom has not arrived and really, as stated earlier, I think it's best for her not rush, but rather, find what it is she really wants. I think it's fruitless to try to 'time' the bottom. I think it's better to weigh other factors, since the bottom is not a firm thing anyway.
I talked to one guy who told me he made off good this past year, having bought a home, fixing it up himself, and selling it. He told me he only lost $100,000. Wow! I wonder if anyone is 'making' money in real estate now. I mean, I guess some investors could buy now and rent the properties out while they wait for the cycle to return in another decade or so, and then sell for income. Anyway, thanks guys!
Banned
mike think about a few things. we're in the greatest finacial chaos since the 1930's.the economy basically went vertical from 1982-2007 with a total of 8 down qtrs in those 25 years. we had massive bubbles in stocks and real estate for many of those years. what do you think the chances are that this chaos is over in 1-2 short years and its right back to business as usual?answer that question and you have your answer wether its a good time to buy.we'll have many fake bottoms in housing were the pundits will scream time and time again the bottoms in only to have pie in there face.
Banned
mike think about a few things. we're in the greatest finacial chaos since the 1930's.the economy basically went vertical from 1982-2007 with a total of 8 down qtrs in those 25 years. we had massive bubbles in stocks and real estate for many of those years. what do you think the chances are that this chaos is over in 1-2 short years and its right back to business as usual?answer that question and you have your answer wether its a good time to buy.we'll have many fake bottoms in housing were the pundits will scream time and time again the bottoms in only to have pie in there face.
I agree with him too Mike. I have speant 20 years analyzing real estate almost daily. To this day I don't know anything about the buy and hold.
Edited
SoWal Insider
She discussed some real estate investment groups and thought of joining one to learn more about the area and the possibilities.
:roll: She's watching too many Late-Night Infomercials..huh?
How old is your friend without the "normal" job--and is that $160K cash all she has saved up for retirement/living expenses/emergencies?
IMO, given the info you provided:
(1) your friend should NOT become a homeowner now or anytime soon
(2) your friend should simply rent and work hard accumulating as much cash as she can in preparation for the hard times ahead and her subsequent retirement (there's not much demand for "artists" during a recession/depression).
(3) your friend needs to avoid any and all "RE Investment Groups"
(4) your friend (with no "normal" employment and irregular income) will have a difficult time trying to convince a banker to lend her "other people's money."
If she insists on getting tangled up with one of these "investment groups" or tries to invest on her own, I suggest you save her some time, effort and heartaches and just flush her $160K down the toilet now.
This woman has "renter" written all over her (which isn't a bad thing). She's obviously drank the koolaide that these "RE Investment Groups" are dishing out...do her a favor and talk her down off the ledge now.
.
Edited
Beach Fanatic
Good advice Shelly. If you have that many questions it is probably best to rent.
Beach FanaticAuthor
To Shelly's question/statement: "How old is your friend without the "normal" job--and is that $160K cash all she has saved up for retirement/living expenses/emergencies?"
As stated, she's 40ish and to be honest, while 160,000 isn't a lot of money by any means, all is not all too bad. I am 40 and know of plenty people in my age range who don't have $160,000 saved up. I know from your past posts you seem to have a firm grasp of virtually every single subject matter that exists. So I'm sure you know that most people owe on their credit cards and $160,000 probably looks pretty good to them. I actually saw a stat that of the people between the age of 34 and 44, 50% of those people have less than $25,000 in savings. So your question asking whether all she has saved is $160,000, I think is a bit... well. I'll be sure to tell her to work harder too
I personally am renting in Seagrove.
As stated, she's 40ish and to be honest, while 160,000 isn't a lot of money by any means, all is not all too bad. I am 40 and know of plenty people in my age range who don't have $160,000 saved up. I know from your past posts you seem to have a firm grasp of virtually every single subject matter that exists. So I'm sure you know that most people owe on their credit cards and $160,000 probably looks pretty good to them. I actually saw a stat that of the people between the age of 34 and 44, 50% of those people have less than $25,000 in savings. So your question asking whether all she has saved is $160,000, I think is a bit... well. I'll be sure to tell her to work harder too
I personally am renting in Seagrove.
SoWal Expert
$160K goes pretty fast when you're buying/maintaining Sowal real estate and don't have income coming in.
If your friend is just living on those savings w/ no income in this area it may only last her 3-8 years* w/o any large purchases and that doesn't leave much for retirement (which is within 10-15 years depending on her age).
You may not like Shelley's tone, but it's the plain truth more people need to heed.
*That still only allows her to spend $27-53K a year
If your friend is just living on those savings w/ no income in this area it may only last her 3-8 years* w/o any large purchases and that doesn't leave much for retirement (which is within 10-15 years depending on her age).
You may not like Shelley's tone, but it's the plain truth more people need to heed.
*That still only allows her to spend $27-53K a year
Beach FanaticAuthor
$160K goes pretty fast when you're buying/maintaining Sowal real estate and don't have income coming in.
If your friend is just living on those savings w/ no income in this area it may only last her 3-8 years* w/o any large purchases and that doesn't leave much for retirement (which is within 10-15 years depending on her age).
You may not like Shelley's tone, but it's the plain truth more people need to heed.
*That still only allows her to spend $27-53K a year
I totally agree with you. I wasn't saying that $160,000 was a lot of money, it was basically the tone. Shelly seems to be a very intellegent and knowledgeble person, and I have enjoyed and appreciated many of his comments to threads, but yes, the comments are many times, well... there are different ways to say things.
Pertaining to the amount, I know $160,000 can be gone in a flash, particularly if a medical issue comes up and one doesn't have insurance. And obviously you are right that people should be more inclined to save their money, look at the shape of things today in this country. But as I pointed out, at her age 50% of people have less than $25,000 in savings. So while things could always be better, they could also be worse and she's not doing that poorly. And even as to her being 'an artist'. He's 100% right about that not being good in a recession. 100% right. But maybe she's happy and I'm not sure there is a price tag on that.
But as far as buying, I would think, personally, that if she bought something in the 100,000 dollar range she'd be fine. I'd agree that she should probably wait and definately not rush into things. But at $100,000 I've seen things in PC. Not nice like here on 30-A obvioulsy and maybe to some around here that might sound trashy. I'm just saying. That would be enough cushion with $60,000 left over and how she lives, frugally. 10 years down the road, paying rent at $1000 a month would come out to $120,000 and she'd have nothing to show for it. I just don't see renting as a long term option. I know home ownership has worked out well for me. I currently rent but don't see doing it for much, much longer. I almost feel like I'm throwing money away. But only almost, because the way prices are dropping, I guess I'm actually ahead of the game.
SoWal Expert
I am not saying rent forever, just a year or two until she gets a better idea of the area, what is available, and the economy. That gives more time to shop around, suss out deals, neighborhoods she likes and dislikes, and as you yourself have stated - it's a good time to be a renter. From the sounds of it, she is looking anywhere from Crestview to PC and north of the bay to the beach. That's 3 counties of real estate to sift through.
Someone with no income or solid prospects putting all their financial chips in one basket is a bad idea - no matter what their fiscally irresponsible peers may be doing. Per financial planners, if your friend was making $80K a year, she should be putting over 20% of her income towards retirement. Instead she is making $0 and looking at a major purchase w/ continuous and escalating expenses in an uncertain market. The news is full of people who thought they would be guaranteed a major profit on their house and are now SOL.
Someone with no income or solid prospects putting all their financial chips in one basket is a bad idea - no matter what their fiscally irresponsible peers may be doing. Per financial planners, if your friend was making $80K a year, she should be putting over 20% of her income towards retirement. Instead she is making $0 and looking at a major purchase w/ continuous and escalating expenses in an uncertain market. The news is full of people who thought they would be guaranteed a major profit on their house and are now SOL.
SoWal Insider
As stated, she's 40ish and to be honest, while 160,000 isn't a lot of money by any means, all is not all too bad. I am 40 and know of plenty people in my age range who don't have $160,000 saved up. I know from your past posts you seem to have a firm grasp of virtually every single subject matter that exists. So I'm sure you know that most people owe on their credit cards and $160,000 probably looks pretty good to them. I actually saw a stat that of the people between the age of 34 and 44, 50% of those people have less than $25,000 in savings. So your question asking whether all she has saved is $160,000, I think is a bit... well. I'll be sure to tell her to work harder too
$160K as a stack of money gathering dust in a drawer is fantastic.
$160K in a fully-employed 35-year-old's 401K or IRA is pretty damn good.
$160K as the total assets of a 40-year-old with and "irregular" job that can result in a zero paycheck is OK--but only temporarily.
$160K in the hands of a Real Estate Investor is petty cash.
A person with no clue about real estate and $160K in liquid assets is shark bait to real estate investors.
Don't get me wrong, I think it's admirable that she has accumulated $160K in cash; but $160K doesn't go very far when there isn't any steady income refilling the pot--and it gets worse if one blows the whole wad on a rental and the renter skips out on the rent; trashes the place; the air conditioner breaks down; the insurance increases 3-fold; and the tax bill is overdue.
Florida (and the nation) are littered with people who looked to real estate as "an opportunity for long term investment for their retirement." She should maybe discuss her ideas with a few of these people--they're easy to spot, they are the gray-haired, burnt-out, elderly folks hunched over the fry station at the McDonalds' nearest to you.
Unless she has kids willing to support her in retirement, or a full-time wage-earning fiance in a secure job, she needs to rent a small, comfortable place, keep that $160K nest egg close to her vest and go out to work and continue to add to it.
<P.S. Those indebted 35-44 year olds with <$25K are screwed...talk about setting the bar too low :roll:>
.
SoWal Insider
Shelly seems to be a very intellegent and knowledgeble person, and I have enjoyed and appreciated many of his comments to threads, but yes, the comments are many times, well... there are different ways to say things.
...not me and not about this situation.
Pertaining to the amount, I know $160,000 can be gone in a flash, particularly if a medical issue comes up and one doesn't have insurance. And obviously you are right that people should be more inclined to save their money, look at the shape of things today in this country. But as I pointed out, at her age 50% of people have less than $25,000 in savings. So while things could always be better, they could also be worse and she's not doing that poorly. And even as to her being 'an artist'. He's 100% right about that not being good in a recession. 100% right. But maybe she's happy and I'm not sure there is a price tag on that.
But as far as buying, I would think, personally, that if she bought something in the 100,000 dollar range she'd be fine. I'd agree that she should probably wait and definately not rush into things. But at $100,000 I've seen things in PC. Not nice like here on 30-A obvioulsy and maybe to some around here that might sound trashy. I'm just saying. That would be enough cushion with $60,000 left over and how she lives, frugally. 10 years down the road, paying rent at $1000 a month would come out to $120,000 and she'd have nothing to show for it. I just don't see renting as a long term option. I know home ownership has worked out well for me. I currently rent but don't see doing it for much, much longer. I almost feel like I'm throwing money away. But only almost, because the way prices are dropping, I guess I'm actually ahead of the game.
Sounds to me like you're the one encouraging her to take on this RE investment and you're looking for support to back up your recommendation.
<P.S. I'm sure there is a different way to say this too, but I'm expressing my gut instinct. Please prove me wrong.>
Edited
Beach Fanatic
An individual has maybe $160,000 cash. She does not have 'normal' employment. She is an artist, a painter, where she makes minimal money, and she works elsewhere in an irregular position where she may make anywhere from zero-60,000 plus a year.
She loves the Emerald Coast, but might also want to travel a bit. She sees that the economy here is depressed and housing prices have fallen significantly, and sees an opportunity for long term investment for her retirement. She is 40ish.
Where does she have the money parked?
In the years when she makes "minimal money" from an "irregular position" how does she live? Does she rob her savings?
Beach FanaticAuthor
...not me and not about this situation.
Sounds to me like you're the one encouraging her to take on this RE investment and you're looking for support to back up your recommendation.
<P.S. I'm sure there is a different way to say this too, but I'm expressing my gut instinct. Please prove me wrong.>
You are funny, Shelly. It's been interesting to watch you over the time I've been associated with this site. You must be a lawyer. That's just my gut. Please prove me wrong.
As far as encouraging her to invest in real estate, I simply was looking for input from those on this site. There are some people here that have lived here a long time, seen many things, and who I look forward to hearing from. I got some great input initially, and then... well, then my friend became the game to play instead of simply looking at the issue I raised.
I personally think she'd be wise to wait. I have not encouraged her to do anything. I just see renting as throwing your money away, although, as I've stated, I think she should rent now while things are in flux and she is uncertain. I myself tend to procrastinate in life, very slow to make decisions, even whether to spend a buck in a covenience store to buy a drink or piece of candy. So you couldn't be more wrong about me encouraging her to make such a big purchase. I think she should get with her company, which is where I work, and beg for work. Then I think she should work as steady as she can for the next several years and thenmake a purchase, because I think then that real estate will be even lower. "Prove" you "wrong"? Are you kidding me. Can I really do that? Or will you keep disecting anything I say, maybe try to point out an inconsistency, demonstrate how I'm trying to lead my friend down the path of who knows what, and trying to justify my wayward logic.
And about "setting the bar low". I know, I'm a low life and well on the bottom end of the bell curve and to site a statistic about my friend doing well compared to the vast majority, is well, setting the bar too low. I think I'll ask that this thread be taken down because quite frankly Shelly, you've infected it. That's just my gut too.
Banned
Mike, don't take Shelly so serious. It's good to first know the real identity of a poster before you take thir comments to heart.
Keep your efforts genuine and both you and your friend will be fine.
Keep your efforts genuine and both you and your friend will be fine.
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